Capital Markets and Portfolio Investment
Capital markets remain relatively underdeveloped given Slovenia’s level of prosperity. Enterprises rarely raise capital through the stock market and tend to rely on the traditional banking system and private lenders to meet their capital needs.
Established in 1990, the Ljubljana Stock Exchange (LSE) is a member of the International Association of Stock Exchanges (FIBV). In 2015, the Zagreb Stock Exchange acquired the LSE. However, the number of companies listed on the exchange is limited and trading volume is very light, with annual turnover similar to a single day’s trading on the NYSE. Low liquidity remains an issue when entering or exiting sizeable positions.
In 1995, the Central Securities Clearing Corporation (KDD) was established to provide central securities custody services, clear and settle securities transactions, and maintain the central securities registry on the LSE electronic trading system. In 2017, KDD successfully aligned its procedures to that of the uniform European securities settlement platform TARGET2-Securities (T2S). In 2019, Slovenia’s Securities Market Agency (ATVP) licensed KDD to operate under the EU’s Central Securities Depository Regulation (CSDR) and provide services as a Central Securities Depository (CSD), pursuant to Article 17 of the Regulation (EU) 909/2014 on improving securities settlement in the European Union and on central securities depositories.
Established in 1994, the ATVP has powers similar to those of the U.S. Securities and Exchange Commission and supervises investment firms, the Ljubljana Stock Exchange (LSE), the KDD, investment funds, and management companies. It also shares responsibility with the Bank of Slovenia for supervision of banking and investment services.
Slovenia adheres to Article VIII of the International Monetary Fund’s Article of Agreement and is committed to full current account convertibility and full repatriation of dividends.
The LSE uses different dissemination systems, including real-time online trading information via Reuters and the Business Data Solutions System. The LSE also publishes information on the Internet at http://www.ljse.si/ .
Foreign investors in Slovenia have the same rights as domestic investors, including the ability to obtain credit on the local market.
Money and Banking System
There is a relatively high degree of concentration in Slovenia’s banking sector, with 11 commercial banks, three savings banks, and two foreign bank branches in Slovenia serving two million people. All commercial banks are private as of January 2021, and most have foreign owners and shareholders. SID Bank (Slovenian Export and Development Bank), which supports Slovenian companies’ export activities and provides financing for economic development, remains state-owned. In 2008, the combined effects of the global financial crisis, the collapse of the construction sector, and diminished demand for exports led to significant capital shortfalls. Bank assets declined steadily after 2009 but rebounded in 2016 and have remained steady since then. Since the crisis, most banks have refocused their business activities towards SMEs and individuals/households, prompting larger companies to search for alternative financing sources. According to European Banking Federation data, Slovenia’s banking sector assets totaled EUR 48.3 billion (USD 53 billion) at the end of 2021, equaling approximately 92.8 percent of GDP. However, the figure still lags the total banking assets volume at the end of 2009, when banking sector assets equaled 146 percent of GDP.
Slovenia’s banking sector was devastated by the 2009 economic crisis. Nova Ljubljanska Banka (NLB) and Nova Kreditna Banka Maribor (NKBM) faced successive downgrades by credit rating agencies due to the large numbers of nonperforming loans in their portfolios. In 2013, the government established a Bank Asset Management Company (BAMC) with a management board comprised of financial experts to promote stability and restore trust in the financial system. In exchange for bonds, BAMC agreed to manage the nonperforming assets of three major state banks, conducting three such operations from December 2013 through March 2014. The government also injected EUR 3.5 billion (USD 4.2 billion) into Slovenia’s three largest banks, NLB, NKBM, and Abanka. These measures helped recapitalize and revitalize the country’s largest commercial banks. In December 2022, the government closed BAMC, as originally planned, and its approximately EUR 500 million in remaining assets were transferred to the Slovenian Sovereign Holding.
According to World Bank data, an estimated 2.1 percent of all Slovenian banking assets were non-performing as of the end of 2021. According to the Bank of Slovenia, the Slovenian banking sector’s exposure to non-performing loans was 0.98 percent, as of February 2023.
NLB, the country’s largest bank, was privatized in 2019, although the government remains a major shareholder with a 25 percent plus one share stake. Of the remaining shares, more than fifty percent are spread among several international investors on fiduciary account at the Bank of New York, while a number of Slovenian institutional and private investors purchased the remainder. The country’s second largest bank, Nova Kreditna Banka Maribor (NKBM), was sold to an American fund (80 percent) and the European Bank of Reconstruction and Development (EBRD) (20 percent) in 2016. In 2020, NKBM acquired the country’s third largest state-owned bank, Abanka. As of January 2021, the banks have been fully merged. With a total asset of EUR 9.2 billion (USD 10.1 billion) and approximately 22 percent market share, NKBM is on par with the country’s largest commercial bank, NLB. In May 2021, Hungary’s OTP Bank signed a contract to acquire NKBM, with the deal receiving final approval from Slovenia’s Competition Protection Office in February 2023. OTP plans to fully integrate NKBM with its previously acquired SKB Bank by 2024.
