Preface

Over the last year Banka Slovenije has repeatedly warned that the stability of the Slovenian financial system is not self-evident, but in an extremely uncertain and fast-changing international environment is more the result of a considered and timely precautionary response at system level and at the level of individual financial institutions, which will ensure that the banking system remains highly resilient to shocks from the international environment. Similarly to before, this issue of the Financial Stability Review highlights elevated non-financial risks, such as geopolitical risks and cyber risks, which currently exceed the levels of traditional financial risks to the banking system.

Risks to the Slovenian financial system stem primarily from the external environment. First, and most notably in terms of magnitude, are the macrofinancial risks posed by geopolitical tensions, such as military conflict, international trade barriers, and changes to existing trade agreements and tariffs, while there is also the increased exposure to liquidity risk on the part of non-bank financial intermediaries (such as private credit funds). Although the direct exposure of banks and other financial intermediaries in Slovenia to war zones and to private credit funds is not significant, this has an impact on international financial flows and on the price and accessibility of funding on the international financial markets.

The international financial markets can underestimate risks during times of high uncertainty, which is reflected in the volatility of financial instruments prices and in the high sensitivity of these prices to the unexpected information related to geopolitical developments. This will drive changes in international financial flows, to which the Slovenian financial system and other sectors of the economy are not immune.

In contrast to events during the great financial crisis eighteen years ago, a significant share of the adverse effects will be transmitted into the real sector in Slovenia directly through supply shocks in the form of rises in energy prices and in prices of certain commodities and intermediate goods. The Slovenian economy’s financial ties abroad are now based to a greater extent on equity, and less so on debt (with the exception of government borrowing abroad). The adverse consequences of shocks will therefore be reflected in the performance of the financial sector with a lag.

The aforementioned developments are also being evidenced in the risk and resilience dashboard in the current issue. The risk level remains moderate, but with a rising outlook. The banking system’s resilience to external shocks remains good but could deteriorate quickly because of the uncertainty and the rapid changes in the international environment. We are therefore calling on bank management boards and supervisory boards to contribute to the resilience of their institutions against external shocks through decisions regarding profit retention and the timely creation of impairments and provisions.

Systematic care is needed for greater stability of bank deposits. This can be ensured through a longer average maturity of deposits, which banks can achieve with an appropriate structure of deposit interest rates that allows for the preservation of the real value of savers' financial assets. Due to uncertain international financial flows and, in the longer term, changing household saving habits, the stability of bank deposit sources will become increasingly important for the normal functioning of domestic financial intermediation.

As a result of the structural changes to Slovenian banks’ balance sheets, the risks in the banking system are considerably less pronounced at present than for example during the great financial crisis. Amid altered economic circumstances, the credit risk posed by non-financial corporations is only rising slowly, thanks to the low lending activity in this segment over the last three years. It was only last year that growth in loans to non-financial corporations strengthened, reaching 4.4% by the end of the year, merely just over half of loans to households. Increasing the banks’ focus on lending to non-financial corporations is the key to encouraging investment in the green and digital transition, driving productivity growth and reducing energy dependency on fossil fuels, which is what will allow the Slovenian economy to maintain its competitiveness and the standard of living over the long term.

In light of these macroeconomic and financial developments, any measures to mitigate the consequences of the energy crisis will have to be targeted, with the aim of limiting the rise in general government expenditure. This will come under increasing pressure in the years ahead, partly as a result of the increase already underway in spending on national security, and the increased expenditure on health and long-term social care for the aging population.

Although the banking system remains stable and resilient, is vital that all stakeholders in the financial sector act prudently and proactively in the future. The impacts of external shocks can quickly result in deteriorating indicators and require adaptation to potentially long lasting consequences of crisis conditions. Banka Slovenije will continue to regularly assess the justification for using individual macroprudential instruments and adjust them as necessary to maintain financial stability and high resilience to external shocks. At the EU level we will simplify the macroprudential toolkit (and other prudential policy instruments) with the aim of increasing the competitiveness of the European banking sector, but not at the expense of reducing its resilience.

Executive Summary

Our assessment is that the risks to the Slovenian financial system remained moderate and stable in the first quarter of this year, although the outlook is worsening on account of the ever-growing uncertainty in the international environment. To provide a clearer illustration of risks currently originating primarily from the external environment, we have included macro-financial risks in this issue of the Financial Stability Review. The uncertainty sown by persistent trade and geopolitical tensions, the new military conflict in the Middle East and the resulting rise in energy prices are increasingly being reflected in the real economy. Increased volatility in global financial markets might give rise to liquidity difficulties in the non-bank financial sector, which could indirectly spill over into the domestic economy. The macro-financial risks to Slovenia are therefore assessed as elevated, with a negative outlook. As a result of the continuing rise in real estate prices and the faster growth in housing loans, the outlook for the risks inherent in the real estate market has been downgraded, although the risk remains assessed as moderate. Given the deterioration in the macro-financial environment, the outlook for credit risk has also been downgraded since the October issue of the FSR, while the risk remains assessed as moderate. The remaining risk assessments and outlooks remain unchanged from the October issue. Similarly, the resilience of the banking system is rated as high, as robust capital adequacy and high liquidity allowing banks to effectively absorb any macroeconomic shocks. Despite a year-on-year decrease, bank profitability remained at a high-level last year, allowing banks to further strengthen capital reserves and to cover any need to increase impairments.

The assessment of macro-financial risks is elevated with a rising outlook, as the growing geopolitical and trade uncertainties spill over into domestic macrofinancial risk amid rising energy prices. In addition to their impact on the real sector, US tariffs policy and the wars in Ukraine and in the Middle East are driving increased volatility on the international financial markets and commodities markets, which in a highly open economy like Slovenia, which is strongly exposed to external shocks, is strengthening the risks to economic growth and inflation. Any further deterioration in the situation could significantly worsen the financial standing of firms and households as a result of higher energy prices and disruption to supply chains, which would be reflected with a lag in an increase in credit risk. To monitor these conditions more closely, the first thematic box in this publication presents a financial stress indicator for Slovenia, which entails the first comprehensive attempt to systemically measure systemic pressures, tailored to the specifics of the domestic financial environment.

The risk to financial stability inherent in the real estate market remains moderate. Amid the continuing rise in real estate prices, the increase in overvaluation, and high growth in housing loans, these risks might strengthen. Despite an increase in sales, the supply of residential real estate continues to lag demand, which, given currently favourable financing conditions, maintains upward pressure on prices. This pressure could be further strengthened by rising prices of fuel, commodities and construction material, driven by developments in the geopolitical environment. Price growth is slowing on the commercial real estate market, amid strengthened sales, but the banking sector’s exposure to this segment remains limited given its relatively small size.

Funding risk remains moderate with a stable outlook. Non-bank sector deposits strengthened further in 2025, driven by strong inflow  from households and non-financial corporations, maintaining their role as the primary funding source. In the backdrop of low interest rates on deposits, the stock of sight deposits is increasing, as is the share of deposits that they account for, which given the high level of digitalisation is increasing the risk of the sudden and large-scale switching of assets between banks. On the subject of digital trends, the second thematic box examines stablecoins and their impact on financial stability. Despite the current stability in funding, the key for the banks in the future will be monitoring savers’ habits and adjusting their offer in light of competing digital services.

