STA, 12 January 2019 - The global financial crisis, which erupted in 2008 with the collapse of Lehman Brothers, hit Slovenia with a delay, but it exposed huge weaknesses that had built up in the majority state-owned banking system. By 2012 Slovenia was locked out of financial market, and it took until the bank bailout in late 2013 before the sector recovered.
In the run-up to the crisis, credit growth was buoyant, driven by cheap money after interest rates collapsed following the changeover to the euro in 2007.
Loans to the non-banking sector surged by almost two-thirds between 2006 and 2008. Banks financed the expansion mostly by securing financing from foreign banks.
The crisis thoroughly razed the banking landscape.
Banks' total assets peaked at over EUR 50bn in 2010 before reaching a low of just 37bn six years later.
Similarly, lending contracted by more than a third between 2010 and 2016, as banks deleveraged to pay back their foreign loans rather than extend new loans to Slovenian businesses.
On the other hand, deposits remained robust as households responded to the crisis by tightening spending, which deepened the economic crisis but gave banks a lifeline when foreign financing dried up.
The total volume of loans slipped slightly during the crisis as households drew down their savings, going from EUR 23.9 bn in 2010 to EUR 22.4bn in 2013, but the contraction was never as severe as the tightening of lending.
Total assets Loans to non-banking sector
(in EUR m) (in EUR m)
2006 34.1 20.6
2007 42.6 28.5
2008 47.9 33.7
2010 50.8 34.7
2013 40.3 24.3
2014 38.7 21.5
2016 37.1 20.5
2018* 38.3 22.2
* As of 31 October
Source: Slovenian central bank
The credit explosion leading up to the crisis inflated a property bubble, which burst post-2010 as large construction companies that also financed their own projects collapsed one after the other, as did over-leveraged financial holdings.
The share of non-performing loans started to soar, forcing banks to set aside increasing provisions and writing down assets, leading to a negative spiral.
Whereas foreign-owned banks received capital injections from their shareholders, the three biggest banks in the country were all in state ownership, requiring growing amounts of public funds to keep them afloat.
The story came to a head in December 2013, when the treasury spent EUR 3.5bn recapitalising NLB, NKBM and Abanka, wiping out shareholders and junior bondholders in the process. Two smaller banks, Probanka and Factor Banka, were wound down.
At the same time, about four billion euros in non-performing loans were transferred onto the newly-established Bank Assets Management Company (BAMC), which also absorbed the assets of Probanka and Factor Banka.
After the banking system was bailed out banks were flush with cash and largely freed of non-performing loans, but it took several years before lending recovered.
Net profit Net provisions, write-downs
(in EUR m) (in EUR m)
2008 208 -120
2009 162 -279
2010 -99 -811
2013 -3439 -3809
2014 -106 -650
2016 364 -96
2017 443 43
2018* 452 45
* As of 31 October
Source: Slovenian central bank
Echoes of this period continue to reverberate five years later, as lawsuits by subordinated bondholders and shareholders wiped out in the bailout make their way through courts.
These investors have targeted in particular the valuations that determined the size of the bailout, alleging that Slovenia had been the target of speculators and a guinea pig for new EU bank resolution rules.
The commotion over the bailout resulted in criminal investigations at the central bank, the resignation of governor Boštjan Jazbec and, recently, criminal charges against the board of governors serving at the time of the bailout.
The costs of the bailout accounted for a significant chunk of the increase in general government debt during the crisis, which ballooned from 22% of GDP in 2008 to almost 84% of GDP by 2015.
The surging debt was accompanied by growing debt servicing costs, as the precarious state of the economy during the crisis led to higher borrowing costs; for a while, Slovenia was practically locked out of the eurobond market and had to borrow in US dollars.
Public debt did not start to decline until 2016, when the economic recovery was already in full swing. In the past two years the treasury has been busy replacing dollar debt with euro bonds and debt has started to decline at a more rapid pace towards the eurozone ceiling of 60% of GDP.