Following sanctions imposed as a result of Russia’s invasion of Ukraine, the European Central Bank (ECB) assessed in February 2022 that Sberbank Europe and its two subsidiaries in Croatia and Slovenia were failing or likely to fail due to a deterioration in their liquidity situation. In March 2022, the Bank of Slovenia announced that the country’s largest bank, NLB, acquired Sberbank Slovenia, including its assets, liabilities, and clients. The Bank of Slovenia noted that the swift sale of Sberbank Slovenia helped preserve the banking sector stability in the country.
Banking legislation authorizes commercial banks, savings banks, and stock brokerage firms to purchase securities abroad. Investment funds may also purchase securities abroad, provided they meet specified diversification requirements. The Slovenian government adopted in March 2021 a draft banking legislation, which transposed provisions of an EU directive on exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers, and capital conservation measures. The new legislation also addresses the 2019 Constitutional Court decision that invalidated a provision that exempted banks from worker representation requirements in corporate governance. Under the proposed legislation, workers will be entitled to at least one seat of a bank’s supervisory board, but these workers’ representatives must meet professional qualifications of the supervisory board. The banking legislation was passed by the National Assembly in June 2021.
In February 2022, Slovenia’s National Assembly passed a bill that retroactively forced Slovenian banks to share the burden of exchange rate fluctuations beyond 10 percent on Swiss Franc loans issued between June 28, 2004, and December 31, 2010, imposing an estimated cost of more than EUR 300 million on banks. The bill also required banks to amend loan contracts within 60 days to include this foreign exchange rate cap or face penalties, including up to revocation of banking licenses. Banks and business associations broadly opposed the bill, expressing concern about the bill’s inconsistencies with existing EU and Slovenian laws and regulations, disproportionately high penalties for incompliance, and the retroactively nature of the bill that calls into question the sanctity of legal contracts in Slovenia. These groups worried that this precedent created unpredictability in the economy and negatively impacted the business climate in Slovenia. Soon after the bill was passed, nine banks with operations in Slovenia requested a constitutionality review. In March 2022, the Constitutional Court stayed the enactment of the bill and, in December, annulled the legislation citing inconsistencies with existing EU and Slovenian laws. The Slovenian Bank Association claimed that the ruling was an affirmation of the rule of law in Slovenia.
Despite Slovenia’s vibrant blockchain technology ecosystem and several global blockchain companies headquartered in the country, Slovenian banks have been slow to adopt blockchain technologies to process banking transactions.
The Bank of Slovenia, established on June 25, 1991, is Slovenia’s central bank. The Bank of Slovenia has been a member of the European System of Central Banks (ESCB) since Slovenia joined the European Union in 2004. The Bank of Slovenia gave up responsibility for monetary policy to the Eurosystem when Slovenia adopted the euro as its currency in 2007. As a member of the Eurosystem, the Bank of Slovenia coordinates with other EU central banks to implement the common monetary policy, manage foreign exchange reserves, ensure the smooth functioning of payment systems, and issue euro banknotes.
Slovenian law allows non-residents to open bank accounts in Slovenia on presentation of a passport, a Slovenian tax number, and a foreign tax number. Company owners must be present to open a business bank account.
Slovenia’s takeover legislation is fully harmonized with EU regulations. In 2006, Slovenia implemented EU Directive 2004/25/ES by adopting a new takeover law. The law was amended in 2008 to reflect Slovenia’s adoption of the euro as its currency. The law defines a takeover as a party’s acquisition of 25 percent of a company’s voting rights and requires the public announcement of a potential takeover offer for all current shareholders. The acquiring party must publicly issue a takeover offer for each additional acquisition of 10 percent of voting rights until it has acquired 75 percent of voting rights. The law also stipulates that the acquiring party must inform the share issuer whenever its stake in the target company reaches, surpasses, or drops below five, 10, 20, 25, 33, 50, or 75 percent. The law applies to all potential takeovers.
It is common for acquisitions to be blocked or delayed, and drawn out negotiations and stalled takeovers have hurt Slovenia’s reputation in global financial markets. In 2015, the privatization of Slovenia’s state-owned telecommunications company, Telekom Slovenije, failed in large part due to political attempts to discourage the sale of a state-owned company. Slovenia’s biggest retailer, Mercator, faced similar challenges in 2014 when a lengthy and arduous process and strong domestic opposition preceded its eventual sale to a Croatian buyer. The U.S.-owned Central European Media Enterprises dropped its politically controversial sale of Slovenian media house Pro Plus to then-U.S. owned United Group in January 2019 after the Competition Protection Agency failed to issue a ruling on the proposed acquisition despite reviewing the case for more than 18 months. The government has also struggled to meet its commitment to open Slovenia’s economy to international capital markets.
Twelve insurance companies, two re-insurance companies, three retirement companies, and five branches of foreign firms operate in Slovenia. The three largest insurance companies in Slovenia account for over 60 percent of the market, with the largest, state-owned Triglav d.d., controlling 35 percent of the market. Foreign insurance companies together accounted for 22 percent of the market. Insurance companies primarily invest their assets in non-financial companies, state bonds, and bank-issued bonds.
