(Updates with quotes, details, background)
By Marja Novak
LJUBLJANA, June 19 (Reuters) - Slovenia’s financial system was stable last year and in the first quarter of 2019 but it faces increasing risks and further consolidation in the banking system would help, the central bank said on Wednesday.
Uncertainty in the global market stemming from the U.S.-China trade war, Britain’s exit from the European Union, and political conflict between the United States and Iran threaten to curb Slovenia’s economic growth, it said.
Risks to financial stability also derive from sharply rising Slovenian real estate prices and concerns over banks’ profitability against a backdrop of low interest rates, it added.
“There is still room for consolidation of the Slovenian banking system which would help towards bigger financial stability,” Vice Governor Jozef Bradesko told reporters.
He said that a no-deal Brexit would mostly hurt Britain itself but would also have significant a negative impact on the euro zone and indirectly hurt Slovenia, although trade between Slovenia and UK is relatively modest.
“Our basic scenarios show that Slovenia will continue to grow at about 3% per year so we cannot speak about high probability of a recession,” he added.
The bank said last week Slovenia’s economy will expand by 2.9% in 2020, down from 3.2% this year, boosted by growth of investments and household spending.
The bank said that Slovenia’s banking system remains robust but noted that the maturity gap is expanding as maturities of loans are getting longer while maturities of deposits are getting shorter.
Slovenia, which narrowly avoided an international bailout for its banks in 2013, returned to growth a year later while all banks in the country posted profits last year. The country has strongly reduced its control over the banking sector since then, mainly through privatisation.
Slovenia is due to sell its third largest bank, state-owned Abanka, in the next two weeks, while it sold 10% of its largest bank, Nova Ljubljanska Banka (NLB), on Wednesday for 109.5 million euros ($122.7 million) through an accelerated book building.
It had sold 65% of NLB through an IPO in November while the state will keep 25% of the bank in the long run to have a say in key business decisions. ($1 = 0.8925 euros) (Reporting by Marja Novak Editing by Jan Harvey/Keith Weir)