Featured Product

    IMF Reports on 2018 Article IV Consultation with Slovak Republic

    July 26, 2018

    IMF issued its staff report and selected issues report under the 2018 Article IV consultation with Slovak Republic. Directors concurred that the banking system is well-capitalized, liquid, and profitable. Directors commended the authorities for proactively using macro-prudential policies over the past four years to curb lending to risky and highly indebted borrowers. They also welcomed the authorities’ readiness to further tighten macro-prudential measures if needed.

    The staff report reveals that the banking sector is sound, but vulnerable to adverse macroeconomic shocks. Profitability remains high supported by low operating costs. Banks’ capital adequacy strengthened in 2017 due to higher retained earnings and loans are fully funded by domestic deposits. Non-performing loans are low and adequately provisioned. Banks have sought to maintain their profitability by expanding their loan books to compensate for low interest rates, which has increased their sensitivity to adverse shocks and, specifically, to a further decline in the net interest margin or an increase in operational cost. Banks also face some risks from increasing maturity mismatches and exposure to the commercial real estate sector. The authorities support European efforts to further strengthen banking regulations. Assessments by both SSM and the National Bank of Slovakia (NBS) supervisors show that a relatively high profitability and adequate capital buffers provide Slovak banks with room to change their funding structure and absorb the costs of issuing MREL-eligible liabilities, if required.

    Another significant EU level reform, the migration to IFRS 9, was implemented on January 01, but with a five-year transition period. While the change to IFRS 9 is expected to have a mild effect on the banking sector’s own funds as provisioning standards are tightened, it is not expected to have an impact on bank profitability in 2018. NBS and ECB share a common understanding of financial sector risks and the need for targeted macro-prudential measures. The authorities have gradually tightened both capital and borrower-based macro-prudential measures to counter rising vulnerabilities. The borrower-based measures consisting of limits on Loan-to-value (LTV) ratios and Debt Service-to-Income (DSTI) ratios were initially recommendations, but became binding restrictions and now cover both mortgage and consumer lending as well as bank and non-bank lending. In addition, the countercyclical capital buffer (CCB) on domestic exposures was raised to 0.5% in August 2017 and will be raised to 1.25% as of August 01, 2018. These core measures are complemented by maturity limits, interest rate-sensitivity tests, and a mandatory amortization schedule for annuities. The measures taken to date seem to be slowing down household credit growth, and the share of loan with high LTV ratio is declining. Staff welcomes the recent measures to impose limits on the Debt-to-Income ratio (DTI) and further tighten LTV limits.

    A feature in the selected issues report assesses Slovakia’s household and private sector indebtedness against macroeconomic fundamentals, identifies key vulnerabilities from rapid household credit growth, assesses policy responses to date, also presenting further policy options. The assessment highlights that proactive tightening of macro-prudential policies by the authorities is slowing down credit growth and is building needed buffers. The recently adopted limits on debt-to-income ratios would complement existing borrower-based measures to dampen further lending growth to highly-indebted borrowers. These measures appropriately balance the need to preserve access to credit for Slovak households with the need to safeguard financial stability.

     

    Related Links

    Keywords: Europe, EU, Slovak Republic, Banking, Macro-prudential Policy, IFRS 9, CCyB, Article IV, IMF

    Featured Experts
    Related Articles
    News

    EC Regulation Sets Out Standards for Reporting and Disclosure of MREL

    EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).

    May 12, 2021 WebPage Regulatory News
    News

    EBA Report Notes Loan Origination Should Remain in Supervisory Focus

    EBA published a report that examines the convergence of prudential supervisory practices in 2020 and offers conclusions of the EBA college monitoring activity.

    May 12, 2021 WebPage Regulatory News
    News

    APRA Decides to Standardize Submission Date for Quarterly Reporting

    APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.

    May 11, 2021 WebPage Regulatory News
    News

    ECB Working Group Publishes Recommendations on EURIBOR Fallbacks

    The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).

    May 11, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Supporting Documentation for Reporting by Banks

    Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.

    May 11, 2021 WebPage Regulatory News
    News

    EBA Publishes Phase 1 of Reporting Framework 3.1

    EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).

    May 10, 2021 WebPage Regulatory News
    News

    IOSCO Sees Support for Mandatory Sustainability Reporting

    The Sustainable Finance Taskforce of IOSCO held two roundtables, with global stakeholders, on the IOSCO priorities to enhance the reliability, comparability, and consistency of sustainability-related disclosures and to collect views on the practical implementation of a global system architecture for these disclosures.

    May 10, 2021 WebPage Regulatory News
    News

    APRA to Finalize Capital Adequacy Standard Revisions by January 2022

    Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA

    May 10, 2021 WebPage Regulatory News
    News

    ESMA Issues Guidelines on Outsourcing to Cloud Service Providers

    ESMA published the final guidelines on outsourcing to cloud service providers.

    May 10, 2021 WebPage Regulatory News
    News

    EBA Publishes Data on Deposit Guarantee Schemes

    EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.

    May 10, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6967