Banking and finance in Slovenia have undergone significant changes since the country gained independence from Yugoslavia in 1991. The establishment of the Bank of Slovenia as the central bank marked the beginning of a new era in the Slovenian banking sector. In the early 1990s, several state-owned banks were privatized, and foreign banks were allowed to enter the market. The country faced a severe banking crisis in 2012-2013, leading to policy responses such as the adoption of new regulations and the establishment of the Bank Asset Management Company (BAMC) to manage non-performing assets.

The Slovenian banking system operates on the principles of universal banking, meaning that banks can provide a wide range of financial services. However, the sector faces risks such as low profitability, credit risk, and market risk. Foreign-owned banks dominate the market, which has led to concerns about financial stability and systemic risk.

Banking regulation in Slovenia is crucial to maintaining financial stability and protecting the interests of depositors and other creditors. The regulatory framework aims to prevent financial crises, ensure the safety and soundness of banks, and promote transparency and accountability in the banking sector.

The Slovenian banking sector faces several weaknesses, such as a high concentration of non-performing loans (NPLs), low profitability, and limited competition. These weaknesses can potentially impact account holders and creditors, as they increase the risk of bank failures and financial instability.

Slovenian Banking Law

Banking Act: The Banking Act is the primary legislation governing the banking sector in Slovenia. It provides a legal framework for the establishment, operation, and supervision of banks and other financial institutions. The act sets capital adequacy requirements, licensing procedures, and reporting obligations for banks.

Bank of Slovenia Act: This act establishes the Bank of Slovenia as the central bank and defines its role, responsibilities, and powers in the financial system. It authorizes the bank to formulate and implement monetary policy, supervise financial institutions, and manage the country’s foreign exchange reserves.

Financial Conglomerates Act: This act regulates the activities and supervision of financial conglomerates in Slovenia, aiming to prevent systemic risks and ensure financial stability.

Prevention of Money Laundering and Terrorist Financing Act: This act aims to combat money laundering and terrorist financing by imposing reporting and due diligence obligations on banks and other financial institutions.

Resolution and Compulsory Dissolution of Banks Act: This act provides a legal framework for the resolution and compulsory dissolution of banks in Slovenia, ensuring an orderly process and protecting the interests of depositors and other creditors.

The Bank of Slovenia is responsible for enforcing banking regulations and imposing administrative sanctions on banks that violate these rules. Sanctions can include fines, restrictions on business activities, and revocation of banking licenses. In an international setting, the Bank of Slovenia collaborates with other supervisory authorities and the European Central Bank (ECB) to ensure compliance with international banking standards and prevent cross-border risks.

Bank Resolution Procedures

Bank resolution procedures in Slovenia are governed by the Resolution and Compulsory Dissolution of Banks Act. The Bank of Slovenia, as the resolution authority, can implement various resolution tools, such as the sale of business, bridge bank, asset separation, and bail-in, to restore the failing bank’s viability and protect the financial system.

In Slovenia, bank insolvency procedures are initiated when a bank is declared insolvent by the Bank of Slovenia or a court, following the exhaustion of resolution measures. The insolvency proceedings aim to liquidate the bank’s assets and distribute the proceeds to its creditors. The priority of claims in bank insolvency is as follows:

  1. Insolvency-related costs, such as court fees and administrator expenses
  2. Employee wages, taxes, and social security contributions
  3. Depositor claims, up to the deposit guarantee limit (currently €100,000 per depositor)
  4. Other unsecured creditors
  5. Subordinated debt
  6. Shareholders

Historic Events: Bank Failures in Slovenia

One notable case study in Slovenia is the resolution of two major banks, Nova Kreditna Banka Maribor (NKBM) and Nova Ljubljanska Banka (NLB), during the 2012-2013 banking crisis. Both banks faced significant capital shortfalls due to high NPLs and required state intervention to prevent their collapse. The Slovenian government provided capital injections, and the Bank Asset Management Company (BAMC) was established to manage and dispose of the banks’ non-performing assets. These measures helped restore the banks’ financial stability and prevent losses for account holders and other creditors.

Legal Framework for Creditors in Bank Failures

Creditors impacted by bank failure in Slovenia can utilize the legal framework to recover their money through various channels. Firstly, they can file claims in bank insolvency proceedings, with their priority determined by the creditor hierarchy. Secondly, depositors are protected by the Slovenian Deposit Guarantee Scheme, which ensures the repayment of eligible deposits up to €100,000 per depositor. Finally, creditors can seek legal remedies and damages against banks and their management if they can prove negligence or misconduct.