Press release after the Meeting of the Governing Board of the Bank of Slovenia -11 February 2014

02/11/2014 / Press release

1) The Governing Board of the Bank of Slovenia discussed the latest economic and financial situation, and approved the release of the January 2014 report on Economic and Financial Developments, the November 2013 report on Slovenia’s International Economic Relations, and the report on the performance of the banks in the current year, developments on the capital market and interest rates.

The monthly indicators suggest a gradual stabilisation of economic activity in Slovenia at the end of last year. The current rate of growth in activity in industry and private-sector services was weak, but does indicate an absence of new adverse shocks in domestic and foreign demand. The rapid growth in the value of construction put in place continued in November, partly as a result of a slight increase in public expenditure on infrastructure investment. Uncertainty in the economy remains high, despite more favourable economic developments and increased confidence.
The number of registered unemployed in January was the highest figure since 1994. There was a significant rise relative to December, but this is a customary development at the beginning of the year as temporary employment contracts expire. The workforce in employment increased in November for the third consecutive month, which in light of the high unemployment is an indication of a gradual easing of the situation on the labour market, and also of structural changes.
Inflation as measured by the HICP averaged 1.9% in 2013, down 0.9 percentage points on the previous year. Food prices and services prices made the largest contributions to headline inflation. The rise in the latter was primarily the result of fiscal and administrative measures. These factors also raised the narrowest core inflation indicator, which nevertheless remains low, and below the euro area average. 
The state budget deficit amounted to EUR 1.5 billion or 4.4% of estimated GDP in 2013, in line with the forecast in the revised budget of July 2013. Consolidated general government revenues during the first eleven months of the year were down 2.9% in year-on-year terms, primarily as a result of the adverse economic situation. Expenditure remained unchanged, interest payments having increased sharply while expenditure on goods and services and on employee compensation and contributions notably declined. Borrowing amounted to almost EUR 6 billion during the first eleven months of the year, and increased further in December as a result of capital increases at banks. After the measures to rescue the banks were carried out, the required yield on long-term government bonds fell, and averaged 4.7% in January.
The current account surplus began narrowing towards the end of last year as a result of the gradual stabilisation of domestic consumption and a temporary weakening of exports of merchandise and services. The deficit in factor income began widening as a result of a decline in the surplus in labour income, the year-on-year widening of the deficit in income from FDI and growth in interest payments on government debt. The current account surplus over the first eleven months of the year nevertheless stood at 6.1% of GDP, up 3.2 percentage points in year-on-year terms. Net outflows via the private sector and net inflows via the government sector continued. The net external debt stood at EUR 12.5 billion at the end of November, down EUR 1.8 billion on the end of 2012, the government sector’s net debt having increased by EUR 3.4 billion while the banking sector’s net debt declined by EUR 2.5 billion.

The main factors in the banking system’s performance in 2013 were the ongoing debt repayments on the wholesale markets and the adverse economic situation, which resulted in a sharp contraction in lending activity. The measures taken in December by the Slovenian government and the Bank of Slovenia to strengthen bank stability, most notably capital increases and the sale and transfer of non-performing claims to the Bank Asset Management Company (BAMC), had a profound impact on total assets and individual balance sheet items at the end of the year, on changes in balance sheet structure, and on the overall operating result. 
The banking system’s total assets declined by 11.1% or EUR 5.1 billion in 2013. Debt repayments to the rest of the world accounted for EUR 2.9 billion of this decline. Loans to the non-banking sector declined by EUR 6.5 billion over the whole year, more than half of which was in December, primarily as a result of the transfers of non-performing claims to the BAMC. The banking system recorded a pre-tax loss of EUR 3.2 billion in 2013. The main factor in the loss was high impairment and provisioning costs, which were the result of the further deterioration in the quality of the portfolio and falling collateral values.
2) The Governing Board of the Bank of Slovenia was briefed on currency counterfeiting in 2013. A total of 1,597 counterfeit euro banknotes were identified during the year, down 32.4% on 2012. The total value of the counterfeit euro notes and coins was EUR 105,776, down 68.7% on 2012. The majority identified in 2013 comprised 50-, 20- and 100-euro notes (which accounted for 87.5% of the total), while the most commonly counterfeited coin was the 2-euro (54.9%). The number of counterfeit euro banknotes identified in Slovenia remains roughly within the vicinity of the long-term averages, and for the moment does not represent a major problem.

3) The Governing Board of the Bank of Slovenia discussed the findings in connection with banking supervision and set out the tariffs of supervision fees.