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.