Press release after the Meeting of the Governing Board of the Bank of Slovenia on 28 October 2014
1) The Governing Board of the Bank of Slovenia discussed current supervisory matters.
2) The Governing Board of the Bank of Slovenia discussed and approved the October 2014 Economic and Financial Developments report.
Geopolitical tensions and a slowdown in global economic activity brought renewed reductions in forecasts of global economic growth for this year and next year. The economic situation also remained unfavourable in the euro area. The euro fell again in September, while prices of certain commodities also fell, and oil reached its lowest level of the last four years.
Economic growth in Slovenia will slow in the third quarter. This is in line with the Bank of Slovenia forecasts; a slowdown is suggested by the majority of the available indicators. This is primarily attributable to the weakness of the economic recovery in the euro area and the gradual completion of works on local public infrastructure, which are curbing growth in industrial production and construction. Firms are also becoming more cautious in their assessments of future demand. By contrast, the improvement in consumer confidence is raising domestic private consumption, which is primarily being reflected in growth in revenues in the retail sector. Although the cooling of the euro area means that some signs can be seen of a slowdown in export growth, it is still outpacing growth in imports from trading partners, which confirms the competitiveness of the export sector.
Developments on the labour market remain favourable. The number of registered unemployed is still decreasing, while outflows from unemployment are still increasing, primarily as a result of new hires. The workforce in employment in August was up again in year-on-year terms, which was primarily attributable to private-sector services and manufacturing. The average nominal wage and the wage bill are continuing to record moderate year-on-year growth. The latter has also been increasing in real terms in recent months, which is having a beneficial impact on consumer confidence and on household purchasing power and consumption.
Year-on-year inflation as measured by the HICP fell by a further 0.1 percentage points in September to -0.1%, i.e. moderate deflation. These developments were largely the result of a fall in commodity prices on the global market, and the fierce competition that given the merely moderate recovery in purchasing power is not allowing domestic prices to be raised. The contribution made to headline inflation by services remained unchanged, as a result of which core inflation is still falling.
3) The Governing Board of the Bank of Slovenia discussed and approved the report - Performance of the banks in the current year, developments on the capital market, and interest rates.
After increasing in July, the banking system’s total assets declined by EUR 321 million in August to stand at just under EUR 40 billion. The banks continued with debt repayments to the rest of the world in August, and with the early repayment of liabilities to the Eurosystem from the 3-year LTROs. On the funding side, household deposits are continuing to grow; their increase over the first eight months of the year compensated for their decline over the whole of 2013. The developments in deposits were particularly favourable at the large domestic banks, where after falling for two and a half years they recorded positive year-on-year growth again in August.
There were no major changes in corporate lending. Demand for loans in the first half of this year indicates a slightly smaller fall in demand than in previous years. The banks are maintaining credit standards at a high level, including interest rates, which are not adjusting sufficiently to falling liability interest rates. Modest corporate lending is being reflected in a decline in the quality portion of the banking system’s portfolio. In the absence of new lending, owing to the corporate deleveraging process at the banks the proportion of non-performing claims has remained at 14.8% in the last five months other than June, despite a decline in the stock of non-performing claims in recent months.
The banks recorded a pre-tax operating profit of EUR 137 million over the first eight months of 2014.
Public Relations Department
Bank of Slovenia