Business News

Central Bank Warns of High Reliance on Debt Financing

Ljubljana, 20 May (STA) - Slovenia's central bank, Banka Slovenije, has highlighted troubles with financing, especially the high reliance by business on debt rather than share capital, as a key constraint to faster economic recovery in its annual Financial Stability Report.

According to Banka Slovenije, Slovenia's economy is still highly reliant on debt financing, especially that obtained abroad.

Banks rely on foreign sources to get most of their financing, while the domestic financial market still lacks liquidity, the report states, warning that this does not bode well for growth.

The report, which was released on Friday, states that Slovenian companies are overly indebted and rely too much on bank loans for financing.

There can be no quicker growth until the current high level of debt leveraging is reduced, the bank said.

Central Bank Governor Marko Kranjec highlighted in presenting the report that Slovenia's attitude to share capital as a means of financing business ventures was poor.

The amount of share capital in Slovenia rose by EUR 438m in 2010, but even that was on account of foreign investors, which pumped EUR 600m of fresh share capital into the economy.

Kranjec stressed that debt was a less stable way of financing business than share capital.

Moreover, with companies reliant on debt financing, the dependence of the economy on foreign debt sources rose again in 2010 despite efforts by Slovenia's banks to reduce their debt abroad.

Indeed, the share of foreign debt sources rose from 36.5% of GDP in 2009 to 38.1% last year.

The bank highlighted that the share of foreign debt financing in GDP has risen by 33.6 percentage points since 2001.

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