Press release from the meeting of the Governing Board of the Bank of Slovenia on 3 July 2012

1) The Governing Board of the Bank of Slovenia discussed current economic and financial developments, and approved the release of the June 2012 Report on Economic and Financial Developments and the April 2012 Report on Slovenia’s International economic relations (External Statistics). 
After a relatively favourable first quarter, the majority of available economic growth indicators for Slovenia deteriorated in the early part of the second quarter. Confidence and activity indicators in the EU declined, while there are signs of certain weaknesses in growth in the US and some other major economies. Growth in industrial production in Slovenia was nevertheless relatively favourable in the first four months of the year. The negative contribution to economic growth emanating from construction is gradually diminishing, in the context of weak trend growth in construction since the middle of last year. Confidence in the economy is declining, most notably consumer confidence in recent months, which has been reflected in a decline in volume turnover in the majority of service activities. Under these circumstances, with new hires and vacancies stagnating, no fall in unemployment can be anticipated.

The general government deficit over the 12 months to the end of the first quarter narrowed to 5.7% of GDP. Growth in revenues was low, due to persistently low economic activity. The general government deficit is expected to continue narrowing in the second half of the year, as a result of a contraction in expenditure after the adoption of the Public Finance Deficit Act.

Inflation developments remain in line with the Bank of Slovenia’s expectations. The largest contribution to inflation is still being made by energy prices, which have risen recently as a result of excise duties. The weak growth in prices of non-energy industrial goods and core inflation indicators are a reflection of the ongoing cost adjustment in the economy and weak domestic demand. Year-on-year inflation as measured by the HICP stood at 2.4% in June, thereby remaining the same as the euro area average.

The process of contraction in loans to the non-banking sector continued in May: they were down 4.8% in annual terms as a result of loans to non-financial corporations and, recently, loans to households. Loans to non-financial corporations were down 7.6% in year-on-year terms, and can be expected to have fallen further in the second quarter as a result of the adverse economic situation. The banking system’s net interest income and gross income are declining at an increasing pace (the former by 8.1%) as a result of high bank funding costs and the simoultaneous contraction in lending activity. By contrast, the banking system’s impairment and provisioning costs increased by 27%, leading to a pre-tax loss of EUR 45.7 million in the first five months of the year.

The Governing Board of the Bank of Slovenia expects the banks to speed up their lending to creditworthy borrowers, or else there is a risk of such corporations borrowing directly abroad. The banks need to be more intensive in adjusting their offer for these companies and be more in line with the competing loan offers on the single European market. At the same time the Governing Board of the Bank of Slovenia is calling on the banks to speed up the restructuring of corporations in difficulties which they judge to have sufficient prospects on the market in at least parts of their business to be able to repay their loans, despite the administrative barriers. In this framework the Governing Board of the Bank of Slovenia expects banks in cases of exposure to the same client to quickly reach an agreement, either independently or within the framework of the Bank Association of Slovenia, to find the best possible way of providing coordinated support.

2) The Governing Board of the Bank of Slovenia discussed the Overview of Slovenia’s Financial Accounts 2006-2011. The overview will be published in the annual statistical publication Financial Accounts of Slovenia 2006-2011, together with detailed figures for institutional sectors and financial instruments, and the methodology and process of compilation.