Press release after the Governing Board of the Bank of Slovenia meeting on 29 July 2014
1. The Governing Board of the Bank of Slovenia discussed current supervisory matters.
2. The Governing Board of the Bank of Slovenia discussed the performance of the banks in the current year, developments on the capital market, and interest rates.
The Slovenian banking system’s total assets declined by EUR 170 million in May 2014. The key factors in the aforementioned decline were the continuing early repayment of liabilities to the Eurosystem from 3-year LTROs and debt repayments to the rest of the world. Despite a fall in liability interest rates, household deposits increased by EUR 57 million, half of which was accounted for by the large domestic banks. The contraction in loans to non-financial corporations continued in May, while lending activity in the household segment stagnated. Housing loans maintained positive growth, of 1.1%. The proportion of non-performing loans to total classified claims stood at 14.8% in May 2014, unchanged from April 2014, despite the contraction in the banks’ credit portfolio.
The banking system’s gross income was up 12.5% in year-on-year terms in May 2014. This was partly a reflection of a decline in interest expenses that was double the decline in interest income. The banking system’s interest expenses are declining as a result of cuts in liability interest rates and a contraction in funding. Interest rates on long-term deposits have already fallen by 0.9 percentage points this year to stand at 1.9%, which represents an opportunity to cut lending rates further. Impairment and provisioning costs this year are down a half on last year. The Slovenian banking system recorded a pre-tax operating profit of EUR 106 million over the first five months of 2014.
3. The Governing Board of the Bank of Slovenia discussed the report on the credit exposure of Slovenian banks to municipalities.
The debt of Slovenian municipalities to Slovenian banks totalled EUR 548 million at the end of May, equivalent to a third of all bank loans to the general government sector (i.e. central government, local government and social security funds). The most significant increase in the stock of municipality debt was recorded between 2009 and 2011, when lending to municipalities increased most at the banks under majority foreign ownership. This bank group accounts for 65% of total bank loans to municipalities. Year-on-year growth in loans to municipalities had slowed to 3.3% by May 2014.
In terms of per capita debt, the main problem is certain smaller municipalities with a smaller number of inhabitants and per capita debt in excess of EUR 690, while larger municipalities are the most indebted in terms of the nominal stock of debt. Although the distribution of municipalities in terms of per capita debt and revenue has improved in recent years, 25% of municipalities have a per capita debt in excess of EUR 422 and a ratio of debt to revenue in excess of 38%.
As of 2011 the banks were raising their interest rate premiums on loans to municipalities until this year, when a moderate cut has been recorded. This was partly the result of a shortening of the average maturity of new loans. The proportion of the banks’ classified claims against Slovenian municipalities more than 90 days in arrears was less than 3% in May 2014. The figure has been declining since 2011, when it stood at 4.3%.
Given the recent slowdown in lending to municipalities, and the low proportion of claims more than 90 days in arrears in this segment, it is thought that in their borrowing policy it is important for the municipalities to take account of the stability of their tax revenues (e.g. environmental taxes in Slovenia are now among the highest in the OECD) and their regular debt servicing capacity over the long term.
4. The Governing Board of the Bank of Slovenia discussed the May 2014 report on Slovenia’s International Economic Relations.
The current account surplus widened in year-on-year terms in May for the first time this year, taking the cumulative 12-month surplus to EUR 2 billion or 5.6% of GDP. The still-widening surplus in trade of goods amounted to EUR 465 million over the first five months of the year, taking the cumulative surplus over the last 12 months to a record high of EUR 871 million. The export of goods to EU Member States increased, while exports to non-EU countries slowed. The latter was particular true for the former Yugoslav republics and the countries of the former Soviet Union: exports to Russia and Ukraine were down around a third in year-on-year terms. By contrast, there was a decline in import of goods from EU Member States and an increase in import of goods from non-EU countries. The sole increase was in imports of consumer goods. The surplus of trade in services over the first five months of the year was down in year-on-year terms, taking the cumulative 12-month surplus to EUR 1,818 million or 5.1% of GDP. The decline was primarily the result of smaller surpluses in construction services and other business services. The surplus in travel services over the first five months of the year amounted to EUR 477 million, EUR 13 million less than in the same period last year, while the surplus in transport services continued to record slow growth. A wider surplus in current transfers and a narrower deficit in capital income were also factors in the year-on-year widening of the current account surplus.
In the capital and financial account, the government sector recorded borrowing of EUR 3.7 billion over the first five months of the year, while the private sector recorded net debt repayments of EUR 2 billion.
Slovenia’s external imbalance is improving. Slovenia’s net investment position at the end of 2013 was a net liability to the rest of the world of EUR 13.6 billion, EUR 2.5 billion less than at the end of 2012.