November 3, 2010 / 12:48 PM / 9 years ago

UPDATE 1-Slovenia says banks' bad loans still on rise

* Central bank says bad loan rate 4.2 pct at end-Aug

* Govt institute still sees 2010 GDP growth of 0.9 percent

* Bank sector’s nine months net profit down 60 pct

(Recasts, adds quotes, details, background)

By Marja Novak

LJUBLJANA, Nov 3 (Reuters) - The bad loan rate in Slovenia’s banking sector will rise sharply in 2010, hit by a construction industry that is set to contract for the second year running, the government’s macroeconomic institute said on Wednesday.

“In the first eight months, bank provisions were higher than last year and there is a possibility of additional provisions by the end of this year, so the size will be much higher than last year,” the head of the institute, Bostjan Vasle, told a news conference.

Non-performing loans stood at 4.2 percent of total loans at the end of August 2010 compared with 3.7 percent at the end of 2009, the Bank of Slovenia said on Wednesday.

Slovenia’s banking sector is dominated by local players, though some foreign lenders including Italy’s Unicredit (CRDI.MI) and Intesa Sanpaolo IPS.MI and Austria’s Raiffeisen (RBIV.VI) have operations there.

The largest, Nova Ljubljanska Banka — 30 percent-owned by Belgian banking and insurance group KBC (KBC.BR). — said in September it is likely to end 2010 with a second annual net loss in a row, mainly due to a rise in non-performing loans. [ID:nLDE68G0SZ] Vasle said a high proportion of bad loans was attributable to financial troubles in the construction industry, where activity was still falling after a 21.6 percent decline last year.

But the institute still expects Slovenia’s economy to grow 0.9 percent this year and 2.5 percent in 2011, in line with its September forecast.

“The poor performance of financial markets has already been included in our forecast ... so our forecasts remain unchanged,” Vasle said.

The Bank of Slovenia said net profit in the local banking sector reached 73.3 million euros in the first nine months, down 59.6 percent over the same period of 2009.

Vasle said the main generator of growth was foreign demand while net credit flows in Slovenia and in the euro zone remained close to zero.

But Slovenian exports were only expected to return to pre-crisis levels in the middle of 2011, with so far only foreign sales of high-tech products having recovering to exceed 2008 levels.

Slovenia was the fastest-growing euro zone country before the global downturn but its export-focused economy shrank by 8.1 percent last year.

Reporting by Marja Novak, Editing by Zoran Radosavljevic, John Stonestreet

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