March 14 (SeeNews) - Fitch Ratings said on Friday that Slovenian banks' asset quality is still a risk despite the transfer of non-performing loans (NPLs) to the state-run 'bad bank'.
“Impaired loans have not reduced substantially as stricter loan classification has led to new inflows, even though official NPLs have fallen,” Fitch said in a statement on its website.
Impaired loans rose to 19.9% at end-2013, from 17.6% at the end of the third quarter, as the 2.2 billion euro ($3.06 billion) drop in NPLs in December - reflecting transfers to the bad bank from NLB and NKBM, appears to have been effectively offset by around 1.9 billion euro of new impaired loans, Fitch said, adding that most of these are likely to be restructured loans that are less than 90 days in arrears, and so are not reflected in NPL ratios.
Still, the ratings agency sees the banking sector remaining vulnerable to further credit deterioration in the weak operating environment. Fitch expects gross domestic product in Slovenia to grow by only 0.3% in 2014 before growing 1.3% in 2015.
The 6.5 percentage point gap that opened between impaired loans and the NPL ratio between end-June and end-December last year largely reflects the asset-quality review conducted as part of the recapitalisation and bad bank process, Fitch said.
"The central bank has said that Slovenian banks now comply with the future harmonised credit risk definitions for EU banks. This is a positive step, as stricter loan categorisation enhances comparability and impaired loans should more accurately reflect the risks and business model differences between banks."
The divergence between impaired loans and NPLs, Fitch said, highlights the risks of only focusing on the quantitative trigger of 90 plus days past due.
($=0.7194 euro)