The persisting strong growth of loans to households represents a significant risk to financial stability, particularly in the form of rising household debt and the creation of imbalances in the real estate market.
Since 2010, the share of household debt to GDP has doubled and now exceeds 30 percent, said Vladimír Dvořáček, the executive director of the financial market supervision department at the National Bank of Slovakia (NBS) the country’s central bank.
This, according to him, results in higher vulnerability in the event of adverse developments, the SITA newswire reported.
Household loan growth in Slovakia is the fastest in the EU, said Marek Ličák, head of the macro-level supervision department at the NBS, while at the same time, households report relatively small financial savings. This means imbalances have arisen within the real estate market.
Apartment prices are rising and there is also a decrease in their availability. Also, the trend of selling new buildings only on paper has been observed. The availability of cheap loans is still high, Ličák said, as reported by SITA.
Another risk is that the share of bad debt will start to grow among consumer loans, Dvořáček said.
The central bank is currently tailoring measures focused on consumer loans, with the aim to seek responsible and healthy lending so that households can pay off their debts, SITA reported.
The main reason for the previously adopted measures is to stop the negative trends and not to “cut the market” and make loans inaccessible, Ličák added.
“If we try to limit somebody, they are likely the most risky clients,” Ličák said, as quoted by SITA.
Another risk is represented by low interest rates and their impact on the profitability of the Slovak banks. This depends significantly on the development of the net interest income. The NBS expects a drop in interest incomes in the following years, though it may be lower than the central bank predicted six months ago.
Despite the risks, the resilience of the banking sector in Slovakia is sufficient, according to Dvořáček. The adequacy of its own resources rose last year to nearly 18 percent and all banks have enough capital. However the NBS says that the banks will have to limit the payment of dividends in the near future, as reported by SITA.