Macroeconomic developments and projections, bank performance, developments on the capital market and interest rates

09/23/2014 / Press release

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

2. The Governing Board of the Bank of Slovenia discussed the Macroeconomic Developments and Projections report, and the July 2014 report on Slovenia’s International Economic Relations.

The economic recovery has continued in 2014, the pace of economic growth exceeding expectations notably in the second quarter. The main engine of economic growth remains foreign demand, which is assumed to slow in the second half of the year. GDP growth is forecast to reach 1.6% this year, before slowing to 1.3% next year. The current account surplus will narrow over the projection horizon to around 4.5% of GDP as a result of weaker export growth, a slight increase in imports and increased interest expenditure. There has been a sharp fall in inflation, as a result of falling commodity prices on global markets, the persistence of relatively weak domestic demand, and last year’s fiscal measures dropping out of the inflation calculation. Inflation is forecast to remain around 1%.

In July 2014 the Bank of Slovenia outlined its view of the future strategic challenges of economic policy in Slovenia (http://www.bsi.si
In the opinion of the Bank of Slovenia economic policy measures should focus primarily on the clean-up and capital strengthening of the banking sector, the establishment of the foundations for financial stability, corporate deleveraging and restructuring, which the Bank of Slovenia cannot achieve alone without other economic policy stakeholders, and the strengthening of the long-term sustainability of public finances.

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

The Slovenian banking system’s total assets increased by EUR 721 million in July to EUR 40 billion or 111% of GDP, compared with 126% at the end of 2008. The increase was the result of growth in deposits by the non-banking sector and an increase in issued NLB bonds in early July. The government sector was a major factor in the increase in deposits, as the negative interest rates at the central bank meant that it transferred some maturing deposits to overnight deposits at Slovenian banks. Household deposits have continued to grow, taking the increase over the first seven months of the year to EUR 506 million, the large domestic banks recording the majority of the increase.In July the banks continued to make early repayments of liabilities to the Eurosystem from the 3-year LTROs, and debt repayments to the rest of the world. 
On the investment side, loans to non-financial corporations have continued to decline, albeit more slowly than the notable rate recorded in June. After several years of decline, there have been signs this year of a positive shift in demand for corporate loans, and the expectation is that the banks will recognise some of this demand as creditworthy. Lending to households in the form of housing loans is increasing slowly, while consumer loans have continued to decline. The proportion of loans more than 90 days in arrears declined to 14.7% in July, primarily as a result of a decline in non-performing claims in the corporate sector. 
The banks recorded a pre-tax profit of EUR 125 million over the first seven months of the year, still below the level in pre-crisis years, although the figure suggests a gradual stabilisation of the situation in the banking system.