Stress tests confirm the stability of the Slovenian banking system; risks remain elevated

The macro stress tests conducted by Banka Slovenije have confirmed the stability of the Slovenian banking system, which has sufficient capital adequacy. Even amid the favourable results, the systemic risks to financial stability remain elevated, which is attributable to the impact of the Russian military aggression on the European economy and the resulting uncertainties.

The macro stress tests conducted by Banka Slovenije using a top-down approach are one of the tools for identifying potential systemic risks, and are based on applying the same methodology to all banks, and on the data available to Banka Slovenije from the banks’ regulatory reporting. This year’s macro stress tests included a projection of bank performance for the period of 2022 to 2024, based on data from the end of 2021.

The baseline scenario is based on the core scenario forecast from Banka Slovenije’s macroeconomic projections, which assumes a slowdown in GDP growth, elevated inflation, and favourable developments on the labour market. Monetary policy normalisation gradually raises interest rates on government debt, and bank lending rates for firms and households. The economic situation remains relatively favourable, which has a positive impact on lending to the non-banking sector. The adverse scenario features a stagflation shock, which is reflected in a contraction in bank turnover.

Banka Slovenije finds that under both scenarios the stress tests confirm the stability of the Slovenian banking system, which has sufficient capital adequacy.

Despite the favourable results, the systemic risks to financial stability remain elevated. The greatest risk comes from the continuation of the Russian military aggression against Ukraine, and its effects. Soaring inflation, the disruptions to trade, and declining confidence are worsening the macroeconomic situation, and could spill over into the financial system via indirect effects. For more on this, see the Financial Stability Review.