Financial Development and Small Firms Financing in Slovenia

In the last few years an increasing amount of research has been devoted to the study of former socialist economies. The Slovenian transition process, however, has been largely and surprisingly neglected. We intend to fill this gap in the literature. In this paper, we focus on the Slovenian financial system and analyze its influence on shaping the productive structure of the country. Indeed, the Slovenian privatization process is fairly advanced in many areas and the economy shows a growing number of dynamic new small firms. The same privatization process, however, is proceeding sluggishly in the financial sector, where a small number of banks still dominates the market. This delay is primarily the result of a rehabilitation process enacted by the Central Bank and aimed at strengthening banks' balance sheets. Our preliminary analysis of the Slovenian financial system suggests that, although such a program has been successful in maintaining financial stability, the cost of such stability may have been a severe constraint imposed on small firms' development.