Lending to the non-banking sector continued to shrink in May, with credits to the real sector down 7.6% year-on-year, Banka Slovenije said, forecasting a further drop in the second quarter in the face of negative economic trends.

High financing costs and the slowdown in crediting are depleting banks' interest revenues ever more heavily, while on the other hand impairment costs have increased by 27%, taking the joint five-month loss to EUR 45.7m.

The central bank's board of governors urged banks to provide loans to credit worthy companies and adapt more intensively to competition on the European market.

They should overcome administrative obstacles to also aid in the restructuring of troubled companies which have healthy segments and would thereby be able to settle their debts. In cases where they share clients, banks should try to find an agreement on the best form of joint support.

As regards economic trends, Banka Slovenije assessed that most of the positive indicators from the first quarter deteriorated at the start of the second.

Consumer confidence and economic activity indicators are down in the EU, while certain weaknesses are also noticeable in the US and some other major economies. Still, industrial output grew relatively favourably in Slovenia in the first four months.

However, confidence is down, especially with consumers, and with job opportunities stagnating, a lowering of the unemployment rate is not to be expected.

The general government deficit decreased to 5.7% of GDP in the last 12 months leading to the second quarter of 2012. As result of the austerity act, it is expect to further decrease in the second half of the year, the central bank moreover reported.