Interest rate risk in the banking system remains moderate with a rising outlook. The repricing gap increased further last year, and with it the banks’ interest sensitivity. Meanwhile banks have strengthened their hedging against changes in interest rates by increasing their holdings of interest rate swaps. The main factors driving the widening of the repricing gap and increase in interest sensitivity remain the rise in the stock of fixed-rate housing loans and consumer loans, and the increased holdings of debt securities amid a contraction in primary liquidity.

Credit risk remains moderate, but its trend is maintained as increasing due to the uncertain economic environment. The NPE ratio rose significantly towards the end of the year, driven largely by reclassifications of exposures to individual manufacturing firms, which is not yet a reflection of a broader deterioration in debt servicing. The war in the Middle East and the rise in prices of energy and certain other commodities is making the economic situation more uncertain, which is increasing the risk of a deterioration in the quality of claims, particularly at energy-intensive firms, and in the chemical industry, logistics and construction. Banks are also anticipating a deterioration in the quality of household exposures. Coverage by impairments and provisions declined in both the non-performing and performing segments of the portfolio.

Income risk in the Slovenian banking system remains low with a stable outlook, as banks maintain a favourable income position and a high net interest margin following the stabilisation of monetary policy. Net interest income and the net interest margin remain at high level despite declining last year, while non-interest income is stable, thanks primarily to growth in net fees and commission and in dividends. Growth in operating costs slowed to less than 2% last year, while the CIR remains below its average. The third thematic box provides detailed analysis of employee remuneration in the banking system. Gross and net income in the banking system remain at high levels. Over the longer term the geopolitical uncertainties might hit demand for loans and thus bank income, but the current interest rate levels and the stable non-interest income suggest that the banks will remain in a favourable position in 2026, amid the anticipated stable growth in operating costs.

Cyber risk in the Slovenian banking sector remains elevated with a stable trend, primarily due to heightened geopolitical conditions. Banks did not report any major cyber incidents with material damage in 2025 or early 2026, but did suffer disruptions as a result of technical faults in payment systems. The key threats comprise increasingly sophisticated attacks on customers, supported by AI, and the high exposure to outsourced ICT services. The geopolitical tensions point to further growth in cyber threats and online fraud at the global level, which demands the continual strengthening of system resilience.

Climate risks in the banking system remain moderate with a stable outlook. Exposure to climate-sensitive sectors increased slightly, although the carbon indicators improved significantly thanks to changes in the structure of exposure (a decline in exposure to the sectors of agriculture, and electricity, gas, steam and air conditioning supply). Credit risk rose in climate-sensitive sectors, as a result of the concentration of risk at individual manufacturing firms, while the physical risks remain low and stable. The share of exposures to regions with high physical risks is low, as is the risk of interaction between physical risks and transition risks. Geopolitical risks are continuing to generate uncertainty, which could have an indirect impact on climate risks, primarily via energy prices and the timetable of the green transition.

The Slovenian banking system remains highly resilient in terms of capital, supported by high solvency indicators and above-average profitability at the end of 2025. Growth in regulatory capital, driven by retained earnings and new capital issuances, outpaced growth in risk-weighted exposure. Despite the anticipated pressure on capital ratios in 2026 driven by rising credit risk and uncertainty, our assessment is that solvency will remain high. Although ROE declined slightly last year as a result of a fall in income and an increase in impairments, it was still above the long-term average for Slovenia and last year’s euro area average. Further allocation of earnings to reserves will be the key to maintaining the stability of the system in the future.

The liquidity of the banking system remains high and stable, despite a slight deterioration in certain indicators. The capacity to cover net liquidity outflows over short-term stress scenarios and the longer-term funding of liabilities are being maintained at a level that significantly exceeds the regulatory requirements. The banks continued to redirect free assets into debt securities, although this trend slowed. Given the significant variation in liquidity surpluses, our expectation is for prudent management of asset structure, particularly at banks with low surpluses. The key to maintaining high resilience in the future will be monitoring the market situation and maintaining liquidity reserves of the right quality.

Households and non-financial corporations (NFCs) are maintaining a favourable financial position, but rising international uncertainties are strengthening the risk to future resilience in both sectors. In the wake of improving consumer confidence and real wage growth, household demand for housing loans and consumer loans strengthened, the ratio of the latter to GDP already exceeding the euro area average, while general indebtedness remains low. In connection with these borrowing trends, the fourth thematic box analyses the role of alternative household financing, highlighting its importance and scale, and the potential impacts on financial stability. The financial position of NFCs remains stable, with good access to financing and low leverage. Despite high equity and a surplus in trade credits, the trend of a rising number of bankruptcies and account freezes is continuing in the NFCs sector, driven by volatile energy prices and the war in the Middle East, with indications of a deterioration in the financial position of NFCs in energy-intensive sectors in particular. The fifth and final thematic box complements these findings with firms’ assessments of their situation and their access to financing, on the basis of the regular survey on access to finance.

Conditions in the non-bank financial sector remained favourable last year, although persistent geopolitical uncertainties might in the future be reflected in increased instability via selling pressures on stock markets, higher financing costs, and a deterioration in the quality of the leasing companies’ portfolio. The performance of the leasing companies last year featured stable growth in the stock of business and a renewed rise in profitability, while portfolio quality remains high with a low proportion of arrears. The insurance segment is showing high resilience, confirmed by growth in gross written premium, an increase in profits, better claims ratios and solid capital adequacy. Despite the increased volatility on the financial markets, which could be reflected in withdrawals, the domestic mutual funds and the stock market indices saw high growth in 2025 and early 2026.

Macroprudential policy in Slovenia remains preventive in stance, with a focus on ensuring the resilience of the banking system and preventing the build-up of risks. It remains vital that the existing instruments are putting adequate capital safety valves in place against potential adverse shocks, where the banks meet their requirements in connection with the countercyclical capital buffer and the sectoral buffer for retail exposures, while the systemically important banks also maintain additional buffers. Measures to encourage sustainable household borrowing remain in place, which simultaneously strengthen borrowers’ resilience and reduce credit risk at banks.

1Key Risks to Financial Stability

1.1Macro-financial risks

The assessment of macrofinancial risks remains elevated with a rising outlook.[1] The current risks relate primarily to the impact of the war in the Middle East and the unpredictability of US trade policy, which is being reflected in increased volatility on the financial markets and commodities markets. In the wake of the rise in geopolitical tensions, the risks to economic growth and inflation have increased at the global level, in the euro area, and also in the domestic economy. The latter remains relatively stable for now. This has been confirmed over the last year by the stable outlooks awarded by the rating agencies, although they simultaneously drew attention to the high sensitivity to external shocks owing to the openness of the economy and its dependency on global trade.

