Slovenia Commercial Banking Report

Key Issues

The Slovenian banking system, although small in terms of total assets, is fairly mature by regional and Western European standards. Growth in assets and deposits have declined in the year to March 31 2006, as rising levels of personal consumption has undermined performance in these areas; however, growth in loans has remained consistently strong. The result of this is that the loan/asset and loan/deposit ratios have risen over the last year or so even though, by most standards, they were already at fairly high levels.

The Slovenian economy continues to provide a sturdy backdrop for further growth in the commercial banking sector and eurozone membership will likely boost growth further. We maintain our belief that loan growth should continue strongly at 21%, assets should follow at 15%, but deposits will grow a lesser 7%.

Recent reports have highlighted the continuing growth in banking profits in the first half of this year and as well an on-going unwillingness to turn over banking assets to 'foreign hands'. Speculation over the future ownership of bank Nova Ljubljanska banka (NLB), following the announcement by Belgian stakeholders KBC that they wish to sell their 34% share, has led to widespread opinion that the domestic banks should be the future owners of Slovenia's largest bank.

Changes To This quarter's Commercial Banking Forecast

We have made a number of improvements to the commercial banking reports this quarter. In particular, we have collated information about banks' capital and bond portfolios.

We have looked at capital primarily because we wanted to produce a clearer picture of the banks' balance sheets and, in particular, the liabilities side. We are now much better able to quantify liabilities that are not deposits.

We collated information about the bond portfolios because we wanted to gain additional insights about the risks with which the banks are involved. Across all the countries that we have surveyed, the commercial banks are major investors in government securities. In some instances, the banks are large holders of bonds - by any standard. In other instances, the banks' holdings of securities represent a very substantial portion of their total assets.