Slovakia’s banking sector: Facts & Figures
Slovakia continues to enjoy strong economic growth. In 2016 the economy grew by 3.3%, which was one of the highest levels in the EU. The main driver was private consumption, supported by the improving labour market situation and the low interest rate environment. The unemployment rate fell for the fourth consecutive year to 8.8% and real wages grew by almost 4%.
The Slovakian banking sector consists of 27 financial institutions. The majority of them are universal banks, focused on retail and corporate banking. Four of them are specialised banking institutions (building societies and a state-owned development bank). Since privatisation (1999-2001) most of the banks in Slovakia are controlled by foreign entities, mainly banking groups from Austria, Italy and Belgium. Only five banks are now fully controlled by domestic investment groups (four banks) or government (one bank).
The Slovakian banking sector is concentrated within the hands of three major players (Slovenska sporitelna, VUB Banka and Tatra banka) who control more than 50% of the banking assets. Despite this concentration, the market share of small and medium-sized banks has slightly increased in recent years.
In comparison to the national GDP, the banking sector is one of the smallest in the EU. Funding of Slovakian banks is based primarily on the domestic clients’ deposits. The loan to deposit ratio is still one of the lowest in the EU (90%). Therefore, the Slovak banking sector is well insulated from shocks, and banks can support the economy.
Retail loans have been dominating the domestic lending market and Slovakia has one of the highest growth rates in retail loans in the EU. The outstanding amount of consumer loans and housing loans rose in 2016 by 14% year-on-year. The main reasons are low interest rates and rising disposable incomes.
According to the regulator, fast growth of retail loans could be a potential risk. In response, the central bank used macroprudential measures to introduce tighter loan-to-value ratios and a systemic risk buffer.
Due to retail credit growth, most of the Slovak banks have remained profitable, but their outlook for the future is worsening. The environment of low interest rates has affected the interest rate margin and interest rate income. The special bank levy has also had a negative impact on banking sector profits.
Although banking sector profits increased significantly in the last year (by 19%), the growth was driven by one-time effects.
In the last few years most of the net profits have supported the capital bases of Slovak banks. Total capital adequacy ratio increased on average to 18.6 %, with the lowest individual level at 12.51%.
Slovakia has some of the most stable and soundest banks in the EU. According to the World Economic Forum’s the Global Competitiveness Report 2016-2017, Slovakia has the third soundest banking sector in the euro area. Slovakia is also among the four countries in the euro area to have avoided the crisis in the banking sector without government support.
Profitability and stability enable banks in Slovakia to focus on innovation. Slovak banks are among the leaders in the use of new technologies in the day-to-day banking e.g. contactless cards, contactless mobile payments and peer-to-peer payments.
Banks in Slovakia play an active role in financial education. There are many programmes supported by banks or bank associations. One of them is the educational programme “More than money” whose aim is to increase the financial literacy of elementary and high school pupils and teach them how to make financial plans for their future. The programme was developed in cooperation between JA Slovakia and the Slovak Bank Association.