General government finances
Deficit Debt Debt servicing costs
(% of GDP) (% of GDP) (EUR m)
2008 -1.4 21.8 326.1
2009 -5.8 34.6 326.4
2010 -5.6 38.4 476.7
2011 -6.7 46.6 510.6
2012 -4.0 53.8 632.5
2013 -14.7 70.4 827.0
2014 -5.5 80.4 1082.6
2015 -2.8 82.6 1028.8
2016 -1.9 78.7 1064.0
2017 +0.1 74.1 977.3
Source: Eurostat, Statistics Office, Ministry of Finance
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.
STA, 16 November 2018 - The Supreme Court has reversed a decision in favour of Swiss franc borrowers, as it ordered a retrial in a case in which the Higher Court sided with the borrower's claim that he had not been forewarned about possible appreciation of the currency. The case was reported by the Bank Association of Slovenia on Friday.
This is one of the cases related to the by the Swiss central bank in 2015 to stop defending the value of the franc against the euro, which led to a surge in the value of the franc against the euro.
The affected borrowers in Slovenia have been trying to reach a systemic solution, including through the Franc Association, which is lobbying for a special law. In the meantime, courts are processing individual cases.
The particular case had been rejected by the court of first instance, while the Higher Court changed the ruling by completely upholding the claim by the borrower and finding the contract null and void.
According to the newspaper Delo, the case involves the Austrian-owned bank Banka Sparkasse.
The Bank Association of Slovenia, which advocates the case-by-case basis, argued today that the Supreme Court said the consequence of the bank failing to forewarn the borrower could not be the basis for annulling the contract.
The court added that when assessing loan contracts in Swiss francs, courts should take into account that the Slovenian consumer legislation at the time did not precisely regulate the mechanism of informed consent.
The Supreme Court added that an absence of loan calculations in any case must not be a decisive factor, according to the Bank Association.
The court has also confirmed that the central bank, Banka Slovenije, had not been able to project in its publications that the Swiss franc will appreciate, which had happened in 2011 and 2015. It is not possible to make reliable and precise forecasts regarding the period and extent of the change of currency exchange rate, it added.
While the impact of certain factors is predictable to a certain extent to experts, no expert could have predicted a unilateral measure such as that by the Swiss central bank in 2015, which had a decisive impact on the Swiss franc exchange rate, the association also quoted the court as saying.
STA, 9 November 2018 - Slovenia's largest bank, NLB, fetched EUR 51.50 per share in the initial public offering, the bottom of the offering price range. The state will initially sell 59.1% of the bank for just below EUR 609m, but taking into account an over-allotment option that stake could increase to 65%.
Based on the pricing, the market capitalisation of NLB will be approximately EUR 1.03bn at the start of trading on the Ljubljana Stock Exchange and the Main Market of the London Stock Exchange on 14 November, a release from the bank and Slovenian Sovereign Holding (SSH) said.
The book value of the share capital at the end of June was EUR 1.51bn and the final offering price represents 68% of the share's book value. The SSH set the IPO offering price at EUR 51.50 and EUR 66 per share. The offering price in the aborted IPO last year was set at EUR 55-71.
The release says that the seller is making an additional 1,18 million NLB shares available pursuant to the over-allotment option which, if exercised in full, would increase the offer size to EUR 669.5m, representing 65% of the share capital on admission.
A stabilisation mechanism, the option is said to have been made available on the demand of large international investors. Stabilisation managers Citigroup and WOOD & Company will retain a portion of the shares to close deals within 30 days from listing in order to stabilise the price.
The shares are to be floated on the Ljubljana and London stock markets on 14 November when the settlement of shares is to take place. Investors have time to pay for their shares by then.
According to the pricing notification issued on NLB's website, the biggest single institutional buyers of shares are US financial fund Brandes Investment Partners (7.6%) and the EBRD (6.3%).
Since information on the buyers of shares in London are not public, detailed data on the dispersed structure of foreign owners will not be available when details are to be presented on 14 November.
Unofficially, the demand considerably outstripped what SSH was willing to accept in a bid to avoid the most predatory investors while forming a buffer if anything was to go wrong.
"We are very proud of having completed the offering of NLB's shares. Today's announcement represents a significant milestone in the privatisation process and in fulfilling our commitments to the European Commission," SSH chairman Lidia Glavina was quoted as saying in the release.
