BRATISLAVA, January 26, (WEBNOVINY) — Overall profit of fourteen banks in Slovakia excluding subsidiaries of foreign banks totaled EUR 1.449 billion in the period from 2008 to 2010. The Slovak Banking Association further reported that five bank houses posted losses totaling EUR 164 million in this period. “Profit remains practically the only significant source for banks to boost their capital, particularly at times of economic downswing. Thanks to these funds, banks are able to extend more loans to their clients and bolster economic growth profoundly even amidst the crisis,” analyst with the Slovak Banking Association Marcel Laznia noted.
More than fifty percent of profit remained in Slovakia and considerably fostered the share capital of banks in the form of retained earnings. It is not unusual in Slovakia that unappropriated earnings from previous years account for more than 50 percent of the bank’s Tier 1 capital. “If banks in Slovakia had not generated profit in the past, financial institutions would now lack more than EUR 1.2 billion. Availability of loans might be limited as in many countries in western Europe where banks were unable to generate sufficient profit,” Laznia remarked. Banks retained over EUR 775 million in 2008-2010, representing nearly 54 percent of the reported profits.
The European Union and the European Banking Authority introduced a new capital requirement in October 2011. By late June 2012, Tier One capital ratio of banks must overstep 9 percent. The currently applicable Basel II rules set the Tier 1 capital ratio at 4 percent.
Issuing new shares could be one tool to fulfill this requirement but Laznia considers it rather unlikely. A more realistic scenario is the adjustment of assets (loans) to the present volume of capital though this move would limit lending profoundly and thus, hamper European economy. Nonetheless, the situation on Slovakia in this respect is favorable. The average capital adequacy of the Slovak banking sector was 12 percent in late September 2011.
SITA
