The need for a multilateral bail out of eurozone member Slovenia will depend on the state of its troubled banking sector, which lost a significant proportion of its capital in 2011.

Chart one: Slovenia top 10 banks by assets, 2011

Ratings agency Moody’s caused a stir in April 2013 by downgrading the sovereign rating on Slovenia two notches, to non-investment grade Ba1. This move did not prevent the Slovenian government from raising $3.5bn of five- and 10-year bonds just days later, at less than 5% interest rates on the five-year tranche. The combined offering collected orders of more than $16bn, suggesting that investors shrugged off the downgrade and were confident Slovenia could avoid a serious financial crisis.

Chart two: Slovenia top 10 banks by capital-to-assets ratio, 2011
Chart three: Slovenia top 10 banks by return on capital, 2011

However, Moody’s analysts had argued that “ongoing turmoil” in the country’s banking sector meant a “high likelihood that the sovereign will be required to provide further assistance and capital injections”, which could even lead to the government needing “external financial assistance”. The government is seeking to create a bank asset management company to relieve the banking sector of its more difficult non-performing loans (NPLs), but progress so far has been slow.

There is no doubting the size of the banking sector relative to the Slovenian economy. The top three banks combined have assets accounting for more than 70% of gross domestic product. The largest, Nova Ljubljanska Banka (NLB), built a significant cross-border business across the Balkan region, some of which is now being dismantled – a Bulgarian subsidiary has already been sold to an Israeli investment fund. All the top three are locally owned, while sixth largest Banka Celje is 41% owned by NLB itself, which has tendered the bank for sale since 2011.

Pure Tier 1 capital-to-assets ratios for the top three banks are also relatively low, reducing the capacity to absorb losses. Of the best-capitalised banks, two (SKB and Koper) are foreign owned in any case, so would not be likely to fall on the shoulders of the Slovenian government. Asset quality has been deteriorating quickly – the top 10 banks laid down new impairments and provisions equivalent to almost 4% of total loans in 2011 alone, and Moody’s estimates NPL ratios at the two largest banks in excess of 28%.

This is generating significant losses, wiping out the equivalent of more than 50% of Tier 1 capital at third largest Abanka Vipa in 2011, and more than 20% at the two largest banks. Among the locally owned banks, Gorjenska banka, with a capital-to-assets ratio of more than 15% and a very narrow profit in 2011, looks the safest. The 2012 data that will be published in The Banker's Top 1000 World Bank rankings in July will provide a clear indication of whether Slovenian banks can halt the slide toward needing further government assistance. 

 

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter