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Slovakia’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

Slovakia continues to enjoy strong economic growth. In 2017 the economy grew by 3.4%, which was one of the highest levels in the EU. The main drivers were private consumption and exports. Private consumption was supported by the improving labour market situation and strong household credit growth. Exports benefit mainly from the expansion in the automotive sector. Public debt remains low (50.9% of GDP) but is not far below domestic debt brake thresholds. Thanks to the strong economic environment, the unemployment rate fell for the fifth consecutive year to an historical low (7.6%). Real wages grew by 3.3% and the annual inflation rate continued to accelerate to 1.4%.

The Slovakian banking sector consists of 25 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 (1999-2001) most of the banks in Slovakia are controlled by foreign entities, mainly banking groups from Austria, Italy and Belgium. Only four banks are now 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.

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 but is still one of the lowest in the EU. In 2017, deposits rose by 5%.

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 2017 by 12% 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 among the central and eastern European region. In response, the central bank used macro-prudential measures to introduce tighter loan-to-value ratios and a systemic risk buffer and to prepare to introduce a new indicator: the debt-to-income ratio. The main objective of these measures is to reduce retail credit growth.

Strong economic growth and improving sentiment also provided a significant boost to firms’ demand for loans. The outstanding amount of corporate loans rose by 7% 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 18.81%, with the lowest individual level at 13.17%. Slovakia has some of the most stable and soundest banks in the EU. According to the World Economic Forum’s Global Competitiveness Report 2017-2018, Slovakia has the third soundest banking sector in the euro area.

Profitability and stability enable banks in Slovakia to focus on innovation. 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. In 2017, 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.

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 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.

Contributor: Marcel Laznia marcel.laznia@sbaonline.sk

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