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Slovakia’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

In 2020, Slovakia’s economy, like other EU countries, was significantly affected by the Covid-19 pandemic. After a sharp decline in the second quarter of 2020, economy began to recover in second half of the year. The recovery was driven by rising exports, especially from the automotive industry. On the other hand, investment had the largest negative impact on GDP.  At the end of the year, the recovery was slowed by the second wave of the pandemic. In 2020, the economy finally contracted by 4.8 %, which was close to the EU average.

The negative impacts of the pandemic has been softened by fiscal stabilisation measures, which significantly affected the general government budget balance. Last year, general government deficit rose to 6.2 % of GDP. Public debt rose above the Maastricht threshold of 60% of GDP due to a significant increase in the general government deficit and a decline in GDP. In 2019 it reached 48%. Despite a record drop in GDP, the unemployment rate rose only modestly (6.7%). The annual inflation rate fell to 1.9%.

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 (93.8%), 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 60% of the banking assets.

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 1,072 branches and 18,576 employees, which is slightly fewer than in previous years. On the other hand, the number of ATM (2,835) and POS (62,836) 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 in row, mainly due to credit growth. Reduced consumer consumption during the pandemic supported the growth of client savings. Retail deposit grew by 8% and corporate deposits increased by 9%.

Retail loans have been dominating the domestic lending market and Slovakia has one of the highest growth rates in housing loans in the EU. In the pandemic year, growth in housing loans continued to increase (by 9.7 %) because of low interest rates, interbank competition, and ongoing growth in housing prices. On the contrary, the outstanding amount of consumer credit declined by more than 9%, due to reduced household consumption and due to macro-prudential measures of central bank.  According to the regulator, rapid growth in household indebtedness in the last years could be one of the principal risks to the stability of the Slovak financial sector. In response, the central bank used macro-prudential measures, the main aim of which is to limit the growth of retail loans. The outstanding amount of corporate loans increased by 2.2 % 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. In the 2020, the special bank levy and the credit risk cost had the largest negative impact on banking sector profits (-27%). 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 19.67%, with the lowest individual level at 15.19%.

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