Risks inherent in the international environment

Global economic growth was relatively good in the early part of this year, but is being accompanied by elevated geopolitical and trade risks, which are limiting further growth. Like the global economy, the euro area economy also continued to see growth in the early part of this year, supported by the service sector and a recovery in manufacturing. The risks to global growth were nevertheless elevated in the early part of this year, largely as a result of the uncertainty surrounding US trade policy. The risks were exacerbated in March by the geopolitical tensions related to the war in the Middle East. Further evidence of the increased uncertainty comes from the geopolitical risk index and the trade policy uncertainty index (see Figure 1.1, left). The composite PMI for the global economy fell in March to its lowest level of the last 11 months (51 points), but nevertheless remained in the zone of expansion. Economic activity slowed in industry and in services, while activity in industry was greater than in services for the first time since December 2022. A similar decline was seen in the composite PMI for the euro area (50.7 points). The decline was driven in particular by a worsening mood in services, which remains barely above the threshold for growth, while manufacturing saw a slight strengthening. Economic activity in the euro area is being curtailed by high energy prices, disruptions to supply chains, instability on the financial markets and weakened demand. The baseline scenario of the ECB’s latest projections forecasts global economic growth of 3.3% this year, followed by a slight decline to 3.2% in 2027.[2]

The war in the Middle East is also increasing the risks to ongoing economic growth and price stability in the euro area, while uncertainty and the potential for surprises in US trade policy could also have an impact on exports. According to the baseline scenario of the ECB projections, economic growth in the euro area is forecast at 0.9% this year and 1.3% in 2027, down 0.3 percentage points and 0.1 percentage points respectively on the December projections. This scenario envisages a short-lived conflict that merely causes energy prices to rise temporarily before gradually easing over the following quarters. However, the persistent geopolitical tensions suggest the possibility of a lengthier conflict, which could lead to the broader pass-through of higher prices of energy and other commodities into prices of other goods and services, and even to constraints on supply, and thus to more pronounced and longer-lasting adverse economic consequences, as illustrated by the ECB’s adverse and severe scenarios.

The increased uncertainty in the international environment is exacerbating volatility on international financial markets, particularly for commodities. The outbreak of the war in the Middle East has caused disruption to supplies of oil, gas and other commodities, which has driven their prices up, strengthened inflationary pressures and altered expectations regarding monetary policy. At the end of February the expectation was that the ECB would leave interest rates unchanged this year, but the outbreak of conflict now means that at least two interest rate hikes by the ECB are envisaged, while the expectation for the Fed is that there will be no cuts this year (see Figure 1.1, right). These expectations were reflected in a rise in government bond yields, while the increased uncertainty is driving investors to safer asset classes, which has widened spreads between yields on the government bonds of other euro area countries, Slovenia included, and those on the German benchmarks (see Figure 6.1, left, in the appendix).

The rise in defence spending could further raise government borrowing and increase the financial markets’ concerns over debt servicing capacity, which could further drive up bond yields. Although the attention of the financial markets is currently focused on events in the Middle East, a shock of this kind could exacerbate existing vulnerabilities in the financial system. One of the major vulnerabilities is the heightened valuation of tech firms in connection with AI. The ability of the financial markets to correctly price assets is also potentially in question, as they are capable of displaying excessive optimism. Additional vulnerabilities relate to the continuing growth in investment in alternative forms of financing, particularly in the private debt segment. Private debt funds in the US recorded an above-average number of requests for withdrawals in the first quarter of this year, which they were unable to grant in full given the scale of the requests.[3]

Slovenia

The domestic economy remains relatively stable. The economic growth outlook continues to be accompanied by downside risks, particularly in export-oriented sectors, which have strengthened further in the wake of the attack on Iran. Last year’s slowdown in the economy was primarily a reflection of a decline in investment in the first half of the year. Amid weak foreign demand, and low manufacturing capacity utilisation, investment activity was mainly driven by the government. The government was a significant driver of economic growth, through high consumption spending and a strong investment cycle driven by the elections and the utilisation of EU funds. The subdued consumer confidence in connection with the weakened expectations surrounding future employment status and the uncertain international environment was reflected in developments in private consumption, which, despite its relatively high level supported in part by consumer lending, varied considerably over the course of the year, and grew more slowly than real disposable income. While uncertainty in the export segment saw manufacturing record a decline in value-added, growth in imports was outpacing growth in exports at the end of the year. The contribution to economic growth made by net trade was therefore negative. The nowcast for the first quarter is currently indicating quarterly growth of 0.4%,[4] while the December projections had forecast that economic growth this year might strengthen to around 2%.[5] Following the escalation of the war in the Middle East in early March, the risks to economic growth and inflation rose, prices of oil, gas and certain other commodities having risen sharply as a result of disruptions to global supply. These could also pass through into prices of other goods and services in the event of a longer war. In addition, the uncertainty in international trade policy meant that demand for exports continued to trail that for imports, and the contribution to economic growth made by net trade thus remained negative. The IMF’s latest projections for Slovenia forecast economic growth of 2.0% this year and 2.1% in 2027, while the inflation forecast stands at 2.9% this year and 2.1% in 2027.[6]

The Slovenian banking system remains stable, albeit amid the uncertainties present in the international environment. Given the degree to which trade in oil and gas depends on the navigability of the Strait of Hormuz, and in light of the overvaluation on key financial markets, longer-lasting tensions in the Middle East could also increase the risk to the financial stability of the domestic banking sector. A situation of this kind might also drive a deterioration in the business conditions faced by firms and the financial position of households, via rising energy prices, disruption to supply chains, and increased uncertainty. This would be reflected in higher costs, reduced demand and weaker profitability, which would gradually worsen their debt servicing capacity. This would drive a rise in credit risk, which is generally realised with a lag, primarily in the form of a deterioration in the quality of bank portfolios and a rise in non-performing loans. Bank asset quality remains stable for now, with the recent deterioration in the portfolio mainly limited to individual firms.[7] At the same time the increased geopolitical tensions could also drive a rise in cyber risks, as conditions of this kind often bring more concerted cyberattacks and other forms of digital threat.

The stability of the Slovenian economy is confirmed by the rating agencies with their stable outlook assessments. They do however cite high exposure to external shocks as a result of the openness of the economy and the dependence on global trade as a key risk. The three largest global rating agencies have all upgraded Slovenia over the course of a single year (see Table 6.2 in the appendix). The current ratings rank Slovenia at the very top of the region of central and eastern Europe. The stable outlooks for the next two years, although awarded before the outbreak of the war in the Middle East, reflect the increased resilience of the economy and the public finances to external shocks. The financial system is assessed as stable, while the banking sector is seen as well-capitalised and resilient to potential changes in the market. The key factors in the positive changes were the significant external buffers, most notably the current account surpluses, the favourable level of external debt, and the progress on structural reforms, including the pension reform and the gradual reduction of debt as a ratio to GDP.

Despite their positive assessments, the rating agencies draw attention to the risks inherent in the small size and the openness of the Slovenian economy, and its dependence on foreign demand. Growth could be held back over the short term by delays in the execution of development-oriented investment for post-flood reconstruction, while the medium-term risk is mainly posed by structural challenges on the labour market. Membership of the euro area and institutional stability are vital mitigators of macroeconomic risk, although looser fiscal policy or a long period of weak growth could once again raise the pressure on the public finances.

Estimates of growth-at-risk for a 12-month period on the basis of the macrofinancial conditions are a complement to these forecasts, and point to a moderate worsening of tail risks. Growth-at-risk, defined as the 10th percentile of the distribution of future GDP growth, declined from 1.4% at the end of 2024 to 0.7% at the end of 2025, i.e. even before the attack on Iran, while the probability of negative GDP growth rose from 0.4% to 6.3%. The thickening of the left tail of the distribution was partly mitigated by the favourable financing conditions and the gradual easing of the systemic vulnerabilities built up in the period after the pandemic, both of which made positive contributions to the tail growth result.

Domestic credit activity remains robust, particularly in the household segment. The banks saw an increase in the stock of loans to the non-banking sector in the second half of 2025, most notably to households and NFCs (see Figure 1.2, right). Household lending remains the most important segment of growth in loans to the non-banking sector. Housing loans and consumer loans continue to play a core role in the household segment, with the former recording a larger year-on-year contribution. Loans to NFCs have strengthened slightly in year-on-year terms over recent months, the stock in this segment having remained broadly unchanged over the first half of last year.

