Press Release No. 12/134

Press Release No. 12/134
April 16, 2012

An International Monetary Fund (IMF) mission, headed by Vassili Prokopenko, visited Slovenia during April 4–16, 2012, to conduct an evaluation under the Financial Sector Assessment Program (FSAP). The FSAP assessed financial sector strengths and vulnerabilities to systemic risks and reviewed the supervisory framework and the contingency arrangements. The mission met with senior officials and staff from the Ministry of Finance, Bank of Slovenia, Insurance Supervisory Agency, Securities Market Agency, representatives from financial institutions, professional bodies, and think tanks.

The FSAP mission found that the Slovenian financial system was strongly hit by the ongoing global crisis. While the Slovenian authorities maintained financial stability, the performance of commercial banks has deteriorated. The main impact came from exposures to the badly affected construction sector and funding strains for certain banks. As a result of a significant deterioration in credit quality and the associated increase in loan loss provisioning, the banking sector has reported operating losses for the last two years. The deleveraging process that began in 2009 is proving to be protracted.

Strengthening the financial condition of commercial banks is the short term priority of the Slovenian authorities. This will require a combination of measures, including bank recapitalization and cleaning up of bank balance sheets. The financial restructuring should be accompanied by measures aimed at deepening the commercial orientation of the government-controlled banks. This would require tackling the long-standing governance weaknesses of these banks, which were put into the spotlight by the crisis.

The financial sector regulatory and supervisory frameworks are broadly in line with the best international standards and practices though some specific weaknesses exist and need to be addressed. The supervision of financial institutions should be complemented with macro-prudential oversight geared towards the stability of the financial system as a whole.

The Financial Sector Assessment Program (FSAP), established in 1999, is an in-depth analysis of a country’s financial sector. FSAPs are done jointly by IMF and World Bank staff in developing and emerging market countries and by the IMF staff alone in advanced economies. FSAPs have two main components: the financial stability assessment and—in developing and emerging market countries—the financial development assessment. The stability assessment is the main responsibility of the Fund and covers an evaluation of three components: (1) the source, probability, and potential impact of the main risks to macro-financial stability in the near-term; (2) the country’s financial stability policy framework; and (3) the authorities’ capacity to manage and resolve a financial crisis should the risks materialize. While FSAPs do not evaluate the health of individual financial institutions and cannot predict or prevent financial crises, they identify the main vulnerabilities that could trigger one. For more information, visit http://www.imf.org/external/np/exr/facts/fsap.htm.