The Bank of Slovenia has released its latest financial stability report, indicating a stable banking system in the country. However, it warns of increasing risks in the real estate market, primarily driven by rising residential property prices and insufficient construction investments.
Key Takeaways
- Stable Banking System: Overall risks to financial stability have decreased since spring.
- Real Estate Concerns: Residential real estate prices are rising due to wage growth and low unemployment.
- Moderate Risks: While systemic risks remain low, real estate risks are strengthening.
- Cybersecurity Threats: Cyber risk is assessed as elevated due to increasing global threats.
Overview of Financial Stability
The Bank of Slovenia emphasizes that the general level of risks to financial stability has further decreased since spring. The primary concerns for the banking system stem from geopolitical tensions affecting the global economy. Classic systemic risks remain low or moderate, but the risk from the real estate market is noted to be moderate and increasing.
Real Estate Market Dynamics
Residential real estate prices in Slovenia continue to rise, influenced by several factors:
- Wage Growth: Increased wages are boosting demand for housing.
- Low Unemployment: A strong job market supports consumer confidence and spending.
- Low Household Indebtedness: Households are less burdened by debt, allowing for more investment in real estate.
Despite these positive indicators, the supply of residential properties remains modest due to insufficient investments in construction. The current downturn in sentiment within the construction sector could further impact the real estate market.
Macroeconomic Trends
Slovenia’s macroeconomic indicators are more favorable compared to the euro area, with positive trends in:
- Inflation: Controlled inflation rates.
- Economic Growth: Steady growth in the economy.
- Employment: Low unemployment rates.
The risk associated with bank financing remains moderate, although there is a notable gap between the maturity of bank sources and investments. Interest rate risks are also moderate, with a decreasing spread between loan and deposit interest rates due to the European Central Bank’s (ECB) interest rate reductions.
Credit and Income Risks
The Bank of Slovenia has successfully lowered credit risk to its lowest level, with non-performing loans remaining low and banks’ exposure to bankrupt companies being negligible. Income risk within the banking system and risks from leasing companies are also assessed as low. However, climate risk is considered moderate.
Cybersecurity Concerns
Cyber risk is the only area where the Bank of Slovenia continues to express concern, citing a global increase in cyber threats. The number of critical cyber attacks on banking institutions in the EU is on the rise. Stress tests conducted on cyber risks indicate that hypothetical attacks would not significantly impact the functioning of key economic functions of banks, thus maintaining financial stability.
Conclusion
Despite external challenges, the Slovenian banking system remains resilient, solvent, and profitable. The Deputy Governor of the Bank of Slovenia, Primož Dolenc, noted that if no unforeseen events occur in the last quarter, the banking sector is expected to perform successfully this year. With banks potentially allocating part of their record-high profits to reserves, favorable trends could lead to a high capital adequacy ratio by year-end. However, anticipated reductions in ECB interest rates may slightly decrease banks’ incomes and profits moving forward.
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