Banka Slovenije raises countercyclical capital buffer amid increase in systemic risks

Banka Slovenije finds systemic risks to be increasing in the Slovenian banking system, as a result of the growing uncertainty in the economic environment. Similarly to other countries in the EEA, it is therefore raising the countercyclical capital buffer for exposures to Slovenia from zero to 0.5% of the total risk exposure amount.

Banks will therefore have to provide more capital for exposures to the domestic economy within 12 months. Banka Slovenije’s assessment is that the Slovenian banking system is capable even now of covering the countercyclical capital buffer requirement with existing capital. Banka Slovenije has decided to make use of the instrument because it is flexible, and can be modified in line with the evolution of cyclical systemic risks.

The Slovenian economy recovered quickly following the lifting of the containment measures, and the financial sector remains stable. In the wake of the downturn in the economy, and persistent high inflation, in which the key factor was the Russian military aggression and its accompanying effects and uncertainties, the systemic risks to financial stability are elevated.

Banka Slovenije has therefore decided to continue its measures to increase the resilience of the Slovenian banking system and to prevent the build-up of cyclical risks in their early phase, by raising the countercyclical capital buffer rate. The purpose of the measure is that in the event of the materialisation of risks, the release of the buffer reduces the risk of requirements with regard to regulatory capital constraining the banks in their lending. This would allow the banks to continue lending to the economy and to absorb the losses.

Under the rise in the countercyclical capital buffer rate for exposures to Slovenia from zero to 0.5%, the banks will have to maintain a higher capital adequacy, which will increase the resilience of the banking system.