Financing SMEs and Entrepreneurs 2020

41. Slovenia

SMEs in the national economy

Slovenian SMEs employ 72% of the workforce in the business economy (436 000 persons employed), and produce 64% of the value added (EUR 13 billion). Micro firms account for more than one third of all employment in the business economy, while the share of large firms in both employment and value added are below the OECD average, in line with the small size of the economy.

Firms manufacturing coke and petroleum are comprised only of SMEs. Otherwise, SMEs dominate mostly the service sector in terms of employment. Relative to the OECD average, the share of SMEs is significantly higher in the ICT sector and in manufacture of machinery. On the other hand, employment in textiles and apparel and in electrical equipment manufacturing activities is relatively more concentrated in large companies. (OECD, forthcoming publication).

Table 41.1. Scoreboard for Slovenia

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Outstanding business loans, SMEs	EUR billion	7.30	8.12	7.86	9.67	9.79	9.53	5.70	4.31	4.12	4.35	4.61	4.71
Outstanding business loans, total	EUR billion	16.80	19.94	19.86	20.83	20.09	18.64	14.14	11.21	10.04	9.31	9.31	9.18
Share of SME outstanding loans	% of total outstanding business loans	43.45	40.71	39.59	46.43	48.75	51.14	40.29	38.47	41.01	46.79	49.52	51.33
New business lending, total	EUR billion	..	..	..	10.25	12.38	9.21	6.71	5.99	4.95	3.92	3.48	3.64
New business lending, SMEs	EUR billion	..	..	..	6.09	7.17	5.81	3.78	3.30	2.88	2.23	2.21	2.13
Share of new SME lending	% of total new lending	..	..	..	59.36	57.93	63.06	56.34	54.99	58.07	56.90	63.55	58.54
Outstanding long-term loans, SMEs	EUR billion	2.09	2.53	2.15	2.76	3.09	3.19	1.74	0.79	0.61	0.78	0.80	0.83
Share of short-term SME lending	% of total SME lending	5.21	5.59	5.71	6.91	6.70	6.34	3.96	3.53	3.51	3.58	3.82	3.88
Government loan guarantees, SMEs	EUR million	28.62	31.19	27.33	28.54	31.55	33.47	30.51	18.22	14.70	17.87	17.26	17.72
Non-performing loans, total	% of all business loans	3.00	4.00	8.00	13.00	20.00	27.00	25.00	23.00	21.00	10.00	8.00	5.00
Non-performing loans, SMEs	% of SME loans	4.00	7.00	11.00	15.00	23.00	29.00	36.00	39.00	35.00	17.00	11.00	7.00
Interest rate, SMEs	%	7.11	7.51	7.09	5.80	6.00	5.89	5.84	5.14	3.66	2.93	2.73	2.98
Interest rate, large firms	%	5.69	6.25	5.06	5.07	5.17	4.84	4.48	4.16	2.84	2.15	2.24	2.01
Interest rate spread	% points	1.42	1.26	2.03	0.72	0.83	1.05	1.36	0.97	0.82	0.78	0.49	0.97

Source: See Table 41.3.

SME lending

While SME lending increased between 2007 and 2011, it more than halved between 2011 and 2015, decreasing from EUR 9.8 billion in 2011 to EUR 4.1 billion in 2015. Over this period, short-term SME lending declined more than long-term SME lending; short-term SME loans accounted for 32% of SME loans in 2011, compared to 15% in 2015. New loans to SMEs as a share of total new loans has increased from 55% in 2014 to 63.5% in 2017, which also affected the share of outstanding SME lending which at EUR 4.6 billion represents 49.5% of total business outstanding loans to non-financial companies in Slovenia.

Outstanding business loans rose between 2007 and 2010, but fell afterwards, however not as dramatically as SME loans, thus reducing the share of outstanding SME loans. Despite another decrease of business loans from 2015 to 2017, SME loans increased over this period. As a result, the share of SME outstanding loans rose to 49.5% in 2017.

This evolution follows a protracted decline of GDP in Slovenia since 2008; it is estimated that real GDP decreased by more than 9% between 2008 and 2013 (European Commission, 2015). This trend reversed in 2014, but despite growth since 2014, lending continued to drop, especially for SMEs. This is in large part due to the losses suffered by the Slovenian banking system, especially its large state-owned bank. Slovenia experienced a lending boom prior to the financial crisis and financial institutions suffered substantial losses, as well as high and increasing levels of non-performing loans (OECD, 2015).

