ANALYSIS - Slovenia’s Conservative Banking Market To Feel Heat of Global Financial Woes

They say the banks in the small and wealthy Alpine country are stable despite the turbulence on global markets, but dearer bank loans will raise financial costs for companies, thus impacting the economy. Eighteen banks operate in the country of two million people which joined the eurozone last year.

“Our banking system is very underdeveloped, that’s why it has no difficulties with liquidity at present,” Franci Tusek, an analyst with local brokerage house Medvesek Pusnik, told SeeNews.

He believes the conservative vein in which Slovenian banks operate will help them weather the crisis.

“Interest income is the main source of our banks’ income," said Tusek.

“The influence of the crisis in Slovenia will be that loans for banks will become more expensive,” he said, adding that Slovenian banks finance their lending operations with loans from foreign banks to a large extent.

Banks will try to transfer the higher cost of borrowing to their customers and higher interest rates will raise financial costs for companies a lot, Tusek said.

“The banking system itself will not suffer extremely. Mainly portfolio banks will suffer because of the negative conditions on capital markets.”

Tusek said the crisis has not impaired much the financial results of Slovenian banks in the first half of 2008.

Slovenian bank officials said that their business is steady and the banks remain on track to meet their targets for the year.

The country’s largest bank by assets, Nova Ljubljanska Banka (NLB), said its financial results in the first eight months show that it operates successfully despite difficult market conditions.

“NLB is a solid conservative bank with quality portfolio [...] At present we in particular raise the volume of liquidity reserves,” NLB told SeeNews in a statement.

The bank issued no figures for its results through August, but earlier it reported a yearly fall of some 10% to 97.4 million euro ($139 million) in its parent pre-tax profit for the first seven months of 2008. Parent assets through July rose by 11%, or 1.5 billion euro.

“We think the fact that the European countries together started supporting banks is a positive signal for calming down the markets,” NLB added. European governments stepped in to rescue three European banks earlier this week.

Slovenia’s second largest bank by assets, Nova Kreditna Banka Maribor (NKBM), also said its business is stable.

“Despite the tough conditions, mainly on the international financial markets, NKBM's business is successful and stable and in line with the set targets,” Miha Mlekuz and Vojko Kalinic from the NKBM’s treasury department told SeeNews in a written statement.

NKBM posted a 25% annual fall in its first-half group net profit to 29.16 million euro.

Banks in Slovenia do not need a bailout plan yet, Mlekuz and Kalinic believe.

“In Slovenia, the banking crisis has not yet manifested itself to such a radical extent so as to pursue a ‘bailout package’ or any other capital-intensive measures,” they said.

The country's fourth largest bank by assets UniCredit Banka Slovenija, a unit of Italian banking group UniCredit, said it does not face direct negative consequences from the “dramatic international financial crisis”. Earlier this week the shares of its parent UniCredit were temporarily suspended from trading on the bourse in Milan due to excessive losses.

“This year we are again on a fully secure and profitable way and our financial results are in many areas even above our expectations,” Heribert Fernau, member of the management board of UniCredit Banka Slovenija, told SeeNews.

The bank has reported an 18% annual rise in its first-half net profit to 8.7 million euro mainly thanks to increased interest income, which rose by 32% on the year to 21.4 million euro through June.

($ = 0.7032 euro)