BRATISLAVA, September 27, (WEBNOVINY) — The Slovak banking sector boosted its stability in the first six months of this year, according to central bank’s financial sector analysis. Improvement of the situation on financial markets in the USA and Europe significantly contributed to the stabilization. However, some negative factors gradually surfaced as well. “Stabilization on financial market in the USA and Europe influenced dissipating insecurity and bolstering liquidity. Negative impacts gradually surfaced, especially regarding debts of some EU countries. This was mostly translated in decrease of bond prices,” said Vladimir Dvoracek, director of the financial market supervision department at the National Bank of Slovakia at a news conference on Monday.
Banks in Slovakia have strengthened their financial position and their profit went up over one-third after the slump in profitability in 2009, he said. The central bank expects this trend to continue in the second half of the year as well. Increase in capital adequacy, when some banks used their profit for increasing their capital, also strengthened stability of the banking sector.
According to the central bank, banks in Slovakia still behaved rather conservatively and activities they perform are perceived as less risky. Nevertheless, some banks invested in riskier assets including Greek bonds. “Banks were mostly investing in government securities, while Slovak government bonds made up for a major part. Some banks also invested in foreign government bonds, including bonds with higher volatility of prices in 2010,” said Dvoracek.
Head of the risk analysis department at the central bank Marek Lisak said that Greek bonds accounted for 4 percent of the overall volume of bonds held by the entire banking sector at the end of July, which represented about EUR 600 million. “This risk exposure is not general but concentrated in some banks,” he concluded and added that the banking sector as a whole continued behaving conservatively. “We are closely watching the banks that purchased Greek bonds,” added Licak.
The credit market remained relatively calm and activity has not picked up much. The volume of credits provided in the first half of the year increased only 1 percent. Conservative attitude of banks resulted in increased caution when providing credits and that led to more conservative attitude of companies as well.
Certain recovery can also be registered in the sector of retail loans, which mostly results from increased demand on part of clients. “Interest rates were low and allowed clients to refinance,” said Dvoracek. Households took advantage of low interest rates and replaced their older more expensive loans with cheaper ones. This refinancing also contributed to the change on the market share of individual banks in lending to certain degree,” he added.
The central bank stated that the level of risk that banks are exposed to has eased in the first half of the year. Especially the situation of companies specializing in export-oriented sectors improved. “It is important to confirm that this positive trend is sustainable,” suggests Dvoracek. However, some local corporate sectors can also be a source of losses for the banking sector. “Special attention should be paid to financing of projects of construction of residential real estate. This area registers low marketability at the moment and improvement potential is very low. This may affect the ability of these subjects to repay loans in the future,” said Dvoracek. In the household sector, he speaks of easing of the credit risk.
Dvoracek said that stress tests conducted by the National Bank of Slovakia showed that the Slovak banking sector was relatively resistant to unfavorable economic development. “We can refer to improvement in resistance of the Slovak banking sector compared with results registered at the end of 2009,” he said.
SITA
