Meeting of the Governing Board of the Bank of Slovenia

1) The Governing Board of the Bank of Slovenia discussed current supervisory matters.

2) The Governing Board of the Bank of Slovenia also discussed the performance of the banks in the current year, the developments on the capital market, and interest rates.

The Governing Board of the Bank of Slovenia has established that the contraction in the banking system’s total assets continued in September: they declined by EUR 348 million to EUR 46.9 billion, taking the decline during the first nine months of the year to EUR 1.9 billion. The structure of the banking system’s balance sheet is also changing. On the funding side, the banks have reduced debt in the form of debt securities by EUR 1.4 billion, have made debt repayments of EUR 1.3 billion to foreign banks and have seen a decline of almost EUR 0.9 billion in government deposits. At the same time banks have increased capital and obtained EUR 2.2 billion of relatively advantageous funding in the Eurosystem. On the investment side, the banks have primarily reduced loans to the non-banking sector by EUR 1 billion and investments in securities by EUR 0.6 billion.

In September banks again reduced funding in the form of securities and deposits by the non-banking sector. The year-on-year changes in deposits by the non-banking sector and in the banking system’s total assets were almost the same, at 5.1% and 5.2% respectively. In September banks reduced their lending to all sectors other than the government. Year-on-year growth in loans to non-financial corporations stood at -8%, a smaller decline than in the previous two months. The decline in lending is a reflection of the ongoing adverse macroeconomic situation, of the continuing relatively high leverage in the non-financial corporations sector and, more broadly, of the several years of procrastination in all key reforms such as reform of the labour market and a reduction in the tax burden, while the real sector is above all in need of corporate recapitalisations.

The figures for the proportion of classified claims being settled by clients more than 90 days in arrears reveal an increase in credit risk. The figure has increased to 14.2%, up 3 percentage points on the end of 2011. This increase is the result not solely of a deterioration in the quality of existing bank claims, but also of the ongoing decline in new loan approvals. It is therefore vital that the banks actively identify the best opportunities to lend to all potential borrowers whose risk assessments indicate that they are creditworthy. Credit risk was also reflected in a year-on-year increase of 20.2% in impairments and provisioning during the first nine months of the year. High impairment and provisioning costs were the main factor in the banking system’s pre-tax loss, which amounted to EUR 76 million during the first nine months of the year.

3) The Governing Board of the Bank of Slovenia discussed the report on payment systems operations in the third quarter of 2012.