Slovenia’s financing landscape over the past couple of years has been characterized by the expansion and consolidation efforts of Hungary’s OTP banking group, resulting in the market being headed by two comparably large institutional players: NLB and OTP. In fact, consolidation in the banking sector could have easily been the talk of the year had it not been for the increased financing costs fueled by relatively high interest rates combined with volatile energy prices that have been causing headaches for the economy on all levels.
Now that base rates and bank margins are dropping (as a result, banks’ profitability, that has been high, will also drop) and energy prices seem to have stabilized to a certain extent (or we might simply be getting used to the new reality), it will be interesting to see how the market situation will pan out. Will the two Goliaths dominate the floor, or will the other smaller players show some David-esque aspirations? Since most Slovenian banks are stable and highly liquid, this could probably be attempted by introducing newer products or innovative business approaches.
Foreign banks – be it Austrian banks who have their long-lasting presence via their affiliates or engage in cross-border financing or Polish banks who provide acquisition financing – have also played a relevant role and have contributed to the diversity of financial products available.
In any case, banks have been and will likely remain the primary source of financing for businesses, although other sources of financing – at various levels of maturity – are also available.
For example, venture capital investments in Slovenia have not yet become a widespread phenomenon. Start-up support platforms and entrepreneurial incubators are generally in place, but the scope of VC financing and investments is still very low. Similarly, crowdfunding or peer-to-peer lending platforms are trying to gain some traction by offering options for start-ups and SMEs that may struggle to access bank loans or venture capital, but they are still toddlers compared to their counterparts in other jurisdictions.
In contrast, private equity activity is emerging as a significant component of Slovenia’s capital market and financing environment. A few larger players have been present for quite some time now, but several new alternative investment funds have been established in the last year or are being put in place. More are likely to come. Notably, these AIFs are all targeting professional or qualified investors and none of them is specifically aimed at individuals and consumers. Bond or commercial notes placements are also not entirely foreign to the Slovenian market.
On a smaller scale, we have seen one different approach – a public bond issue attempted by a real estate developer aimed also at small investors – but the initial offer was not successful. It seems that the market was not yet ready for such a type of investment and the general public is not yet suitably educated on the concept.
Thus, we hope to see more activity in the direction of consumer-oriented funds, specifically from the larger fund managers, who have both the needed infrastructure in place and also have the knowledge and manpower to tackle the logistics and the regulatory framework.
Education of the wider population in this direction would, in my opinion, also be highly desirable as we need to evolve from the most “traditional” long-term investment (or saving) strategy of individuals – purchasing and renting out one or two residential units. The price of real estate is already ridiculously high and the market will not sustain this approach for much longer.
Toward this, the Slovenian government needs to step up and play a more instrumental role in shaping the financing landscape in 2025 and years to come. Indeed, various initiatives aimed at boosting investment in innovation, research and development, and sustainable projects are put in place, but a sustainable housing policy and investment literacy should also be at the forefront of their goals.
By Blaz Ogorevc, Partner, Selih & Partners
This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