Since 2000, there have been significant changes in legislation regulating the insurance sector. The Ownership Transformation of Insurance Companies Act, which seeks to privatize insurance companies, has stalled on several occasions due to ambiguity over the estimated share of state-controlled capital. Although plans for insurance sector privatization have been under discussion since 2005, there has been no implementation.
Slovenia currently has three registered health insurance companies and a variety of companies offering other kinds of insurance. Under EU regulations, any insurance company registered in the EU can market its services in Slovenia, provided the insurance supervision agency of the country where the company is headquartered has notified the Slovenian Supervision Agency of the company’s intentions.
Foreign Exchange and Remittances
Slovenia adheres to Article VIII of the IMF Article of Agreement and is committed to full current account convertibility and full repatriation of dividends. To repatriate profits, joint stock companies must provide evidence of the settlement of tax liabilities, notarized evidence of distribution of profits to shareholders, and proof of joint stock company membership (Article of Association). All other companies must provide evidence of the settlement of tax liabilities and the company’s act of establishment.
For the repatriation of shares in a domestic company, the party must submit its act of establishment, a contract on share withdrawal, and evidence of the settlement of tax liabilities to the authorized bank.
Slovenia replaced its previous currency, the Slovenian tolar, with the euro in January 2007. The Eurozone has a freely floating exchange rate.
There are no restrictions on inward or outward remittance transactions. The Bank of Slovenia is responsible for monitoring and regulating remittances.
Sovereign Wealth Funds
Slovenia does not have a sovereign wealth fund.
7. State-Owned Enterprises
Private enterprises compete on the same terms and conditions as public enterprises with respect to access to markets, credit, and other business operations.
State-owned and partially state-owned enterprises (SOE) are present across most industries in Slovenia. The state has never undergone a wholesale privatization program and has retained significant ownership shares in many large companies since independence. According to a 2017 OECD report on SOEs, 37 companies with a total value of USD 12.5 billion and employing 47,000 people were majority state owned. In 2020, an OECD report assessed that privatization has progressed slowly, with the Slovenian Sovereign Holdings (SSH) maintaining controlling shares in most SOEs. Most state-owned companies are in the energy, transportation, public utilities, telecommunications, insurance, and financial sectors, although the government successfully completed the privatization of the three largest state-owned banks by 2020. Other economic sectors, including retail, entertainment, tourism, and manufacturing, include important firms that are either wholly state-owned or in which the state maintains a controlling interest by virtue of holding the largest single block of shares.
In general, SOEs do not receive a greater share of contracts or business than private sector competitors in sectors that are open to private and foreign competition. SOEs acquire goods and services from private and foreign firms. SOEs must follow strict government procurement agreements which require transparent procedures available to all firms. Private firms compete under the same terms and conditions with respect to market share, products, and incentives. All firms have the same access to financing. Slovenian SOEs are active both in domestic and international markets, including in the United States. However, the United States, generally is not a major export market nor a large investment destination for SOEs.
SOEs are subject to the same laws as private companies and must fully comply with all legal obligations. They must submit to independent audits and publish annual reports if required (for example, if the SOE is listed on the stock exchange or the size of the company meets a certain threshold). Reporting standards are comparable to international financial reporting standards.
Slovenia is an active participant in the Organization for Economic Cooperation and Development (OECD) Working Party on State Ownership and Privatization Practices and adheres to the OECD Guidelines on Corporate Governance for SOEs.
Following OECD recommendations, the government established the Capital Asset Management Agency (AUKN) in 2010 to increase transparency and promote more efficient management of SOEs. In 2013, authorities transformed the AUKN into the Slovenian Sovereign Holding (SSH), which is charged with simplifying and shortening the administrative process of privatizing state assets. SSH took over all AUKN portfolios as well as the portfolios of two other smaller state-owned funds. More than 95 percent of SSH funds are invested domestically. SSH is an independent state authority that reports to the National Assembly. It provides the National Assembly with annual reports regarding the previous year’s implementation of the Annual Plan of the Corporate Governance of Capital Investments. The government then adopts the Annual Plan of the Corporate Governance of Capital Investments based on SSH’s proposal.
A list of SSH’s SOEs is available at https://www.sdh.si/en-gb/asset-management/list-of-assets .
Foreign investors may participate in the public-bidding processes on an equal basis. However, interested parties often describe the bidding process as opaque, with unclear or unenforced deadlines.
In 2015, the government prepared an asset management strategy that classified state-owned assets as strategic, important, or portfolio assets. In companies classified as strategic, the state will maintain or obtain at least a 50 percent plus one share. In companies classified as important, the state will maintain a controlling share (25 percent plus one share). In companies classified as portfolio, it is not mandatory for the state to maintain a controlling share. The government reclassified the list of companies in 2017.
SSH publishes online the latest list of state stakes for sale. It is available in Slovenian at https://www.sdh.si/sl-si/prodaje-nalozb .