Slovakia Commercial Banking Report

Key Issues

During the last three months, growth in assets, loans and deposits has continued. However, with the exception of loans, which performed well on a regional basis, growth in assets and deposits was modest compared to regional peers. This is largely due to the relatively well developed nature of the industry in comparison with other Eastern European countries and the fact that banks have displayed good discipline in their expansion.

However, Loan/Deposits and Loan/Assets ratios do remain comparatively low; the country has the lowest loan/deposit ratio, and loan/asset ratios of all the countries surveyed in Central and Eastern Europe. The continuing recovery in lending should help these ratios to increase going forward, and recent reports have persistently highlighted strong performance in this area. Deposit levels, however, continue to fall.

The outlook for the industry remains positive, and therefore we remain comfortable with the forecasts that we made -15% annual growth in both loans and assets and 10% for deposits - in Q106. In particular, the outlook for the economy should provide further momentum for expansion of the sector. Recent data have highlighted the continuing growth in GDP, which has likely been driven - as in Q1 - mainly by household consumption and investment.

Changes To Commercial Banking Forecast

We have made a number of improvements to the commercial banking reports this quarter. In particular, we have collated information about banks' capital and bond portfolios.

We have looked at capital primarily because we wanted to produce a clearer picture of the banks' balance sheets and, in particular, the liabilities side. We are now much better able to quantify liabilities that are not deposits.

We collated information about the bond portfolios because we wanted to gain additional insights about the risks with which the banks are involved. Across all the countries that we surveyed, the commercial banks are major investors in government securities. In some instances, the banks are large holders of bonds - by any standard. In other instances, the banks' holdings of securities represent a very substantial portion of their total assets.