Financial flows with the rest of the world represent a major channel for the transmission of external risks to domestic sectors. The total stock of the domestic sectors’ external claims and liabilities was up in nominal and real terms alike on the outbreak of the global financial crisis in 2008, an indication of the domestic economy’s increased integration into the international financial environment. The structure of exposures has however altered significantly. In contrast to 2008, which saw the outbreak of the global financial crisis and thus also had an impact on the Slovenian banking system, the latter is now mainly exposed to these risks indirectly. Consequently it is more resilient to risks in the international financial environment. The banks’ debt liabilities to the rest of the world are very low, and are mainly based on issued securities. However, the sale of holdings in banks to foreign investors strengthened equity ties with the rest of the world, via which any difficulties at the parent banks can be transmitted more easily to Slovenia. The NFCs sector also has significantly greater ties with the rest of the world, particularly via ownership. In this case it is short-term financing at non-affiliates that might in particular become uncertain, while poor performance on the part of parent undertakings could in the worst case threaten the viability of firms in Slovenia. The government also carries significantly more external debt today than at the end of 2008, which means that it is more exposed to higher borrowing costs, particularly in the event of increased need for additional financing. The Slovenian economy however also holds significant external claims. The repayment of these might be called into question in the case of debt instruments, while equities face, alongside the extreme possibility of bankruptcy, a greater likelihood of significant revaluations, which would also hit households and mutual funds (see Figure 1.3). The larger holdings of claims and liabilities are confirmation of the domestic economy’s considerable integration into the international environment, including in the financial realm. The altered structure of financial links with the rest of the world is indicative of a slower and indirect transmission of potential shocks into the banking system, and greater vulnerability to external shocks on the part of other domestic sectors, in that any defaults by foreign debtors could reduce the liquidity or capital of domestic firms, while sovereign defaults could hit the banks.

1.2Risk inherent in the real estate market

Our assessment is that the risk to financial stability posed by the real estate market remained moderate, but the outlook was downgraded to rising. Growth in housing loans rose sharply along falling interest rates, while prices of residential real estate continued to rise and are overvalued in our assessment. Demand for real estate was driven by falling interest rates, low unemployment and wage growth. The supply of residential real estate trails demand and is being curtailed by shortages of skilled labour and land for residential construction, and by high construction costs. The latter could also be hit by elevated geopolitical risks, via energy prices and prices of construction material. If properly formulated, a new approach to taxation of residential real estate might increase the supply of used housing for rental and sale. Growth in commercial real estate prices slowed even as sales increased, while the stock of loans for commercial real estate remains small.

Residential real estate market

Amid an expansion of sales, real estate prices continued to rise in the second half of 2025. After declining for almost three years, sales of residential real estate increased by more than a quarter in 2025 (see Figure 1.6, left). Prices of residential real estate continued to rise, the year-on-year rate of growth stood at 5.8% in the final quarter of 2025. There was a sharp increase in year-on-year growth in prices of used flats, particularly in Maribor, where the rate hit 12.3%, while the rate in Ljubljana stood at 6.3% (see Figure 6.2, left, in the appendix). Prices of residential real estate were up in real terms in the final quarter of 2025 and were around 16% higher compared with 2008. Year-on-year growth in prices continued in almost all EU Member States and averaged 5.5% across the EU in the final quarter of 2025, slightly lower than in Slovenia (see Figure 1.6, right).

Individual indicators of overvaluation and undervaluation of residential real estate suggest that residential real estate is overvalued. Despite increasing, the overvaluation of residential real estate remains less than in 2008. While the composite real estate overvaluation index[11] indicates a high level of overvaluation, the UOC indicator suggests a slight undervaluation of residential real estate. The structural model for the valuation of residential real estate shows minor overvaluation, while the ratio of prices to disposable income suggests similarly (see Figure 1.7, left). Residential real estate prices and rents have undergone a sustained rise over the last five years, with growth in prices outpacing that in rents over the last two years, thereby increasing the overvaluation as measured by the price-to-rent ratio.

Government financing and the promotion of construction of public rental housing could help ease the shortage of rental housing, which is maintaining upward pressure on rents. Under a new law[12] passed at the end of 2025, EUR 100 million is to be earmarked each year until 2034 for the construction and renovation of housing. This will help establish a scheme for favourable loans for the construction of public rental housing. After the high rates seen between 2022 and 2024, growth in rents slowed in 2025 (according to the data for calculating the consumer price index), the year-on-year rate averaging 1.9%. The special conditions and time restrictions on short-term letting of housing put in place by the new law on the hospitality industry[13] will drive a reconsideration of short-term letting and the continued acquisition of real estate for this purpose.

The imbalance between the supply of and demand for residential real estate is driving a rise in residential real estate prices. Construction of new-build housing is still being hindered by high construction costs, which are cited by around a third of construction firms. Year-on-year growth in costs of material has slowed in recent years, but labour costs are still rising, and might rise even faster as wages rise. Amid the elevated geopolitical risks, which are driving up prices of fuel, commodities and construction material, the upward pressure on prices of construction services is also increasing. Half of all construction firms also cite a shortage of skilled labour as a significant limiting factor, and foreign nationals already make up half of the workforce in the sector. Only around 5% of firms are being hindered by high finance costs. The supply of new-build housing is also being curtailed by a shortage of suitable land for the construction of residential buildings, prices of which have risen significantly in recent years. According to SMARS data, after slowing in 2023 and 2024, growth in prices of land for the construction of residential buildings picked up again, with land prices in the first half of 2025 up 2% on the second half of 2024 (see Figure 1.7, right).

The limited supply of residential real estate could drive a further rise in prices. Gross investment in housing was down in year-on-year terms for the second consecutive year, although its ratio to GDP remained at 2.5%, less than half of the euro area average. The amount of construction put in place in the residential construction segment in the second half of the year was up 4.4% year-on-year in real terms. Construction confidence improved in the second half of 2025, amid increases in construction activity and order books driven by government investment (see Figure 6.3, left, in the appendix). Although the number of residential buildings for which building permits have been issued rose slightly in 2025 after falling in 2024, the supply of residential real estate is not going to increase significantly in the future.

The rise in real estate prices is being accompanied by an increase in household indebtedness, which could also entail an increase in risks to financial stability, but the financial position of households remains favourable. There has recently been a significant increase in the share of sales financed by a housing loan. Year-on-year growth in housing loans had increased sharply to 8.8% by the end of 2025, one of the highest rates in the euro area (see Figure 1.8, right). In the wake of the fall in interest rates, the volume of new housing loans in 2025 was up more than a half on 2024, raising the stock to EUR 9.3 billion (see Figure 1.8, left). The ratio of housing loans to GDP meanwhile remained significantly below the euro area average, an indication of the lower indebtedness of Slovenian households. It has increased slightly over the last decade, from around 13% to around 17%.[14]

According to the BLS, banks assessed that falling interest rates were a positive factor in demand for housing loans, but were expecting demand to decline slightly in the future (see Figure 6.2, left, in the appendix). The outbreak of the war in the Middle East has strengthened expectations of a potential earlier rise in central bank interest rates, including at the ECB.[15] Demand for housing loans and real estate has slowed amid rising interest rates in the past, but given the general uncertainty, which is also evident on the financial markets, residential real estate might become an even more attractive investment. Credit standards for housing loans mostly remained unchanged according to banks.

