Slovak banks profited in 2014 despite higher operating costs

BANKING sector in Slovakia recorded 0.7 percent year-on-year profit increase of €560 million, the country’s central bank (NBS) reported in 2014 Report on Financial Market Development which was filed to the government on April 22.

NBS building in BratislavaNBS building in Bratislava (Source: Sme)

Market risks in banking sector remained at a low level but liquidity deteriorated slightly.

“Banks are experiencing high exposure towards selected clients or their own financial groups,” reported NBS, adding that some high exposures are towards clients in countries perceived as risky, which include Russia and Cyprus.

An interest rate increase could be risky for banks. “Interest rate growth means that this rise is reflected sooner in the increase of costs associated with the rate increase compared with the interest income,” explained the NBS, as quoted by the TASR newswire.

Financial institutions witnessed last year a record increase in loans.

“Y-o-y loans growth in retail increased to 12.2 percent in December 2014, which is the highest value since the financial crisis. The increase (€2.4 billion) in the volume of loans significantly surpassed previous years,” central bank reported.

Bank deposits also grew. The trend over the past two years that has seen a slowdown in the growth of deposits was overturned. Some €1.3 billion was added y-o-y in tandem with the 4.8-percent growth – double that of 2013, according to NBS.

The bank sector registered profits of €560 million. This figure was influenced negatively by an increase in operating costs and also taxes and levies. NBS is predicting deepening of this influence, mostly because of cost increase stemming from implementation of the banking union. These are mostly fees for oversight and contributions to the fund for addressing potential crisis situations.

Nonetheless, the Slovak banking sector belongs to the safest in Europe. Total average capital requirement of banks reached 17.3 percent, while the capital requirement of own resources is 16 percent.

During the second half of 2014, some banks increased the volume of own resources, mostly those which reported a lower amount of the capital requirement at the end of 2013. All banks in Slovakia fulfil regulatory requirements, the NBS concluded. 

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