STA, 19 December 2018 - Presenting Banka Slovenije's latest Macroeconomic Projections and Financial Stability Review publications, acting governor Primož Dolenc said on Wednesday that Slovenia's financial system was healthy. "Banks' profitability is currently very favourable, but some income risk exists in the mid-term," he told the press.
Dolenc, who called on banks to seek new sources of net interest and non-interest income, said the risk is compounded by a substantial share of the banks' profitability remaining the result of the easing of impairments and provisions.
Tomaž Košak of the central bank's financial stability and macro-prudential department illustrated that the banks generated EUR 422m in pre-tax net profit in the first nine months amid 3.6% year-on-year growth in net interest income. The easing of impairments and provisions contributed EUR 41m.
"Were the banks to form provisions at the level of the long-term average today and the provisions accounted for 23% of gross income, the profit would be halved to EUR 180m and return on capital would fall from 12% to 5%," he said.
Concerns about an overheating housing market
While general risks to the financial system have remaining similar to those in the middle of this year, they have increased somewhat on the housing market.
"We estimate that the prices on this market are growing today because supply is failing to keep up with demand, meaning it is not consequence of excessive bank lending," Dolenc said, while asserting the current developments were not a danger to the banking system, which was well capitalised and resistant to potential shocks.
Košak highlighted strong growth in real estate prices in the last two years in particular in Ljubljana, Koper and certain tourist centres. Housing prices went up by 10% last year and by 13.4% in the first half of this year, which is the biggest increase in the eurozone.
"We are currently not talking about overheating, but any further price increases will start leading to the market overheating," he said.
The growth of housing loans to households was moderate and stable this year and lending standards are relatively high.
This was the case with consumer loans though, which is why the central bank recommended in November that retail banks impose stricter conditions.
Meanwhile, the quality of banks' portfolios has also improved, with exposure to non-performing loans falling to 4.5% by September.
"Some banks are still dealing with exposure dating back to the crisis, which is why we stress the need for them to make use of the favourable business conditions to restructure their portfolios," Košak said.