Slovakia's foreign exchange reserves closed on February 17 at $6.18 billion, after diving $549.4 million over the previous week. The drop was due to the activities of commercial banks, whose hard currency holdings slid $594.3 million to end at $3.24 billion. The National Bank of Slovakia (NBS) recorded a slight increase in its forex reserves by $44.9 million to $3.243 billion, the central bank's press relations head Ivan Paška said on February 18.
Paška explained that commercial banks' reserves fell hand in hand with an increase in their short-term foreign debt. "This is basically just an accounting operation that comes on the heels of a decision by the NBS bank board to abolish the foreign exchange position limit for domestic banks and branches of foreign banks," he said. The NBS announced the move back in December 1998 when it was passing the monetary program for this year.
"Some banks have been inflating their total assets and liabilities just to meet the ratio. The situation we see now can be likened to the end of 1997 and 1998, except that this time the money will not be coming back," said Paška.
As a result, the banking sector should see its short-term debts back down to a level considered reasonable in the weeks to come. The central bank predicts that gross foreign indebtedness in the banking sector could ease by $1.5 billion to $2 billion, a decrease that will not affect net foreign indebtedness. "In other words, the slide in commercial banks' hard currency holdings poses no threat to the monetary policy goals pursued by the central bank," Paška added.
Slovakia's foreign exchange reserves hit an all-time high of over $8 billion on September 16, 1998 amid pre-election fears as banks, businesses and householdscrambled to sell their crowns for hard currencies.