Indeed, there is considerable liquidity currently in the Slovene banking system, and this accounts for the unexpectedly low take up in the recent first auction of liquidity under the ECB’s TLTRO programme. A second reason is weak credit demand. Credit demand has decreased since the onset of the global crisis. This is because highly indebted companies are focused on deleveraging.
The process still has some way to unwind. Slovene enterprises remain overleveraged, both relative to their euro area peers and historical trends. As long as the deleveraging process continues, the easing of monetary conditions will not necessarily induce higher borrowing. A note of caution is in order regarding boosting credit growth.