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. Last Updated: 07/27/2016

Slovenian Bank Rules Deter Foreign Investors

LJUBLJANA, Slovenia -- Foreign capital could avoid Slovenian shares for months, depressing an already subdued market, unless the central bank eases rules that are deterring investment, analysts have said.

Last month, the Bank of Slovenia blocked international buying when it announced foreign investors had to open special custodian accounts if they wanted to trade in securities.

The move has triggered a drop of over 20 percent in the blue-chip SBI index and, as foreigners bailed out, turnover has all but dried up. At an average 70 million tolars ($500,000) a day, it is at one-seventh of volume before the ruling.

"The new regulations have cooled off interest in Slovenian securities," Fritz Schweiger, head of equity research at Investmentbank Austria in Vienna, said Thursday.

Tanja Petrocnik, a trader with Bank Austria in Ljubljana, forecast a drop in share prices of as much as 30 percent in the next few months.

"In the worst case scenario, shares could fall to the level we saw at the beginning of September last year when the index was at its all-time low of 892 points," said a bearish Ljubljana-based analyst.

The central bank's clamp-down came at a time of heightened international interest in Slovenian shares. The index crested at 1,600 in February.

According to complicated Bank of Slovenia regulations, banks have to consider money paid into the accounts liabilities that they must balance against assets. Charges for the new accounts hinge on operation costs, and could exceed 10 percent.

"The new accounts are too expensive. I expect we will stay away from Slovenia as long as these restrictions remain, unless share prices fall so much that a significant profit can be made despite the extra cost," a Brussels-based institutional investor said.

Lower bank deposit interest rates, down 1.5 percent effective Tuesday, may meanwhile drive more domestic investors into shares, analysts said.