Commercial real estate market

Growth in commercial real estate prices slowed to 4.1% in 2025. The year-on-year rate stood at 1.8% in the third quarter, but picked up to 8.5% in the final quarter (see Figure 6.2, right, in the appendix). Prices were up 21.7% on 2008 in nominal terms, but down 15% in real terms (see Figure 1.9, left). Sales on the commercial real estate market strengthened and were up around 30% in 2025.

Construction activity in the second half of 2025 was up significantly in year-on-year terms, driven by government investment and investment in infrastructure. The amount of construction put in place in construction of non-residential buildings was up 22.0% year-on-year in real terms. This raised the ratio of gross investment in non-residential buildings and other structures to GDP, which stood at 8.4% in the final quarter of 2025 (compared with 7.1% a year earlier). The Slovenian commercial real estate market nevertheless remains small, and the supply of new commercial real estate is limited. After rising by 6.8% in 2024, the number of non-residential buildings for which building permits have been issued was up only 1.4% in year-on-year terms in 2025 (see Figure 6.3, right, in the appendix), an indication of the slowdown in growth in non-residential construction activity.

Despite an increase, the stock of loans for commercial real estate remained small in 2025. The stock of loans for commercial real estate has more than doubled over the last five years and amounted to EUR 422 million at the end of 2025. Loans for commercial real estate thereby accounted for 4.4% of total loans to NFCs (see Figure 1.9, right). These loans were primarily for the purposes of construction (71.2% of the total at the end of 2025), and for the purchase and renovation of commercial real estate (22.0%). The stock of off-balance-sheet exposures to construction and real estate activities has risen significantly in recent years.

1.3Funding risk

Funding risk remains moderate with a stable outlook. Amid a pronounced inflow of deposits by households and NFCs, deposits by the non-banking sector strengthened sharply again in 2025 and remained the most important source of funding for Slovenian banks. The already-large stock of sight deposits also increased, with falling interest rates on deposits making savers less motivated to fix their savings. Given the large stock of available savings and the increasing level of digital banking, the possibility of the sudden and large-scale switching of deposits between banks or out of the banking system is rising, which could cause instability in bank funding. The competing services from new digital banking and other financial services is steadily increasing. Although deposits by the non-banking sector currently remain a stable source of funding, maintaining funding stability in the future will also depend on closely monitoring clients saving habits and promptly adapting offerings to competition.

Funding

Deposits by the non-banking sector increased sharply in 2025 as a result of a large inflow of deposits by households and NFCs. The increase in deposits by the non-banking sector amounted to EUR 2.9 billion or 6.9%, and was significantly larger than in the previous year, and comparable with the increase seen in the pandemic year of 2021. The prevalence of sight deposits in the Slovenian banking system’s funding grew even greater. Because the growth in deposits was nevertheless outpaced by growth in loans to the non-banking sector, there was a slight increase in the LTD ratio for the non-banking sector for the second consecutive year, although it remains below the euro area average at 69%. The low LTD indicates that the Slovenian banking system remains less exposed to wholesale funding, and thus to a potential adverse impact from foreign financial markets, than those European banks where dependence on wholesale funding is greater.

Given their large stock of deposits by the non-banking sector and liquid assets, the banks continued their low dependency on other sources of funding (see Figure 1.10, left). Several of them reduced their liabilities to the rest of the world last year, while only one bank held minimal liabilities to the ECB at the end of the year. Similarly to previous years several banks issued debt securities for the purpose of meeting their minimum requirements for own funds and eligible liabilities (MREL), which did not significantly alter the relatively small share of this funding source in the balance sheet total.

Households sharply increased their saving at banks in 2025. The stock of deposits increased by EUR 1.9 billion, significantly more than in the two preceding years (see Figure 1.10, right). The monthly inflows of household deposits were relatively high, particularly in the first half of the year amid weak private consumption, continuing wage growth, and payments of dividends and annual leave allowance, which usually drive a rise in bank deposits over the spring months. More modest monthly inflows followed in the second half of the year, particularly over the summer and early autumn, coinciding with increased household spending on leisure and the preparations for the new school year. The exception was December’s pronounced increase in deposits, which was double that seen in the same month of the two preceding years. This is attributed to bonus payments in the wake of a successful business year, and the first payments of the winter leave allowance to all employees and the winter bonus to pensioners. As a result, the year-on-year growth in household deposits strengthened further in December, and at 6.8% was among the highest rates in the euro area and well above the euro area average, where growth slowed slightly last year (see Figure 1.11, left).

To maintain the stability of deposits in the future, it will be important for the banks to carefully monitor the saving habits of households, and to adjust their services to competing providers of banking and financial services. The large stock of bank deposits indicates that for now most Slovenian savers are not inclined towards higher-risk alternative investments. The development of advanced digital technologies in recent years is nevertheless driving a gradual change in the saving habits of certain customers. Digital technology, which is particularly closely associated with younger generations of savers, enables fast and simple access to various domestic and foreign providers of banking and other financial services (crypto-assets, securities trading, mutual funds, stablecoins, transactions with neobanks). Since 2024, we have already observed increased saving at traditional banks in other euro area countries (see Figure 1.11, right), particularly in Austria and Germany, which, despite some reductions, continue to offer higher interest rates on fixed-term deposits than Slovenian banks. A slightly higher-yielding alternative to bank saving are bonds for citizens, which the government issued for the third time this March following two successful issuances. Some savers will be encouraged to invest in these bonds or other financial instruments by the introduction of individual investment accounts in March. These allow investment in various financial instruments to be managed in one place, and also offer benefits, most notably tax advantages.[16] We are nevertheless not expecting any adverse impact on household deposits over the short term, as opening an individual investment account also entails constraints on investors, an additional costs related to opening and management of the account, and requires a certain level of financial knowledge to make prudent investment decisions. At the same time most households have relatively low holdings of banks savings, which are likely intended more for ensuring liquidity security than for alternative investments.

After a slight decline in the previous year, NFCs again increased their savings at banks in 2025. The stock of deposits by NFCs rose by EUR 808 million or 7.4% (see Figure 1.10, right), and they remained the second most important source of funding for Slovenian banks, accounting for a fifth of the balance sheet total. Similarly to household deposits, growth in deposits by NFCs at the end of last year was well above the euro area average (see Figure 1.11, left). Repayments of maturing loans, and payments of dividends to equity holders and of winter leave allowance helped to drive a reduction in deposits by NFCs at Slovenian banks in the first half of last year. The trend reversed later in the year, when the monthly inflows of deposits strengthened. As turnover increases, the summer holidays bring increased opportunities for saving at certain firms, particularly those in tourism and in the hospitality industry. Saving by NFCs at banks in the rest of the world declined by more than a tenth over the first nine months of last year[17] (see Figure 1.11, right), which might have been a factor in the increase in deposits by NFCs at Slovenian banks. These remained higher due to weak investment activity, with firms remaining more cautious in opting for new investments amid the unpredictable development of the geopolitical and international trade situation.

