Information on non-performing exposures

12/12/2017 / Press release

In 2012 and 2013 non-performing exposures (NPEs) became the greatest challenge in credit risk management for the majority of Slovenian banks, as a result of both their nominal increase and the increase in the NPE ratio. Given the systemic risk to financial stability and its complexity, the area of NPEs demanded a response and action by the supervisor, namely the Bank of Slovenia. The Bank of Slovenia acted to address the issue comprehensively: in addition to banks, it invited the other relevant stakeholders, such as the Bank Association of Slovenia (BAS), government institutions and borrowers, to work together back in 2012. It also took action at the level of supervisory requirements for credit institutions.  

The key systemic step in addressing the issue of NPEs at banks was made as part of the bank recovery in 2013/14. Legislation in the area of NPEs was also updated in 2013 (write-off of claims) in the wake of the recapitalisation of major banks and the transfer of claims to the BAMC. The Bank of Slovenia deepened communications with individual banks, and introduced supervisory measures and requirements targeting banks and their reporting in connection with NPEs. The supervisory requirements and Bank of Slovenia documents aimed at banks include the following (listed chronologically, by date of introduction):

  • Bank of Slovenia requirements for regular reporting by banks on the implementation of master restructuring agreements (MRAs) (31 March 2014),
  • Guidelines for creating impairments and provisions for exposures to restructured clients (23 December 2014),

  • Bank of Slovenia requirements for preparing individual strategies and operating plans on the part of banks to reduce the stock of NPEs and the NPE ratio in individual loan portfolios (16 March 2015),

  • Guidelines for the management of problem claims (22 May 2015),

  • Guidelines for monitoring customers and early warning systems for increased credit risk (22 May 2015)

  • Guidelines for the restructuring of micro, small and medium-size enterprises (issued by the BAS in conjunction with the Bank of Slovenia on 9 December 2015), and

  • Handbook for Effective Management and Workout of MSME NPLs (13 March 2017).


Developments in NPEs between 31 December 2013 and 30 June 2017


The banking system’s NPEs declined sharply between 31 December 2013 and 30 June 2017. The stock of NPEs declined from EUR 8.9 billion to EUR 3.1 billion, while the NPE ratio declined from 19.5% to 7.5%. The decline in stock was attributable to transfers of non-performing claims to the BAMC, write-offs, sale of claims and actual repayment of claims. NPEs in the micro, small and medium-size enterprises (SMEs) segment largely tracked the movement of total NPEs: they declined from EUR 3.5 billion to EUR 1.5 billion over the period in question. The sale of non-performing claims played a major role in the SMEs segment, alongside transfers of non-performing claims, write-offs and actual repayments.


The first major objective at the beginning of the process of reducing the stock of NPEs was addressing the largest viable customers, which accounted for the banks’ largest exposures in value terms. Stakeholders (primarily the banks coordinated by the BAS, borrowers and the Bank of Slovenia) identified master restructuring agreements (MRAs) based on the Slovenian principles of financial restructuring of debt in the corporate sector as the most suitable approach for resolving these “large” exposures.


NPEs in the MRA segment declined from EUR 1.2 billion to EUR 1.0 billion over the period in question. The stock declined slightly more slowly than total NPEs, as they generally involve complex loan transactions with numerous stakeholders, both banks and corporate groups. MRAs consequently require more complicated treatment and lengthier procedures. The majority of MRAs were concluded in the period to 2015, when the stock of NPEs in the MRA segment peaked. Given that the majority of MRAs were concluded for a term of seven years, the processes have not yet been completed. Compared with the total stock of NPEs, the stock of NPEs in the MRA segment declined primarily on account of actual repayments, and also as a result of the reclassification of customers to higher rating grades, which assumes the successful completion of the financial or operational restructuring of the customer. The latter is one of the main objectives of restructuring, as the banks want to retain the customers and improve their performance. In 2016 and the first half of 2017 the inflow of new NPEs into the MRA segment declined, while the total stock has also been gradually declining in this segment since the end of 2015. The success of MRAs is also evidenced in an improvement in the performance indicators of the firms involved.


In the current situation of renewed economic growth, the banks must also devote particular attention to new loans, as prudent and wise behaviour by banks in the loan approval process is a key prerequisite for preventing the uncontrolled creation of new NPEs, and thus a repetition of the mistakes from the past. The banks must ensure that adequate internal controls of loan approval procedures are put in place, and must ensure the consistent use of early warning systems (EWSs).


The Bank of Slovenia will continue its activities in the area of NPEs in the future. Within the framework of its regular supervisory activities, the Bank of Slovenia will continue monitoring and assessing the banks’ strategies for managing NPEs, and the operational plans to reduce NPEs, and will conduct regular supervisory dialogue with the banks. The activities carried out by the ECB in the area of NPE management, which are largely related to the activities being carried out by the Bank of Slovenia, will also be of relevance to systemically important banks.


The area of NPEs was also highlighted in conclusions by the Council of the European Union published in July 2017. The Council welcomes the work undertaken to date by all stakeholders to successfully resolve the issue of NPEs, and simultaneously calls on them to carry out further activities at EU level and at national level to contribute to upgrading the infrastructure for managing NPEs. Within the framework of completing the banking union, the European Commission is to draw up the legislative basis for: (i) the functioning of bank asset management companies, (ii) the development of a secondary market for NPEs, (iii) enhanced protection of secured creditors, (iv) an upgrade of the insolvency regime, and (v) greater transparency in connection with NPEs. In November the European Commission published a targeted consultation on statutory prudential backstops for NPEs that aim to address insufficient provisioning for newly originated loans that turn non-performing for all EU banks in a more direct and standardised way. Numerous activities in connection with NPEs are also promised at the level of the EBA, the ECB and the ESRB, which are expected to draw up operational guidelines and guidance with regard to individual elements of NPE management, and to develop macroprudential tools to address systemic risks deriving from NPEs. All of this work, supported by activities in individual Member States, should help to reduce risk at banks, thereby increasing financial stability in the EU banking sector.