Rehabilitation of banks is one of the most important and complicated problems in economies in transition. Slovenia was among those countries which started with it relatively early in transition, parallel to rehabilitation of the enterprise sector. After three years positive results are evident, but the consolidation of the banking sector will not be finished until the rehabilitation of banks is terminated by a formal act of the central bank and privatization of rehabilitated banks completed.
This chapter describes Slovene experience with bank rehabilitation in general and the special case of Nova Ljubljanska Banka. After the Slovene banking sector is described, the chapter considers rehabilitation in general and then the experience of rehabilitation in the largest Slovene Bank – Nova Ljubljanska Banka.
BANKING SECTOR IN SLOVENIA: BASIC INFORMATION
In the 1990s, the Slovene banking sector is characterized by a relatively simple structure, autarchy (compared with banking in developed market economies), regional and market concentration (within the country), and, at the same time, the overbanking and overcapitalization of many existing banks. In detail, Bremec (1996) lists the following characteristics of the Slovene banking sector at the beginning of the 1990s:
lower efficiency than for enterprises in comparison with Western developed countries (lack of competition, entry is controlled),
high operating costs in comparison with competition abroad, underdeveloped orientation to market of financial services, underdeveloped risk management,
overbanking with regional concentration at the same time, overcapitalization of banking sector,
lagging behind world trends in using modern information technology,
existence of contaminated bank loans and insufficient provisioning,
a need for rehabilitation of the majority of the banking sector on an unprecedented scale (over half of the banking system is in a very small monetary area) in comparison with experiences with bank restructuring in the West.