Deposit maturity and maturity gap between assets and liabilities

Sight deposits strengthened as the interest rates on short-term and long-term deposits continued to decline. Lower interest rates mean that households and NFCs are even less motivated to fix their savings. Short-term and long-term fixed deposits both declined in consequence, and most savers’ savings remained in sight deposits at banks. As a result, the high share of sight deposits increased even further in 2025, reaching 86.3% of total household deposits and 77.0% of total deposits by NFCs, significantly above the long-term averages (see Figure 1.12, left). Similarly to Slovenia, sight deposits also increased in other euro area countries between June 2024, when the ECB began lowering interest rates, and December 2025 (see Figure 1.13, left). Slovenia ranks among the countries with the highest growth in sight deposits over this period and is also notable for the highest share of these deposits in the balance sheet total. Slovenian banks are thus more exposed to the risk of a potential sudden withdrawal of deposits by households and NFCs from the banking system than banks in countries where dependence on this source of funding is lower.

The maturity gap widened for the second consecutive year, and the risk of funding instability inherent in the gap increased. Given the large stock of sight deposits, which strengthened further in 2025, the weighted average maturity of liabilities shortened. At the same time the continuing redirection of demand liquid assets from accounts at the central bank into longer-term debt securities and loans meant that the weighted average maturity of assets increased. This widened the maturity gap by more than five months to a high five years and four months (see Figure 1.13, right). This is the widest gap since 2013, which saw the beginning of the rapid growth in sight deposits, which is the key factor in the large maturity mismatch. A sudden, large-scale and rapid shift of deposits between banks or out of the banking system, enabled by sight deposits, could reduce the stability of the banking system. Here it should nevertheless be reiterated that deposits currently remain a stable source of funding, with savers retaining high confidence in the performance of the banking system, despite the unpredictable events of recent years.

1.4Interest rate risk

Interest rate risk in the banking system remains moderate, but is continuing to increase. The repricing gap has widened significantly, primarily due to changes on the asset side, thus increasing the banks’ interest sensitivity. Last year banks expanded their hedging against changes in interest rates by means of interest rate swaps. Strong household lending saw the trend of moderate increase in the share of fixed-rate loans continue. The increase in holdings of debt securities on bank balance sheets also continued, lengthening the residual maturity, while holdings of primary liquidity declined further. Overall these changes drove a further lengthening of the average repricing period of bank assets. The changes in the funding structure did not have a significant impact on the average repricing period on the funding side. The structure of deposits by the non-banking sector, which constitute by far the largest component of bank funding, has only slightly changed as a result of the increase in sight deposits.

Interest sensitivity

Interest rate risk remains moderate, but the relevant indicators point to an increase over the longer term. Loans to the non-banking sector increased by 4.6% in the second half of last year, and were up 8.6% in year-on-year terms in December, having increased by EUR 2.4 billion in 2025. This also increased the share of total assets that they account for (see Figure 1.15, left). The majority of the increase continues to be driven by household loans, where fixed-rate loans are prevalent; their share of the stock continued to increase (see Figure 6.5, left, in the appendix). On the other hand, the share of fixed-rate loans in the NFCs portfolio has slightly and gradually declined (see Figure 6.5, right, in the appendix). The ongoing higher growth in housing loans is pushing up the share of loans with longer maturities in the total credit portfolio, and the average maturity of the housing loan stock is gradually lengthening. The average residual maturity of fixed-rate housing loans stood at 16 years in December of last year. The overall impact of the rising share of fixed-rate loans and their longer average residual maturity is continuing to be reflected in a moderate lengthening of the average repricing period for bank loans, which is increasing the interest sensitivity of the bank credit portfolio as a whole.

Last year’s increase in holdings of debt securities, amid a simultaneous decline in liquid assets, had a significant impact on interest rate risk in the banking system. Holdings of securities, where debt securities are predominant, increased by fully EUR 1.6 billion last year, pushing up the share of total assets that they account for (see Figure 1.15, left). At the same time there was a notable lengthening in the residual maturity and the average repricing period of securities. From the perspective of interest rate risk, they thus became an even more significant component of total assets,[20] increasing the banks’ sensitivity to changes in market interest rates. Holdings of primary liquidity by contrast continued to decline in the second half of the year,[21] taking the overall decline in 2025 to EUR 1.1 billion, while the residual maturity and the average repricing period remained very short. This discernibly reduced the share of total assets that they account for (see Figure 1.15, left). Alongside the aforementioned changes in the loan portfolio, these dynamics had a significant impact in lengthening the average repricing period on the asset side of the balance sheet (see Figure 6.6, left, in the appendix).

There were a number of changes in liabilities last year, but these had no significant impact on the banks’ interest sensitivity. Deposits by the non-banking sector increased by EUR 2.9 billion or 6.9% over the course of the year, and continued to account for more than three-quarters of total funding (see Figure 1.15, right). The increase was driven by sight deposits, while the stock of long-term deposits declined slightly. This altered the breakdown of deposits slightly compared with the end of 2024 (see Figure 6.8, right, in the appendix). Despite increasing in the interim, the average repricing period of deposits was thus broadly unchanged last year. The average maturity and average repricing period of issued debt securities lengthened slightly in 2025, but the small share of total funding that they account for meant that there was no discernible impact on the average repricing period of liabilities. The overall changes in deposits and issued debt securities thus had no significant impact on the average repricing period last year (see Figure 6.6, left, in the appendix).

The repricing gap increased discernibly last year as a result of changes on the asset side. By the end of the year it had reached its largest width of recent years, having increased even under the assumption of the stability of the core component of sight deposits, i.e. those sight deposits that have a low probability of withdrawal from the banking system in the event of a rise in interest rates (see Figure 6.6, left, in the appendix). While the lengthening of the average repricing period on the funding side in 2024 was broadly neutralised by the lengthening of the average repricing period on the asset side, thereby keeping the gap relatively stable, this effect was not present last year. The changes on the asset side, whether in loans or in securities, were the most important factor in the increase in the banks’ sensitivity to changes in interest rates. Interest rate risk continues to be assessed as moderate, but the continuation of a trend of this kind over a longer time horizon suggests that it will increase. In the event of a rise in long-term interest rates or a steeper yield curve, given the interest-sensitive structure of the system, interest income would increase, albeit under the condition that funding, primarily sight deposits, remains at its existing stock and terms. The impact on the market value of fixed-remuneration assets would be negative by contrast, albeit unrecognised in profit or loss or in equity when the loans and the majority of debt security holdings are measured at amortised cost.

Last year the banks increased their hedging against the effects of changes in interest rates by means of interest rate swaps. The increase in holdings of these instruments amounted to EUR 1.5 billion last year. The ratio of the notional value of interest rate swaps to total assets stood at 15% (see Figure 6.6, right, in the appendix). The increase in holdings of interest rate swaps was driven by the need to meet regulatory requirements in the area of interest rate risk in the banking book.[22] Since 2023 the banks have notably increased their holdings of these instruments, and are using them to hedge asset and liability items, and as collective (macro) and individual (micro) hedges.

Interest rates

The fall in interest rates on new loans slowed last year, and came to an end on certain types of loan, with some interest rates even beginning to rise slightly. The ECB made no further interest rate cuts in the second half of the year, which slowed the fall in interest rates on bank loans. Households continued to show a preference for taking fixed-rate loans. Fixed interest rates on new housing loans fell over the first eight months of the year, before rising again over the next four months to stand at 2.9% in December, below the euro area average (3.3%). Fixed interest rates on new consumer loans fell continually to reach 5.6% in December, their lowest level of the last decade. They remained below the euro area average (7.2%), with the spread widening over the course of the year as interest rates fell faster in Slovenia. Variable interest rates on loans of both kinds also fell last year, although variable remuneration continued to account for just a minor share of all new lending. Variable interest rates on new loans to NFCs, which are more prevalent than fixed-rate loans, fell gradually last year while exhibiting greater volatility than the euro area overall. They stood at 3.8% in December, slightly higher than the euro area average. Meanwhile fixed interest rates also fell amid even greater volatility, and at 3.2% in December were below the euro area average.

