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Slovenia's central bank warns of growing risks to financial system stability

The Slovenian financial system remains stable but systemic risks for the system are growing due to the economic slowdown and uncertainty in the international environment, the country's central bank said in its latest Financial Stability Review.

The cooling of the economy and uncertainty in the international environment are raising income risk for the banking system in the environment of low-interest rates, Banka Slovenije noted, adding that banks' profitability will increasingly depend upon the amount of lending.

Risks arising from the real estate market remain elevated but have been reduced thanks to a slowdown in the growth of real estate prices, while mortgage loan growth remains moderate and stable, according to the central bank.

The Slovenian regulator also noted that credit risk in the banking system remains low, mainly due to the reduction of nonperforming loans in recent years, while risks from consumer loans have decreased following the November introduction of measures aiming to curb lending in this segment.

The capital adequacy of the banking system is satisfactory but generating profits will become a challenge for banks due to the economic slowdown and reasonable profit distribution policies will be crucial for lenders in the future — especially those with a lower capital surplus, the central bank said.