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Slovakia’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

In 2019, Slovakia’s economic growth slowed in response to declining global demand. GDP growth of 2.4% was lower than in the last year, but still above the EU average. As in the previous years, the main drivers of economic growth were investments and domestic demand, supported by an exceptionally favourable labour market situation. Foreign demand had a negative impact on Slovakia’s GDP growth. Net exports declined due to increasing market uncertainty about future economic developments.

In 2019, the deficit of the general government was 1,3 % of GDP, which was more than the general government’s budget proposal. Public debt last year declined to 48.0 % and remains below the first domestic debt brake thresholds (50%). Thanks to the strong economic environment in last years, the unemployment rate fell for the sixth consecutive year to an historical low (5.8%). The relatively low supply on the labour market led to an increase in average nominal wages by 7.8%. The annual inflation rate rose slightly (to 2.8%) and the largest increases were in prices of energy and food.

The Slovakian banking sector consists of 27 financial institutions with banking licences. Most of them are universal banks, focused on retail and corporate banking. Four of them are specialised banking institutions (three building societies and a state-owned development bank). Most of the banks in Slovakia are controlled by foreign entities, mainly banking groups from Austria, Italy and Belgium. Only four banks are fully controlled by domestic investment groups (three 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.

Slovak banks are among the leaders in the use of new technologies in day-to-day banking e.g. contactless cards, contactless mobile payments and peer-to-peer payments.Digitalization has affected the banking industry. The Slovakian banks have 1,140 branches and 19,393 employees, which is slightly fewer than in previous years. On the other hand, the number of ATM (2,791) and POS (57,845) has been growing for several years. Mobile payments have become very popular 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 has been growing for several years. The volume of loans last year exceeded the volume of deposits, mainly due to growth in loans. Favourable economic conditions have led to an increase in retail deposits (rising by 7%) and also in corporate deposits (rising by 6 %).

Retail loans have been dominating the domestic lending market and Slovakia has one of the highest growth rates in housing loans in the EU. According to the regulator, rapid growth in household indebtedness could be one of the principal risks to the stability of the Slovak financial sector. The household debt-to-income ratio in Slovakia is one of the highest in the central and eastern European regions. In response, the central bank used macro-prudential measures: tighter loan-to-value ratios, systemic risk buffer, the debt-to-income ratio and new indicator debt-services-to-income ratio. The main objective of these measures is to reduce retail credit growth. In response to macroprudential measures taken, growth in housing loan fell below 10% for the first time and growth in consumer loans almost stopped. The outstanding amount of housing loans rose in 2019 by 9,7% and was still one of highest growth rates in the EU.

Growth in the corporate loans slowed due to deteriorating economic conditions. The outstanding amount of corporate loans increased by only 1.6 % year-on-year. In  2019, there was also a sharp slowdown in lending to SMEs .The outstanding amount of SME loans rose by 1.8 % year-on-year.

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, which doubled at the end of last year, also had a negative impact on banking sector profits. In the last few years, most of the net profits have supported the capital bases of Slovak banks. Total capital adequacy ratio was on average 18.21%, with the lowest individual level at 15.21%. Slovakia has some of the most stable and soundest banks in the EU. According to the World Economic Forum’s Global Competitiveness Report 2019, Slovakia has the third soundest banking sector in the euro area and 12th in the world.

Banks in Slovakia play an active role in financial education. There are many programmes supported by banks, central bank or the bank association. One of them is the Economics Olympiad for high school students.

Contributor: Marcel Laznia marcel.laznia@sbaonline.sk