The fall in interest rates on the stocks of loans to the non-banking sector came to an end in Slovenia in the second half of last year. While interest rates on loans to households and NFCs were still falling markedly in the first half of the year, they stabilised in the second half of the year (see Figure 1.16, left). The fall primarily reflected current adjustments in variable interest rates on existing loans,[23] which tracked the dynamics of the fall in interest rate benchmarks, while the loan portfolio also saw increasing inflows of new fixed-rate loans with lower interest rates. Interest rates on housing loans stabilised in the second half of the year, at 2.8% for fixed-rate loans and 4.2% for variable-rate. Meanwhile rates on consumer loans were continuing to fall slightly, reaching 6.2% in December on fixed-rate and variable-rate loans alike. Average interest rates on fixed-rate loans in the NFCs portfolio were stable overall at 3.1% in the second half of the year, while variable interest rates on existing loans rose in December to 4.0%. The fall in interest rates on loans to households and NFCs was significantly slower in the euro area overall,[24] and also came to an end in the second half of the year. The spread between average interest rates in Slovenia and those in the euro area overall nevertheless remained larger in December than it had been during the period of low interest rates a few years ago.

The interest rate spreads between Slovenia and the euro area overall are mainly attributable to the specific market structure, cheaper funding, and the banks’ strategic focus on higher-yielding segments. Because Slovenian firms rarely identify bank funding as a limiting factor, and often finance themselves outside the banking system, the banks have focused on households. Consumer loans remain a key source of earnings, and competition between banks has driven a fall in fixed interest rates over the last three years. At the same time demand for housing loans is picking up, amid high growth in real estate prices. Fixed interest rates in this segment consequently fell more quickly than in the euro area overall over the last two years, and dipped below the euro area average in 2025. The sole factor worsening the conditions remains risk perception. While recent and current interest rates have been lower in Slovenia in the household segment, and similar to the euro area overall in the NFCs segment, the higher interest rates in loan stock reflect the higher interest rates seen in Slovenia in the past.

Interest rates on the stocks of deposits by the non-banking sector remained significantly lower in Slovenia than in the euro area overall, despite falling more slowly. The fall in interest rates on new fixed-term deposits slowed in the second half of the year, and came to an end on certain types of deposit. Interest rates on new long-term[25] household deposits stabilised at just over 1.5%, while interest rates on short-term household deposits fluctuated around 0.8%. Interest rates on fixed-term deposits by NFCs also stopped their trend of decline in the second half of the year. They averaged 1.8% on long-term deposits and 1.4% on short-term deposits. Interest rates on sight deposits, whose share of total deposits by the non-banking sector has been increasing overall since spring of 2024 (see Figure 6.8, right, in the appendix), held at slightly below 0.1% for households and NFCs. The fall in interest rates on the stock of deposits by households and NFCs slowed sharply in the second half of last year, similarly to the euro area overall. The narrowing of the spread between interest rates in Slovenia, where they are significantly lower, and the euro area thus also came to an end. It remained considerably wider than in the period of low interest rates a few years ago (see Figure 1.16, right).

The narrowing of the interest spread[26] slowed in the second half of the year in the household portfolio, and came to an end in the NFCs portfolio. In the household portfolio (see Figure 6.7, left, in the appendix) and the NFCs portfolio (see Figure 6.7, right, in the appendix), the interest spread began to narrow after peaking in September 2023, while the spread with the euro area overall remains larger than during the period of low interest rates. The wide spread in the household portfolio reflects the large share of sight deposits with interest rates close to zero, and the below-average returns on fixed-term deposits compared with the euro area overall, which is not encouraging longer-term saving with banks (see Figure 6.8, right, in the appendix). The interest spread in the NFCs portfolio was narrowing until July of last year, then held steady, before widening slightly in December as interest rates rose. The relatively wide interest spread also means however that banks in Slovenia remain in a better income position compared with the euro area overall.[27]

1.5Credit risk

Credit risk remains moderate, with a rising outlook amid the uncertain economic environment. The deterioration in the quality of the credit portfolio last year was driven solely by a number of manufacturing firms, and did not entail a broader deterioration in the debt servicing conditions at banks. The economic situation nevertheless remains highly uncertain in light of the war in the Middle East and the large rise in energy prices, which means a further deterioration in the quality of claims cannot be ruled out, particularly at economic entities for whom energy represents a large share of their costs and those in energy-intensive industries. The number of bankruptcies initiated rose last year, but bank exposure to these firms remained low. Other customer segments saw an improvement in portfolio quality by contrast. Coverage by impairments and provisions declined in the non-performing and performing segments of the portfolio alike.

NPEs and credit risk stages

The quality of bank assets as measured by the NPE ratio deteriorated at the end of 2025. The NPE ratio has recently risen notably more than in other euro area countries, closing the gap with the median figure and most likely passing it by the end of the year (see Figure 1.17, right).[28] The NPE ratio in the total portfolio increased to its highest level since the first quarter of 2021, hitting 1.6% in December (see Figure 1.17, left). The stock of NPEs increased by EUR 455 million (76.5%) last year to EUR 1.0 billion. The relatively large increase was driven exclusively by NFCs (see Figure 6.9, left, in the appendix), but was concentrated solely at a number of manufacturing firms (Sector C),[29] and did not reflect a broader deterioration in debt servicing at banks. This drove the NPE ratio in the NFCs portfolio up considerably to 4.2%, where it had last stood in June 2020, having increased sharply in manufacturing (see Figure 1.18, left). The increases in the stock of NPEs and the NPE ratio in manufacturing were driven by individual firms in the manufacture of basic metals (24),[30] the manufacture of fabricated metal products except machinery and equipment (25) and the manufacture of motor vehicles, trailers and semi-trailers (29), with exposures at several different banks. Professional, scientific and technical activities and administrative and support service activities (Sectors N and O) were also noteworthy: the NPE ratio in this segment increased as a result of the reclassification of exposures as non-performing at a firm with links to the aforementioned firms in the manufacture of basic metals. By the end of the year rises in the NPE ratio were also evident in electricity, gas, steam and air conditioning supply and water supply, sewerage, waste management and remediation activities (Sectors D and E), where in this case the increase was attributable to a single firm as well. In other sectors, primarily services, portfolio quality improved overall in the second half of the year. Given the highly uncertain external economic environment, which has been worsened by the recent outbreak of the war in the Middle East and the surge in prices of energy and certain other commodities, a future deterioration in credit portfolio quality might be driven by sectors where energy represents a large share of costs, or energy-intensive firms, and firms in the chemical industry, logistics and construction.

Other customer segments recorded an improvement in portfolio quality. The strengthening of household lending is being accompanied by favourable developments in NPE ratios, which are continuing to reflect the buoyant labour market and the overall solid financial position of households. The NPE ratio in the household portfolio declined to 1.4%, its lowest level since the indicator has been in use. The decline was evident in all types of household loan (see Figure 1.18, right). The NPE ratio also remained low (0.2%) in the non-residents portfolio (see Figure 1.17, left), which constitutes the largest component of total bank exposure alongside NFCs and households. By the end of the year the NPE ratio had declined notably in the sole traders portfolio, although the share of total bank exposure that they account for, and thus their impact on the total portfolio, remains small.

