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

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153