Press release after the Bank of Slovenia Board meeting on 22 January 2013
1) The Governing Board of the Bank of Slovenia discussed current supervisory matters.
2) The Governing Board of the Bank of Slovenia also discussed banks performance in the current year, developments on the capital market, and interest rates.
The six-month contraction in the banking system’s total assets came to a temporary halt last November, primarily due to growth in government deposits. However, the process of debt repayments to the rest of the world by the banks and the contraction in lending activity continue. The banks have made net debt repayments to foreign banks totalling EUR 8.4 billion over the last four years. The banks repaid EUR 1.9 billion to foreign banks over the first eleven months of last year, an increase of 25% in year-on-year terms, and reduced their debt in the form of issued securities by EUR 1.6 billion. The banks only partly compensated for the aforementioned funding decline by increasing other forms of funding, and thus decreased lending to the non-banking sector by EUR 1.5 billion and investments in securities by EUR 0.6 billion.
The proportion of the banks’ total investments accounted for by lower-risk investments is rising. The banks are funnelling funds raised through the repayment of corporate loans and funding secured from the government and Eurosystem to the repayment of debt to foreign banks, to lending to the government sector and to short-term investments at parent banks abroad. The decline in corporate lending thus continues, as seen in November’s year-on-year decline in loans to non-financial corporations of 10.5%, while loans to households were down 2.1%.
By reducing their exposures to the corporate sector, the banks are reducing credit risk in the short term. The feedback effects, however, could be seen over the longer term as a deterioration in the portfolio of currently well-functioning corporates. The Bank of Slovenia and the Bank Association of Slovenia are therefore striving to establish business confidence between the banks and those corporates that demonstrate business models with good prospects.
The Bank of Slovenia and Banking Association of Slovenia are implementing a project to identify debtors at meetings between well-functioning but over-indebted corporates, their owners and creditor banks. The aim is to search for long-term solutions to ensure stable corporate operations. The agreed timetable may include financial, commercial or ownership restructuring or, as required, a combined approach to corporate restructuring that facilitates sustained, long-term financing in a way that encourages investment. In the context of the necessary fiscal consolidation, private sector investment is typically an important factor in finding an exit from a financial and economic crisis. The Bank of Slovenia expects the banks to take a more independent approach to implementing such processes in the future on the basis of experiences gained from these types of voluntary and confidential consultation. The withdrawal of financial support for well-functioning but over-indebted corporates and the ease with which insolvency proceedings are initiated, in the context of inappropriate legislation, threatens opportunities for economic growth and fiscal consolidation efforts (loss of tax revenues and an increase in social transfers). Owing to the strong presence of state ownership in both the financial and non-financial sectors of the Slovenian economy, the government is further affected (e.g. the need for capital increases by the government).
Growth in non-performing claims slowed last year and has remained at a low level in recent months. The proportion of the banking system’s classified claims accounted for by non-performing claims stood at 14.4% in November. The expected rise in impairment and provisioning costs will result in a loss for the year close to the loss recorded in 2011. The positive effect of these processes is the more timely recognition of losses from non-performing claims, followed by the write-off of those investments for which the probability of cash flow is marginal. Only by presenting a clear picture of the banks’ balance sheets, without the threat of future major losses from the existing investment portfolio, can increased interest be expected from investors in the capital of the domestic banks.
3) The Governing Board of the Bank of Slovenia adopted a decision to place the EUR 2 commemorative coin to mark the 800th anniversary of visits to Postojna Cave into circulation on 4 February 2013, and adopted the Regulation on the issue of collector coins for sale and circulation to mark the 300th anniversary of the Tolmin peasant revolt.