The share of Stage 2 exposures (increased credit risk) declined to its lowest level for several years. The decline was broadly based across customer segments (see Figure 1.19, left). The stock of Stage 2 exposures declined by EUR 594 million (or 18.1%) last year to stand at EUR 2.7 billion, with households and NFCs accounting for the majority of the decline. While the decline in the stock of Stage 2 exposures in the household segment entailed an improvement in the quality of the loan portfolio, the stock of NPEs in the portfolio having undergone no increase, in the NFCs portfolio it entailed reclassification from Stage 2 to NPEs. The share of Stage 2 exposures in the household portfolio had declined to 6.7% by December of last year (see Figure 6.9, right, in the appendix), closely approaching its lower levels from five years ago, and continued to reflect the sound financial position of households as recognised by banks. The decline in the share of Stage 2 exposures was driven by housing loans and consumer loans, while other household loans saw an increase in the figure over the course of the year.[31] Sole traders remain notable among other customer segments, but the share of Stage 2 exposures in this portfolio has stabilised over the last two years, and at 14.5% in December was close to its lowest level of this period.

After rising significantly in late 2024, by the end of last year the share of Stage 2 exposures in the NFCs portfolio had again declined to a level similar to that before its rise. It stood at 7.3% in December, the change having been driven primarily by shifts in manufacturing (see Figure 1.19, right). Having identified increased risk, the banks first reclassified exposures to the aforementioned manufacturing firms to Stage 2 at the end of 2024, and then to NPEs at the end of last year. For this reason the share of Stage 2 exposures in manufacturing increased sharply in 2024, before declining in 2025 in the wake of the reclassification of these exposures as non-performing. This means that the banks promptly identified the increased default risk in the aforementioned exposures, having held these exposures in Stage 2 for approximately one year. The banks were mostly quite careful in monitoring the risk of individual exposures, in that even shorter arrears were reclassified relatively quickly as Stage 2 or NPEs. A number of banks however were relatively late in identifying these exposures as non-performing. Similarly to NPEs, the developments in the share of Stage 2 exposures in professional, scientific and technical activities and administrative and support service activities were primarily linked to changes at a single firm. Among other activities there was an even more noticeable change last year in electricity, gas, steam and air conditioning supply and water supply, sewerage, waste management and remediation activities, where the share of Stage 2 exposures had declined to 3.4% by December as a result of exposures being reclassified to Stage 1.

Changes in NPEs and bank expectations

According to the bank survey, repayments were the largest component of the decline in the stock of NPEs in 2025. They were followed by write-offs and reclassifications as performing exposures (PEs) with equal contributions (see Figure 1.20, left). Despite an overall reduction in NPEs[32] that was 40% larger than in 2024, the stock at the end of 2025 was up 73.4% on the end of the previous year, primarily as a result of the aforementioned major reclassifications as NPEs in the NFCs portfolio in the final quarter. Repayments accounted for 42% of the overall reduction in NPEs, followed by write-offs and reclassifications as performing exposures with 21% (see Figure 1.20, right). Repayments of NPEs were the largest component of the overall reduction in NPEs in the NFCs and household portfolios alike, accounting for 40% in the first and 43% in the second (see Figures 6.10, right and 6.11, right, in the appendix). The most evident difference between the two segments was in write-offs, and in reclassifications as performing. While write-offs accounted for 26% of the overall reduction in the NFCs portfolio, in the household portfolio the figure was just 16%. The opposite applies to improvements in the status of NPEs and reclassifications as performing exposures, which accounted for 17% of the reduction in the NFCs portfolio and 30% in the household portfolio. This is indicative of banks taking a more conservative approach when assessing risk in the household portfolio, with a significantly larger share returning to performing status than in the NFCs portfolio. Repayments and reclassifications as performing exposures account for almost three-quarters of the overall reduction in NPEs in the household portfolio, which is indicative of the capacity of households to repay arrears when servicing debt at banks and to continue repaying their liabilities to banks.

Banks are expecting an increase in NPEs this year, followed by a decline in 2027.[33] According to the survey data, the stock of NPEs is expected to increase by 4.2% this year, before declining by 2.5% next year, a considerably more optimistic forecast than in last year’s survey.[34] Banks are expecting the stock of NPEs in the household portfolio to increase by 8.2% this year, and by 6.3% next year. After last year’s large increase in the stock of NPEs in the NFCs portfolio, which strongly exceeded banks’ expectations in last year’s survey, they are expecting an increase of 3.2% in the NFCs portfolio this year, and a decline of 5.3% next year (see Figure 6.12, left, in the appendix). Coverage of the unimpaired portion of NPEs by profit and equity declined sharply last year to its lowest level of the last five years, but banks still have a large capital reserve amid solid profitability and a favourable capital position. The potential for significantly larger realisation of new NPEs than expected would not have a significant impact on capital for banks. Even after last year’s large increase in the stock of NPEs, regulatory capital in the banking system is almost seven times larger than the total stock of NPEs, and almost 13 times larger than the unimpaired portion of NPEs (see Figure 6.12, right, in the appendix). Despite the significant increase in the stock of NPEs, last year’s profit was also larger than the unimpaired portion of NPEs (by 1.8 times).

Exposure to firms in bankruptcy and firms with a frozen current account

The number of bankruptcy proceedings initiated rose last year compared with the previous year, but the banks’ exposure to these firms nevertheless remained low. The difficult economic situation in 2025 was reflected in a rise in the number of firms in bankruptcy: the figure was up 7.3% in year-on-year terms. The banks’ exposure to firms in bankruptcy also increased, by 14% to EUR 72 million (see Figure 1.21, left). The banks’ exposure to these firms measured relative to total exposure to NFCs was also low, having peaked at 0.60% in April of last year. It had declined to 0.49% by December. The breakdown of exposure to firms undergoing bankruptcy proceedings is similar to the breakdown of exposure overall: in December manufacturing firms were prevalent with 30%, followed by wholesale and retail trade with just under a fifth, and professional, scientific and technical activities and administrative and support service activities with slightly less than a sixth (see Figure 1.21, right). In the difficult economic environment seen in the last few years, the largest increase was in the share accounted for by exposures to manufacturing, while the largest decline was in exposures to construction.

Similarly to bankruptcy proceedings, the number of firms with a frozen account rose last year compared with the previous year, although in this case too bank exposure to these firms remained low. The difficulty of the economic situation was also reflected to a lesser extent in a rise in the number of firms with a frozen current account in 2025. The number was up 3.0% in year-on-year terms. This also raised the banks’ exposure to firms with a frozen account. This figure had been somewhat volatile over the two preceding years, but its trend of increase continued last year. The share of total exposure accounted for by firms with a frozen account nevertheless remained low at 0.77% in December 2025 (see Figure 1.22). Manufacturing firms accounted for just under two-fifths of total exposure to firms with a frozen account in December, followed by construction firms with just under a quarter, while the remaining share of just over a third consisted of firms in professional, scientific and technical activities and administrative and support service activities, and other activities (see Figure 1.22, right). Similarly to bankruptcy proceedings, amid the difficult economic environment the largest increase in the share of exposure over the last few years has been recorded by manufacturing firms.