Credit conditions

Interest rates for SMEs declined in recent years, from 6% in 2011 to 2.7% in 2017. The interest rate spread between bank loans to large enterprises and to SMEs for short-term lending fluctuated between 0.72 and 2.03 percentage points over the 2007-2013 period, but decreased since then, reaching 0.49 percentage points in 2017. While large enterprises enjoyed overall better credit terms during this period, the decrease of the spread shows that credit conditions for SMEs and large companies are converging.

Other indicators

SME non-performing loans have been increasing from 4% of all SME loans in 2007 to 39% in 2014. Along with the GDP recover starting from 2014, non-performing loans started to decline in 2015 and reached 11% in 2017, especially due to loan restructuring and write-offs.

Government policy response

Direct loans

Direct loans are mostly provided by the Slovenian Investment and Development Bank (SID), but also public funds such as the Slovene Enterprise Fund (SEF), the Slovenian Regional Development Fund and the Housing Fund.

Direct loans to SMEs declined by almost half between 2007 and 2010.

At the end of 2010, the Government (the Ministry of science and technology) together with SID bank offered EUR 150 million for RDI in enterprises. In 2013, additional funds for SMEs (4 financial lines, patient loans) were offered by SID bank, for a total value of EUR 500 million. In 2018, new products (for tourism, wood processing, investments, internationalisation, RDI) were developed.

Moreover, the Slovene enterprises fund increased the use of loans by offering guarantees for bank loans with interest rate subsidies since 2009.

Finally, the Slovene regional development fund offers loans (EUR 9.9 million) to Slovene enterprises.

The Slovene Enterprise Fund (SEF)

The Ministry of Economic Development and Technology provides guarantees for bank loans and interest rate subsidies through the Slovene Enterprise Fund (SEF). The programme of Guarantees for bank loans with interest rate subsidies started at the beginning of 2009, but loan guarantees were provided prior to this by the SEF.

At the end of 2009, SEF introduced a new Programme of financial engineering instruments for SMEs over the 2009-13 period (PIFI) that was adopted by the government of Slovenia. PIFI combined different financial instruments:

• Debt instruments (guarantees for bank loans with subsidies of interest rate, microcredits)

• Equity instruments (venture capital, seed capital – convertible loans and capital investment combined with mentoring, training and networking).

SEF was selected by the Fund of Funds manager (SID bank) to act as a financial intermediary for equity financing (seed capital) and for micro-loans.

Besides funding through Fund of Funds (ESIF), SEF implemented guarantees for bank loans with interest rate subsidies, grants for start-ups and “vouchers”. In 2019 (as of November), SEF approved:

• More than EUR 119 million of financial support and supported 1 911 projects:

• More than EUR 10.2 million of vouchers and supported 2 142 projects.

The Slovenian Investment and Development Bank (SID)

Loans for SMEs are also provided by SID Bank, which is responsible for developing, providing and promoting innovative and long-term (direct and indirect) financial services, designed to supplement financial markets for the sustainable development of Slovenia.

Besides direct loans to SMEs, SID Bank also provides indirect loans; i.e. funding which enables commercial banks to lend.

In 2011, SID bank offered EUR 150 million (with a third of this amount being provided by the Ministry of Science and Technology) of direct loans for technological projects. The loan fund ended in 2016.

In 2013, SID bank started to support SMEs with EUR 500 million worth of financial tools (EUR 120 million of which was provided by the Ministry of Economic development and Technology). SID offered four different lines for SMEs: microfinancing, business financing, investment and employment and RDI.

Out of this EUR 500 million budget, SID designed a patient loan fund in 2015 and started implementing loans with long-term grace periods for a total amount of EUR 150 million.

SID bank also prepared proposals for new instruments, targeting specific investments:

• Research and innovation (RDI) (EUR 43.5 million)

• Tourism (EUR 160 million)

• Wood processing (EUR 20 million)

• Investments (EUR 77.5 million

• Internationalisation (EUR 50 million).

At the end of 2017, a EUR 253 million funding agreement was signed between the Ministry of Economic development and Technology and SID bank. The SID bank operates as a Fund of Funds manager in four different areas: SMEs, RDI, Energy Efficiency and Urban Development. It operates through financial intermediaries, as well as a direct lender. If we take into account the financial leverage effect, there will be around EUR 370 million of favourable funds on the market by the end of 2023.

Since November 2017, SID bank also offers equity financing (mezzanine) together with EIB, amounting to EUR 100 million through The Slovene Equity Growth Investment Programme – SEGIP).

The results of the implementation of Fund of Funds and Loan Funds by November 2019 are presented in Table 41.2 below.

