The central bank voiced expectation on Monday that the state would speed up procedures for capital increase in banks it controls as it established that Slovenia's banking system remained under pressure due to poor availability of outside financing sources and a continued growth in bad claims and impairments.
According to Banka Slovenije, Slovenian banks, especially those in state ownership, are in dire need of capital increase and the restructuring of ownership. "Slow solving of banks' bad claims is also worrying, as it leads to closures of companies that could be rescued and restructured through more efficient procedures," Banka Slovenije said after a session of its governing council. The central bank moreover warned that a transfer of bad claims to a public institution could be necessary without a capital increase and banks' more active role in cleaning their portfolios and searching for new contracts and loans. This would additionally burden the public finances, the bank added. The number of total loans decreased by 4.4% in April year on year. Loans to non-financial companies were down 7.5%, while loans to households edged up 0.7%. The council also reviewed Slovenia's GDP trends in the first quarter of 2012, which saw the economy expand by 0.2%, working days and seasonally adjusted. The council attributes the expansion of GDP to the growth of industrial output and the fact that the situation in the construction sector is gradually settling down. The growth was also affected by a positive trade balance and domestic consumption, while the value of investment continued to drop. While unemployment continues to grow, this is mostly due to the construction sector, while in other sectors unemployment has not grown since April 2011. The risk for an increase in unemployment figures remains high, however, the bank noted. The bank also believes that the government should introduce measures to stimulate growth, as the supplementary budget, which aims to bring the budget deficit to below 3%, mostly affects expenditure thus having a negative effect on short-term economic growth.
"Lowering the budget deficit is crucial for keeping sustainable terms for financing the public sector and improving the terms for financing the country and economy," the central bank stressed, adding that the pension and healthcare reforms were also necessary for long-term sustainability of public finances. The harmonised index of consumer prices was at 2.4% at the annual level in May, which is on par with the eurozone. Slovenia's inflation was mostly affected by prices of energy and food, while it remained at 0.5% at the annual level due to weak economic activity and low domestic consumption. According to Banka Slovenije, the inflation could be significantly lower at the beginning of next year, should outside factors settle down.
Source: The SloveniaTimes
