Stress tests show that the Slovenian banking system remains stable, and resilient to potential shocks. This was evident in the regular micro stress tests, which are conducted for larger banks under the aegis of the ECB and the European Banking Authority (EBA), and also the macro stress tests, through which Banka Slovenije examines the general resilience and capital adequacy of the banking system. While the results are good, we are highlighting risks related in particular to the geopolitical situation, which has worsened since the scenarios were drawn up and is now being reflected in a slowdown in the domestic economy and reduced forecasts.
Micro stress tests
Under the aegis of the ECB and the EBA, regular stress tests were conducted for all significant banks in the euro area. The tests on this occasion, using a bottom-up approach, covered 96 significant banks in the euro area, including one Slovenian significant bank.
The purpose of the stress tests was to evaluate the impact on the capital adequacy of individual banks over the 2025 to 2027 horizon from credit risk, market risks and operational risk, and also risk affecting net interest income. The stress tests were conducted on the basis of a baseline scenario and an adverse scenario. The main feature of this year’s scenario was geopolitical risks, which were identified via a contraction in GDP, a rise in the unemployment rate, and an adverse impact on real estate prices. At the same time the adverse scenario also envisaged a decline in demand towards the end of the projection horizon, accompanied by lower long-term interest rates compared with the 2023 stress tests.
The results show that the banking system in the euro area is resilient to the scenario of a severe economic crisis. The stress tests showed that under the adverse scenario banks would face larger losses than under the 2023 stress tests owing to deteriorating credit, market and operational risk, but despite these losses capital depletion was lower than in previous stress tests. This milder outcome in terms of capital depletion is mainly due to banks entering the exercise with stronger profitability, driven by higher interest rates and stable asset quality. However, the sustainability of higher profits remains uncertain, and may differ across banks.
We also find that the current capital buffers are supportive of the euro area banking system’s ability to withstand adverse shocks. The stress test took place against a backdrop of significant macrofinancial uncertainty, reinforcing the case for continued prudence in capital planning and interpretation of results. Banks must continue strengthening their financial and operational resilience, which includes investing in IT and cyber resilience.
The same conclusions could be drawn from the stress tests for smaller Slovenian banks and savings banks that were conducted at Banka Slovenije using a similar methodology.
More information about this year’s stress tests can be found on the ECB website.
Macro stress tests
Banka Slovenije made use of the same adverse scenario to also conduct macro stress tests, which aim to complement the supervisory micro stress tests. Under a top-down approach, the macro stress tests allow us to assess the potential impact and the consequences for the stability of the banking system if certain unlikely but plausible systemic risks assumed under the macroeconomic scenario are realised. This year’s macro stress tests included a projection of bank performance for the horizon of 2025 to 2027, based on data from the end of 2024.
The baseline scenario is based on the core projection from Banka Slovenije’s macroeconomic projections of December 2024, which assumed moderate GDP growth, a tight labour market, and inflation close to the target rate of 2%. The adverse scenario features a decline in GDP alongside a temporary rise in inflation driven by growing geopolitical tensions and the resulting rise in interest rates.
Banka Slovenije’s finding is that the Slovenian banking system is stable under the baseline and adverse scenarios alike, and continues to disclose sufficient capital adequacy. While the results are good, the risks primarily relate to the geopolitical situation, which has worsened since the scenarios were drawn up and is already being reflected in a slowdown in the domestic economy and reduced forecasts.