Positions of the Bank of Slovenia,in the scope of the project to rehabilitate the banking system,regarding activities required to improve the operations of the real sector and emerge from the crisis

In the scope of the project to rehabilitate the banking system, the Bank of Slovenia and the Bank Association of Slovenia (BAS) have been striving to rescue perspective companies in distress since the spring of 2012 through coordinated activities.

From the middle of December 2012 until the beginning of March 2013, the Bank of Slovenia coordinated discussions between companies (proposed by banks) and creditor banks. Representatives of the BAS, the Chamber of Commerce and Industry and (occasionally) certain relevant ministries also participated in the aforementioned discussions. The list proposed by the banks was subsequently updated with additional companies. As a rule, all of the companies in question enjoyed and still enjoy high demand for their products and/or services, particularly from abroad, and have positive outlooks for growth, but are limited in terms of financing and responsible ownership management. The following are typical for the majority of the aforementioned companies: high indebtedness, high financing costs, liquidity problems due to payment delays, a lack of working capital, and the inability of owners to inject capital or a lack of responsibility to do so. The companies in question are frequently unable to obtain bank guarantees for the repayment of advances and performance bonds, while they are also limited by inappropriate and erroneous economic policy solutions.

The aim of the project to rehabilitate the banking system was to select debtors (companies) that still generate profits from their core activity, but are burdened by high debt and thus high financing costs. The purpose of the aforementioned process was to identify the specific problems of companies from as many different sectors as possible and stimulate creditor banks to take more coordinated and prompt action, and to establish a framework for independent consultations and the resolution of open issues also regarding other perspective companies. The Bank of Slovenia informed the public about these activities through press releases on 12 February 2013 and 16 April 2013, and through clarifications provided to the media.

On the basis of previously held discussions, the Bank of Slovenia finds that creditor banks, companies and their owners are ready for prompt restructuring, while the state as owner, lawmaker and relevant economic policymaker has demonstrated considerable passivity and even a lack of interest. As a common problem, the absence of appropriate systemic solutions at the state level has been seen in the aforementioned processes, due to deficient and inappropriate legislative solutions and undefined, limiting or even conflicting economic policies.

The Bank of Slovenia and commercial banks believe that a state guarantee scheme that would facilitate corporate lending and ownership consolidation in the future would ease the burden of restructuring processes. In accordance with rules governing state aid, the appropriate guarantee scheme must be created as soon as possible in line with the European Commission’s rules.

In the coming months, the Bank of Slovenia will monitor the implementation of restructuring processes and commitments made by the banks and companies in discussions. To that end, a system was established to monitor restructuring plans and policies for creating impairments and provisions at the banks. The Governing Board of the Bank of Slovenia adopted amendments to Bank of Slovenia implementing acts (the Regulation Amending the regulation on Risk Management and Implementation of the Internal Capital Adequacy Assessment Process for Banks and Savings Banks, and the Regulation Amending the Regulation on the Reporting of Individual Facts and Circumstances of Banks and Savings Banks), which facilitate the supervision of the quality of bank loans to companies included in the restructuring process.

The Bank of Slovenia assesses that additional systemic changes will be needed, in addition to initial restructuring processes of companies.

The comprehensive reform of bankruptcy legislation will be required as soon as possible. The Bank of Slovenia is prepared to participate in these urgent reform. The Bank of Slovenia has also drafted the starting points for improving the legislative framework governing the out-of-court redemption of real estate collateral with the aim of reviving the real estate market (submitted to the Ministry of Finance). Because it is necessary to ensure effective conditions for corporate restructuring, define special positions and relationships in the event of corporate restructuring and establish the conditions for rapid and economically justified decisions regarding corporate restructuring, the Bank of Slovenia is working intensively to draft legislation regarding out-of-court corporate restructuring.

With regard to corporate ownership, the Bank of Slovenia finds that a number of companies have irresponsible, insufficiently active and financially weak owners (acquisition of ownership stakes through the privatisation process, without their own cash contributions to companies), with no long-term development strategy. Irresponsibility on the part of owners also applies in several cases in which companies are under majority state ownership. In the absence of any strategy for the management of state assets and sometimes due to the contradicting actions of para-state funds in the role of owners, the burden of rescuing companies has been laid on the banking system to date.

In terms of economic development, it is crucial that the government drafts an appropriate strategy for managing state assets and plans its gradual withdrawal from the corporate sector wherever the market mechanism represents a better instrument of effectiveness than state ownership.

In addition to internal factors, the position of companies and their competitiveness has been further weakened by the absence of appropriate government economic policies for several years. The government and the relevant ministries must draft a development strategy as soon as possible for specific sectors and regions that will take into account economic realities, and be based on commercial viability (profitability). On this basis, economic policy must be adapted, and the possibilities for assisting/stimulating specific sectors/companies studied. The strategy must pursue the objectives of creating competitive companies, and take into account the fact that net exports are a key factor for Slovenia in successful development and exit from the crisis.

The Bank of Slovenia believes that, in addition to immediate decisions regarding the operationalisation of all legal bases and activities under the Measures of the Republic of Slovenia to Strengthen the Stability of Banks Act (Official Gazette of the Republic of Slovenia, No. 105/2012), active restructuring and the survival of the perspective segment of the real sector in Slovenia are necessary to improve the situation in the banking system. In addition to coordinated activities of creditor banks, owners and companies, the immediate and active role of the government is crucial. The Bank of Slovenia has already called on the banks to intensify the aforementioned urgent processes.

The Bank of Slovenia views both processes (corporate restructuring and the rehabilitation of the banking system) as complementary. The effective rescuing of the perspective segment of the real sector would mean a reduction in the burden on the so-called “bad bank” and on the budget. This will facilitate the more rapid re-establishment of growth in lending to the real sector.

The Bank of Slovenia is prepared to actively participate in the scope of its legally prescribed tasks in formulating the solutions required to emerge from the financial and economic crisis, and to offer the required expert assistance.