Slovenian central bank warns of heightened cyber risks linked to geopolitics

Slovenian central bank warns of heightened cyber risks linked to geopolitics
Bank of Slovenia says banks need to do more to defend themselves against cyber attacks as prolonged conflicts in Ukraine and Middle East raise global risks.
By bne IntelliNews May 6, 2024

The Bank of Slovenia warned on May 6 that there is an increased threat posed by cyber security risks in light of escalating global tensions.

Highlighting the growing threat landscape, the central bank’s latest report on banking sector stability upgraded the cyber risk rating to elevated, while maintaining the climate risk rating at a moderate level. 

“We estimate that the number of critical cyber incidents in banking remains stable … For now, this number has not increased due to geopolitical threats (war in Ukraine, conflicts in the Middle East), but due to the duration of the war, cyber threats and hacker intrusions continue to remain at a high level, which is why we raised the cyber risk to elevated with stable trend,” the report said. 

While banks did not report an increase in the number of critical cyber incidents in 2023, the Bank of Slovenia said that “due to the increasing number of cyber attacks on the country's critical infrastructure, the cyber risk for the banking system is also increasing”. 

It wanted that “in the field of information security, banks are still faced with insufficient control over external contractors, outdated information systems and insufficient cyber hygiene”. It urged banks to defend themselves against cyberattacks by training their employees on of information security and investing in up-to-date technologies. 

The Slovenian central bank also said on May 6 that the banking and financial systems in the country remain robust and stable. Despite ongoing geopolitical tensions, systemic risks are currently estimated to be low or moderate, with a trend of decline.

The report highlighted record-breaking profits within the banking sector, leading to an upgrade in resilience ratings concerning solvency and profitability to high, with a stable outlook for the foreseeable future. Macro-prudential measures continue to be focused on fortifying the resilience of the banking system.

The Financial Stability Report underscored Slovenia's economic resilience, which surpasses the euro area average. Despite a slowdown in domestic inflation and an uptick in interest rates, economic activity has remained relatively robust.

Amid these favourable conditions, the Bank of Slovenia assesses most risks to be moderate, including financing and real estate market risks. Although deposit growth from non-banking sectors has moderated, it remains a steady source of funding for banks. 

Interest rate risk has been downgraded from high to moderate with a stable trend, owing to various factors including a slowdown in credit activity and a shift towards fixed-rate loans.

Credit risk remains moderate overall, with portfolio quality indicators remaining favourable. However, manufacturing sectors exhibit higher shares of non-performing loans, posing a potential risk to portfolio quality.

Income risk assessment remains low, buoyed by favourable conditions for banks' income generation, particularly through net interest income. However, concerns arise regarding the sustainability of income levels when interest rates decline, coupled with potential increases in operational costs due to regulatory changes.

Despite these challenges, the banking system's resilience in terms of solvency, profitability, and liquidity remains high, with some banks already bolstering reserves and capital adequacy ratios.