Restructuring of the Banking Sector in Slovenia in View of its Accession to the European Union
Restructuring of the Banking Sector in Slovenia in View of its Accession to the European Union

Summary/Abstract: Transition to a market economy in Slovenia has, similarly as in other countries in transition, required a drastically changed role for the financial sector. The main challenge for policy makers in this area has been to overcome the le-gacy of the past and at the same time design and develop an efficient system of financial mar-kets and institutions (see, for example, Transition Report, 1998 for an extensive discussion of these issues). There are at least three reasons why financial sector restructuring has been of strategic importance in Slovenia. First, without an active financial market mechanism, its economy, having abandoned planning, has no alternative allocation mechanism. Second, well-functioning financial institutions help to mobilise domestic financial resources and promote efficiency in their allo-cation. Third, efficient financial institutions help impose hard budget constraint on enterprises. Although development of non-banking sectors, namely insurance and capital markets, has been very rapid over the last decade and clearly offers a substantial potential to complement the banking sector in meeting financing needs of the cor-porate and public sector as well as of the population at large, banks continue to dominate the financial sector in Slovenia. It is for this reason that banking sector restructuring has been in the forefront of financial reforms in the country. The main objective of the paper is to provide an overview of the current status and issues of the banking sector development in Slovenia with special reference to the challenges faced by this sector in view of the country’s accession to the Euro-pean Union. In addition to the Introduction, the paper is composed of three main chapters. In the first one, evolution of the banking sector between independence in 1991 and completion of the bank rehabilitation in mid--1997 is analysed. The second chapter discusses the existing structures, trends and problems in the Slovenian banking sector approaching European Union while the third chapter sets policy directions for further banking sector reforms.

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