Press release after the meeting of the Governing Board of the Bank of Slovenia on 14 May 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 and approved the May 2013 review of bank performance in the current year, developments on the capital market, and interest rates. The deepening of the recession in the euro area, uncertainty on the international financial markets and a further decline in domestic demand affected the operations of banks and corporates last year and during the first months of this year. High corporate indebtedness limits access to sources of financing and new investments. In the context of underdeveloped alternative methods of financing, the recession and weak profits hinder urgent institutional and structural changes that would help reduce high leverage. In such conditions, the quality of the credit portfolio of the banks, as the largest corporate creditors, continued to deteriorate for the majority of the year. The importance of income risk for Slovenian banks is rising in the context of the poor quality of the credit portfolio and the continued contraction in lending activity. 
The quality of the credit portfolio has stabilised in recent months. The banks continue to restructure their portfolios and increase the proportion of lower-risk investments. The expansion of the portfolio to the lower-risk household sector came to a halt last year due to a decline in disposable household income and an increasing lack of confidence. The purging of the lowest quality elements of portfolios from balance sheets, the accelerated conclusion of bankruptcy proceedings, the write-off of non-performing claims and the transfer of elements of portfolios from balance sheets to one form of bad bank are required to more effectively improve the structure of the banks’ portfolios. 
Several downgrades of long-term sovereign debt and certain banks have further exacerbated the already difficult access to sources of funding on foreign financial markets in the rest of the world. Changes in the structure of bank funding were aimed at increasing the proportion of primary sources collected from savers, while reducing the leverage of banks. Achieving and/or maintaining capital adequacy through a contraction in lending activity temporarily leads to negative feedback effects on economic activity and demand. Activities linked to increasing the capital of banks and rehabilitating their investments must therefore continue.