IMF published its staff report and selected issues report under the 2019 Article IV consultation with the Republic of Slovenia. Directors noted that financial stability has improved, owing to the decisive restructuring of ailing banks and prudent macro-economic policies. They add that large banks have adopted a proactive management of their nonperforming loans (NPLs) and supervisory authorities should continue to encourage and support these efforts. Furthermore, the administrative and regulatory burden needs to be reduced further to support investment and firm growth.
The staff report highlights that, since the 2013 banking crisis, financial-sector stability has improved, though some legacy problems remain. Banks are well-capitalized and liquid while the overall asset quality has improved. Overall, progress has been made in resolving the NPLs; however, NPLs of small and medium enterprises (SME) remain elevated in the low double digits. Staff welcomed the adoption of the toolkit and handbook for resolving SME NPLs, in addition to the NPL guidelines, the ECB measures for the three banks it oversees, and the large banks’ proactive management of NPLs. It is recommended that supervisors should actively engage with banks on business models in light of the declining net interest income and should push banks to speed up the resolution of SME NPLs. Further efforts in strengthening insolvency procedures for SMEs would also help. The authorities agreed with staff’s analysis and advice.
The report further notes that new financial vulnerabilities could emerge, including in the housing market. Credit risks could emerge due to the elevated share of high variable-interest loans to both households and non-financial corporations. The decision to broaden the scope of macro-prudential tools for the real estate market to cover total household lending is welcome. The Bank of Slovenia maintains its macro-prudential guidance as recommendation to banks. It recommends that the loan-to-value ratio not exceed 80% and the debt-service-to-income ratio be limited to 50% for lower incomes and 67% for higher incomes. It is also recommended that consumer credit maturities not exceed 120 months. However, the limits could be made mandatory and be set at more binding levels when needed. The national authorities agreed to closely monitor risks in the housing market and take further macro-prudential measures, if needed.
Keywords: Europe, Slovenia, Banking, Article IV, Financial Stability, NPLs, Macro-Prudential Policy, IMF
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