THE SLOVAK Finance Ministry is dissatisfied with the level of interest rate margins in Slovakia. The State Secretary of the Finance Ministry, Peter Kažimír, sent a warning to banks after a session of the government’s Price Council on October 28. He said that the ministry, in cooperation with Slovakia’s central bank, will monitor interest margins, i.e. the difference between rates offered on new loans and the rate on the interbank market in Slovakia, more frequently, the SITA newswire reported.
Banks responded that their interest rates reflect the current economic situation and these are factors which they cannot directly influence.
According to an analysis prepared by the National Bank of Slovakia (NBS), which the Price Council reviewed at its session, interest rate margins of banks operating in Slovakia have increased this year. The central bank pointed out that the decrease in interest rates offered to clients on loans was in almost all cases smaller that the decline in interbank rates. A similar development was reported in all EU member states according to the analysis.
But in some cases, the analysis states, interest rate margins in Slovakia are significantly higher than in other countries.
“In the case of interest rates on new housing loans with a fixed term of up to one year it is possible to see a trend of an increase in interest margins during the first half of 2009 in almost all countries,” the analysis states, as cited by SITA. “The margins on these loans were the highest in Slovakia at the end of 2009 while the margins in Slovakia had been lower than in Poland and the Czech Republic even during the last quarter of 2008.”
A similar development, according to the NBS, can be seen also in housing loans with fixed terms from one to five years. In this case the margins set by Slovak banks reached the second highest level in comparison with other countries.
After the meeting of the Price Council, Igor Vida, president of the Slovak Banking Association (SBA) stated that interest rates charged by banks are influenced also by their refinancing costs and by the current economic situation affected by the economic downturn.
The SBA does not see a difference in the development of interest rate margins in Slovakia when compared with other countries. It insists that interest rates of its member banks mirror the situation of Slovakia’s economy, the SBA writes on its website.
“The increase of unemployment and worsened performance of companies pushes up credit risk, which influences interest rates on loans,” writes SBA. “Equally, worsening of access to long-term financing, especially with regards to housing loans, influences interest rates in a negative way. However, banks are not able to directly affect these key factors.”
Banks do not see interest margins in individual countries as a comparable parameter and see the current economic situation behind the current interest rates.
“The exact figure of interest margins in various countries is not a completely comparable parameter,” Juraj Barta, senior economist with Slovakia’s biggest bank, Slovenská Sporiteľňa (SLSP), told The Slovak Spectator. “It depends on what risks the country itself has from the viewpoint of markets, which is reflected in the price of capital and liquidity on the monetary and capital markets which banks from this country pay.”
Another factor is the prevailing duration of the term of the loans. Barta said that in some countries customers decide more often for shorter terms or floating rates while in other countries, such as Slovakia, interest rates are agreed upon for longer periods of time and that rates for longer time periods are usually higher than those for short terms.
Elena Kohútiková, the deputy director general and a member of VÚB's board of directors, believes that comparison of countries is not simple.
“To compare, for example the risk charge among countries with different economic drops or differing unemployment rates is very complicated,” she told The Slovak Spectator. “In Slovakia we speak about the fall of the economy from +6.4 percent in 2008 to -5.5 now, meaning almost 12 percentage points, the biggest change in GDP dynamics among all eurozone member countries.”
Moreover, according to Kohútiková, it is considerably more difficult and expensive for banks in Slovakia to obtain longer-term funds to cover mid-term and long-term loans.
“Before the crisis the difference between German and Slovak bonds was significantly lower than it is now, which also influences interest margins on loans in individual countries,” she said.
Tatra Banka pointed out that other categories of loans have shown an opposite development.
“Interest margins on new loans provided by Slovak banks to corporate entities reached one of the lowest levels when compared with other countries,” Boris Gandel, Tatra Banka spokesperson said, citing the central bank’s analysis. “At the end of the first half of 2009 they were even lower than [the average] in the eurozone.”
“In case of consumer loans with shorter terms, margins in Slovakia were comparable with margins in the eurozone and lower than in neighbouring countries,” said Gandel. “In case of loans with longer terms, margins in the eurozone and neighbouring countries were comparable.”