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Slovakia’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

In 2018, Slovakia continued to enjoy strong economic growth, increasing by 4.1%. The main drivers were private consumption and investments. Private consumption was supported by the improving labour market situation and strong household credit growth. Investments benefited mainly from the expansion in the automotive sector. Net exports had a slightly negative impact on GDP growth.

The deficit of the general government is less than 1% of GDP and the government expects a balanced budget in 2019. Public debt last year declined to 48.9% and remains below the first domestic debt brake thresholds (50%). Thanks to the strong economic environment, the unemployment rate fell for the sixth consecutive year to an historical low (6.6%) and average real wages grew by 3.6%. The annual inflation rate increased significantly to 2.5%. Its acceleration was caused mainly by food prices and partly also by energy prices and the prices of services.

The Slovakian banking sector consists of 26 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). Since privatisation ended in 2001, 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. Members’ banks, in cooperation with the Slovak banking association, prepared a common API (application programming interface) standard for communication between the banks and third-party providers based on PSD2 requirements. The Slovakian banking industry has 1,174 branches, 2,778 ATM and more than 45,000 POS terminals. Since 2008, the number of employees decreased by 4% to 19,504 at year-end 2018.

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, for the first time, mainly due to growth in loans. Favourable economic conditions have led to an increase in retail and corporate deposits (both rising by 7%).

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 housing loans rose in 2018 by 11.4% and consumer loans by 12.5% year-on-year. The main reasons are low interest rates, rising disposable incomes and growing competition. 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 to introduce tighter loan-to-value ratios and a systemic risk buffer in order to prepare to introduce a new indicator: the debt-to-income ratio. The main objective of these measures is to reduce retail credit growth.

Stable economic growth and improving sentiment also provided a significant boost to firms’ demand for loans. The outstanding amount of corporate loans rose by 5% year-on-year. The lending situation for SMEs has also improved. The outstanding amount of corporate loans rose by 4.5% 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 has 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 increased on average to 18.43%, with the lowest individual level at 14.36%. Slovakia has some of the most stable and soundest banks in the EU. According to the World Economic Forum’s Global Competitiveness Report 2018, Slovakia has the third soundest banking sector in the euro area.

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

Contributor: Marcel Laznia