Table 41.2. The SID Fund of Funds and Loan Funds

In EUR million

Alternative source	Amount available	Granted until 30/09/2019
Financial Instruments (2014-2023) Fund of Funds
FI - RDI loans	58	24
FI - RDI guarantees	30	0
FI - SMEs microloans	60	46
FI - SME guarantees	65	0
FI - SME eguity financing	10	0
FI - Loans for energy efficiency	25	0.2
FI - Loans for urban development	5	2.7
Total	253	72.9
Loans offered by SID bank
PS1 - Wood processing industry	20	0.5
PS2 - Tourism, internationalisation, investments	335	344
PS3 - Patient loans	200	128
Total	555	472.5

Note: Figures up to November 2019.

Government reforms

In 2018, Slovenia prepared a new system to manage and implement financial instruments from the European Structural and Investment Funds (ESIF) for the 2014-20 period. The basis was ex-ante analysis of financial instruments 2010-14 prepared at the end of 2015 by the Governmental Office for development and cohesion policy and PwC (PricewaterhouseCoopers) and updated in 2016 thanks to EIB (European Investment Bank) analysis. The new model of implementing financial instruments through a fund of funds determined five fields where there is a financial gap: SMEs (EUR 135 million), RDI (EUR 88 million), urban development (EUR 5 million) and energy efficiency and agriculture (EUR 50 million).

By October 2017:

• The key elements of financial instruments for 2014-20 were adopted by the Government of Slovenia (15 June 2017);

• The Implementation plan for the 2018-19 financial instruments was adopted by the Government of Slovenia (September 2017);

• The selection of the fund of funds’ manager was finalised (SID bank acts as the fund of funds’ manager) and the financial agreement was signed in November 2017.

The first tranche was paid into the fund of funds in December 2017.

In 2018, internal procedures (IT, legal basis, etc.) were dealt with by SID bank, two financial instruments were developed (RDI loans and microcredits), and the first financial intermediaries were selected (SBER bank for RDI loans, Primorska Hranilnica and SEF for microcredits). In addition, the first favourable funds (RDI loans) reached the final beneficiaries (SMEs) in 2018.

In 2018 and 2019, other products were developed, such as equity financing tools, loans for energy efficiency and loans for urban development. The financial intermediary for equity financing is SEF. Loans for energy efficiency and urban development are implemented by SID bank directly.

The next (second) tranche of funding (EUR 63.25 million) was paid into the fund of funds in 2019.

Portfolio guarantees will be implemented in 2020.

Figure 41.1. Trends in SME and entrepreneurship finance in Slovenia

Source: See Table 41.3.

Statlink

Table 41.3. Definitions and sources of indicators for Slovenia’s scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	BANK loans to SME companies of the non-financial sector (S.11), stocks	Bank of Slovenia
Outstanding business loans, total	Bank loans to companies of the non-financial sector (S.11), stocks	Bank of Slovenia
Share of SME outstanding loans	..	Bank of Slovenia
New business lending, total	Sum of new bank loans to companies of the non-financial sector (S.11)	Bank of Slovenia
New business lending, SMEs	Sum of new bank loans to SME companies of the non-financial sector (S.11)	Bank of Slovenia
Share of new SME lending	..	Bank of Slovenia
Outstanding short-term loans, SMEs	Short-term bank loans to companies of nonfinancial sector (S.11) with less or equal to 250 employees;	Bank of Slovenia
Outstanding long-term loans, SMEs	Long-term bank loans to companies of nonfinancial sector (S.11) with less or equal to 250 employees	Bank of Slovenia
Share of short-term SME lending	..	Bank of Slovenia
Government loan guarantees, SMEs	..	Ministry of Finance
Non-performing loans, total	Delayed loan repayments over 90 days	Bank of Slovenia
Non-performing loans, SMEs	Delayed loan repayments over 90 days for SMEs	Bank of Slovenia
Interest rate, SMEs	Interest rates for loans to companies of the non-financial sector (S.11) with less or equal to 250 employees	Bank of Slovenia
Interest rate, large firms	Interest rates for loans to companies of the non-financial sector (S.11) with over 250 employees	Bank of Slovenia
Interest rate spread	Calculated difference	..

References

EC (European Commission) (2017), SME Policy Database, https://ec.europa.eu/growth/smes/business-friendly-environment/performance-review_en#interactive-sme-database.

OECD (2017), OECD Economic Surveys: Slovenia 2017, OECD Publishing, Paris,https://doi.org/10.1787/eco_surveys-svn-2017-en.

OECD (2015), OECD Economic Surveys: Slovenia 2015, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-svn-2015-en

ANNUAL REPORT of SID Bank and SID Bank Group 2016,

https://www.sid.si/sites/www.sid.si/files/documents/angleski-dokumenti/annual_report_2016.pdf

ANNUAL REPORT of SID Bank and SID Bank Group 2017,

https://www.sid.si/sites/www.sid.si/files/documents/angleski-dokumenti/annual_report_2017.pdf