December 18, 2019 / 10:28 AM / a month ago

UPDATE 1-Risks to financial stability are growing, Slovenian central bank says

(Updates with quotes, details)

By Marja Novak

LJUBLJANA, Dec 18 (Reuters) - Systemic risks are growing for the Slovenian financial system because of an economic slowdown and uncertainty in the international environment, although the system remains stable for now, the Bank of Slovenia said in a report on Wednesday.

“Uncertainties in the international environment are increasing, which reflects in weaker growth of the Slovenian economy,” the bank said.

“This is raising income risks of the banking system in the environment of low interest rates. Profitability of banks will increasingly depend upon the amount of lending,” it said.

The central bank referred to slower growth in the euro zone amid slowing growth of world trade and uncertainties regarding Brexit, adding growth in the euro zone is expected to continue to slow.

The central bank said risks from consumer loans have decreased after it imposed restrictions in November on those loans, limiting their maturity to a maximum of seven years. It also limited the loan costs of borrowers to 67% of their income.

Companies are more shielded from shocks by the external environment by low debt, high profits and high liquidity, the central bank said.

Increases in real estate prices have s slowed this year, the central bank said: “We estimate that real estate prices are ... not overvalued and will probably continue to grow at a slower pace”.

On Tuesday, the central bank cut its forecast for growth in gross domestic product this year to 2.6% from the 3.2% it forecast in June. It foresees 2020 growth at 2.5%, compared with 2.9% in June.

The central bank also said capital adequacy of the banking system is “relatively good” and lending risk is low, mainly as a result of reducing bad loans in recent years.

In August, the latest data available, bad loans in Slovenian banks represented 1.3 billion euros ($1.43 billion) or 2.9% of all loans, down from 4% at the end of 2018. ($1 = 0.9073 euros) (Reporting By Marja Novak, editing by Larry King)

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