Slovenia faces a ‘severe banking crisis’ and must act fast to avoid the ‘daunting outcome’ of a prolonged downturn and being cut-off from financial markets, the Organisation for Economic Co-operation and Development (OECD) has warned.

The OECD stated that: ‘Excessive risk taking, weak corporate governance of state-owned banks and insufficiently effective supervision tools had led to a protracted bust’, and that this was ‘compounded by domestic structural weaknesses and the European debt crisis.’

‘Slovenia faces risks of a prolonged downturn and constrained access to financial markets’, it said, adding that ‘banks and firms’ balance sheets have been severely impaired and their necessary deleveraging is depressing growth, as credit is declining.’

Slovenia ’s three-largest banks are owned by the state, and have been recapitalised several times due to a high level of risky loans accumulated during the pre-crisis boom.

Only Greece, Ireland and Hungary have a higher ratio of bad bank loans, according to the OECD.

Bad loan ratios in Slovenia, where debtors are behind on payments by more than 90 days, are among the highest in the OECD. The figure stood at 14% of banks’ loan portfolios in October 2012, the equivalent of 19% of the country’s GDP.