NLB chairman Blaž Brodnjak hailed the pricing as "another important milestone in the process of privatization". "We are looking forward to opportunities and challenges that the listing on the stock exchange will bring to the bank."
The government committed to sell the bank in exchange for the European Commission's approving a EUR 1.56bn state aid for the bank in late 2013.
While the state is to keep a controlling stake of 25% plus one share, it committed to sell at least 50% this year and any outstanding share of up to 75% minus one share by the end of next year.
Until the sale commitment is met in full, the bank will need to implement at least part of compensatory measures, including closing down offices in Slovenia, with 14 slated for closure in early December.
Moreover, since the state sold this year will be less than 75% minus one share, the bank will also have to start procedures to sell NLB Vita, its insurance subsidiary.
In addition, NLB will be able to approve new loans only if receives the minimum yield from equity instruments. NLB cannot do leasing business or make acquisitions either.
The bulk of shares in the IPO was offered to institutional investors. Retail investors were able to subscribe at least 10 shares at EUR 66 apiece. Unofficially they paid in some EUR 30m. The overpaid amount will be returned by 15 November.
The shares were also bought by members of the NLB supervisory and management boards. NLB chairman Blaž Brodnjak acquired 1,136 shares and the head of the supervisory board Primož Karpe 606 shares.
NLB paid out a total of EUR 378.2m in dividends to the state in the past three years. The state aid in 2013 amounted to EUR 1.56bn.
STA, 5 November 2018 - The central bank has recommended that retail banks impose stricter conditions on consumer loans, arguing that at the current pace of lending consumers could face problems paying back their loans if the economy turns sour.
In a macroprudential recommendation issued on Monday, Banka Slovenije said risks remained moderate and manageable, but consumer loans had been growing at a brisk pace for an extended period of time.
The pace of lending has been driven by factors including low interest rates, high bank capitalisation, low household debt and high employment.
While these trends are expected to continue driving high demand, loan maturity has been extending, often beyond the useful life of consumer goods that households are purchasing.
"Long maturity means that these loans will remain on bank balance sheets when the economic cycle turns, which, if macroeconomic risks materialise, may quickly lead to problems in the payment of these loans," the central bank warns.
Banks are therefore advised to keep loan-to-value ratios (loan payments relative to the client's annual income) to below 50% for persons with monthly income of up to EUR 1,700 and below 67% for those making more than that.
The central bank also recommends that new consumer loans should have maturities below 120 months.
The decision was reached "to prevent a loosening of lending standards and improving banks' resilience."
Formally, the new macroprudential recommendation is an expansion of the measure from late-2016, when the central bank advised banks to start reigning in mortgages. That recommendation remains in place.
STA, 23 October 2018 - The supervisory board of Slovenian Sovereign Holding (SSH) endorsed on Tuesday all documents required for the initial public offering of NLB bank, allowing privatisation of Slovenia's largest bank to proceed. The price range will be revealed by the end of the week, presumably on Friday, when the prospectus is published.
STA, 29 September 2018 - The Celje District Court ordered the Abanka bank to repay two junior bondholders who were wiped out in the bank bailout in late 2013 and 2014 in what is the first ruling in cases brought against banks following the bail-in. Abanka has appealed the ruling, according to a report by the newspaper Delo.
STA, 28 August 2018 - Slovenian banks generated EUR 322.9m in pre-tax profit in the first half of the year, a 26.5% year-on-year increase. Profit after taxes was up 25.3% to EUR 295.7m. The total assets of the banking system rose by more than EUR 0.5bn to EUR 38.5bn, shows Banka Slovenije's report released on Tuesday.
STA, 2 August 2018 - The French-owned financial company SKB Group started the year on a positive note, generating EUR 24.4m in net profit in the first six months of the year, which is 9.3% more than in the same period of 2017. Net revenue of the banking group was up 3.2% to EUR 55.7m.
STA, 11 June 2018 - The police are conducting searches at more than 20 bank offices and private homes on Monday to gather evidence against a crime ring that is suspected of defrauding banks.