PROFITS in the Slovak banking sector almost halved during the first six months of 2009. Experts blamed the dive in performance on the global economic crisis and the introduction of the euro in Slovakia. Banks had expected lower profits and maintain that in spite of their lower profits the condition of Slovakia’s banking sector remains good.
The central bank announced in early August that the banking sector earned €179.6 million during the first half of 2009, 48.2 percent less than during the first half of 2008. But the Slovak Bank Association (SBA) said Slovak banks retain sufficient liquidity and that the banking sector is healthy, the SITA newswire wrote.
The SBA attributes the fall in the banks’ profits to the economic downturn and in particular to the drop in revenues from foreign exchange operations after Slovakia replaced its national currency with the euro as of January 1, 2009.
“Since both these factors were already known last year, the drop in the profits of the banking sector is nothing unexpected,” Vladimír Hrtko, the deputy of the SBA director, told The Slovak Spectator. “We expect the banking sector to be in the black at the end of the year, though not in such volumes as in the past.”
The banking sector in Slovakia has been hit less hard than banks in other countries.
“Banks in Slovakia have not needed any assistance from the state,” said Hrtko. “Unlike companies in other segments, the banks are not in the red and are not limiting provision of banking services to their clients. The fact that the sector has achieved profits during a crisis also unambiguously proves its good condition.”
Profit of the biggest bank sinks by 56 percent
Slovenská Sporiteľňa (SLSP), the biggest Slovak bank, closed the first half of the year with a profit of €35.1 million, a year-on-year drop of 56 percent, according to SITA.
“We can divide the reasons for the lower profit into two groups,” Štefan Frimmer, SLSP’s spokesperson, told The Slovak Spectator. “Firstly it is the influence of the implementation of the euro. The new currency has had a very positive influence on the Slovak economy, but for banks it means higher expenditures and a drop in revenues. If we eliminated this factor from the bank’s results, our profit would be about 50 percent higher. The second factor is the economic recession.”
The economic downturn has affected the bank even more than the arrival of the euro as it has led it to make greater provisions and also because of lower interest margins.
“The higher provisions which the bank has made are linked to its loan portfolio,” said Frimmer. “The volume of non-performing loans has increased and the current, complicated economic situation and growing unemployment is affecting repayment of loans by our clients. Along with the conservative attitude of our bank, the crisis creates a bigger need for creation of provisions, i.e. risk costs.”
The lower financial performance of the bank was in line with its expectations. In spite of the lower profit the bank is in an excellent condition, has at its disposal enough liquidity and its capital adequacy is good, according to Frimmer. The volume of loans SLSP provided in H1 2009 rose by 8 percent to €5.9 billion and the volume of deposits by private customers also rose considerably, up 15 percent to €6.2 billion.
“Thus the bank does not need in any case to cover the drop in the profit,” said Frimmer.
The economic environment and the development of the economy in Slovakia as well as the whole of Europe will affect the results of SLSP this year. The bank is continuing to implement measures to increase its effectiveness, support business and create preconditions for a further increase in the future, according to Frimmer.
The net profit of Tatra Banka in H1 2009 shrank by 23.6 percent year-on-year to €46.68 million. The bank ascribes the drop in profits to a fall in revenues from foreign exchange operations and a fall in fees from foreign payments after Slovakia introduced the euro. After Slovakia entered the European Monetary Union, some foreign exchange operations changed to local financial transactions.
“The smaller increase of new deals compared to last year, in particular in the loan provision segment, also influenced the financial result of the bank negatively,” Tatra Banka spokesperson Boris Gandel told The Slovak Spectator.
Tatra Banka anticipated the result and says the outlook for the second half of 2009 will be closely linked to the general development of the economy, even though the first signals of stabilisation are already visible, according to Gandel.
“Thus we do not expect a more significant improvement of the situation during the next part of the year but rather a gradual stabilisation,” said Gandel.
VÚB Bank closed the January-June period of 2009 with a pre-tax profit of €57.3 million, representing a drop by 24 percent year-on-year, but also the highest profit of any bank in the Slovak banking sector, according to SITA.
“The current economic situation means that the costs of risk absorb a considerable part of our operating profit,” said Ignacio Jaquotot, the director general of VÚB Bank. “But we still managed to achieve stable revenues and be one of the most effective banks in Slovakia. We are convinced that strict control of costs and excellent risk control will enable us to achieve our forecast results.”
Other banks in Slovakia also reported falls in their profits, with OTP Banka recording a loss of €1.86 million during the first half of 2009. However, the bank had anticipated an even worse performance in its annual report for 2008, SITA wrote.
Unlike other banks, Poštová Banka more than tripled its taxed H1 profit, to €10.47 million, thanks to growth in interest revenues and income from fees and commissions. The bank also swung into the black in the segment of financial operations.
Slovak banking sector is one of the least endangered sectors of the economy
The current economic downturn has hit the Slovak economy hard, resulting in production cuts and layoffs. But the banking sector in Slovakia is one of the least endangered sectors of the local economy.
“Stable performance allied with the trust of society is a clear presumption for coping with any economic crisis, because an economic crisis is something that repeats regularly and never lasts forever,” said Hrtko of the SBA. “For now, nothing indicates that the condition of the banking sector will be endangered during the next few years.”