Spectator on facebook

Spectator on facebook

Moody’s improves rating of Slovak banking sector

THE INTERNATIONAL rating agency Moody’s has changed its outlook on Slovakia’s banking system from negative to stable. It reflects current improvements in the macroeconomic environment that will limit the downside risks to asset quality and profitability in the coming 12-18 months, the agency wrote on its website on April 4.

THE INTERNATIONAL rating agency Moody’s has changed its outlook on Slovakia’s banking system from negative to stable. It reflects current improvements in the macroeconomic environment that will limit the downside risks to asset quality and profitability in the coming 12-18 months, the agency wrote on its website on April 4.

“These limited downside risks, combined with the system’s healthy capital buffers and stable funding and liquidity profiles, underpin the stable outlook,” Moody’s wrote.

The agency said that as economic growth rebounds amid a broader eurozone recovery, Slovak banks’ operating environment will strengthen.

“The key driver behind improving economic growth in Slovakia will be exports, as demand from Slovakia’s key trading partners in Europe gains momentum,” Moody’s explained.

Regardless of high unemployment, the agency also expects domestic demand to strengthen “amid current supportive public policies, including the European Central Bank (ECB)’s accommodating stance”. In its central scenario, Moody’s anticipates real GDP growth of 2.5 percent in 2014 and 3.2 percent in 2015, up from an estimated 0.9 percent in 2013.

The stronger macro and operating environment will alleviate banks’ asset quality pressures, particularly in retail, trade and manufacturing. Overall, system-wide NPLs remained relatively stable at 5.3 percent of total loans in 2013, a level which Moody’s expects will improve slightly during the outlook horizon mainly due to loan growth.

While the latest ECB rate cut in November 2013 will lead to some margin pressure, good credit growth, especially in the higher-margin retail business, and lower credit costs, position the banking system to maintain good profitability with a return on assets at around 1 percent. However, Moody’s acknowledges that the upside to profitability will be limited, not least by the government’s bank levy introduced in January 2012, according to the website.

Moody’s expects Slovak banks’ capitalisation to remain favourable relative to expected losses, supported by the prudent capital rules of the Slovak central bank. The system-wide Tier 1 capital ratio stood at 15.7 percent at December 2013.

Moody’s added that funding and liquidity profiles will remain stable. Despite loan growth, Moody’s continues to expect that Slovak banks will be able to fully fund their loan books through their stable deposit bases and thus maintain very low reliance on wholesale funding sources.

Source: Moody’s

Compiled by Radka Minarechová from press reports

The Slovak Spectator cannot vouch for the accuracy of the information presented in its Flash News postings.

Top stories

Sagan rewrites history Video

Cyclist Peter Sagan becomes the first man to win three consecutive world championships.

When the state can’t keep a secret

A selective leak has tarnished President Kiska’s reputation. But he must continue to speak out about corruption.

President Andrej Kiska

Blog: Why did I come here?

A group of teachers and students from the Bratislava-based school gathered to support their friend, colleague, and fellow foreigner, as she had already tried four times just to get in the door of the foreign police.

Queue in front of the foreigners' police department in Bratislava.

Teachers and scientist support anti-corruption march

They praise the activities of students who may change the current state of corruption.

Organisers of the first student protest, Karolína Farská and Dávid Straka.