-5 0 5 10 15 20
Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Household loans (% yoy) Corporate loans (% yoy) Mortgage loans (% yoy)
Lending growth (% yoy)
Source: ECB, Raiffeisen RESEARCH
After having bottomed out in 2013 at 0.9%, we expect economic growth to ac- celerate to 2.2% during 2014. The banking sector should benefit from this devel- opment, in particular from the recovery of private consumption and investments. In 2013, the asset growth of the Slovak banking sector has been supported by a surge in retail loans. Loans to enterprises declined and have only posted a marginal growth of 0.2% yoy. Investments into securities, mainly into government bonds, have decreased as a percentage of banking assets. Thus, the develop- ment is in line with the trend towards recovery in retail lending, down from levels which are among the highest in the euro area. Corporate loans remained stag- nant, mimicking the overall corporate lending trends in the euro area. Contrary to this, loans to households posted a steady double-digit growth in 2013, one of the highest growth rates in CEE. Mortgage loans, up by 12% in 2013, were the key driver of this development while real estate prices and average mortgage interest rates further decreased. We expect this trend to continue in 2014, with retail loans remaining the main driver of the overall lending growth. At the same time, we see corporate lending recover, supported by higher economic growth rates. Also, we continue to forecast a positive outlook for deposit growth in the corporate and retail segments, which are both backed by the stabilizing labor market and growing income levels. At the same time, the structure of deposits is expected to further shift towards short-term maturities, as the decreasing interest rates have translated into a move from term deposits to current accounts. The Slovak banking sector’s capitalization is decent with a Tier 1 ratio above 15% and hence sufficient to support the ongoing loan growth in the years to come. The NPL ratio has been stable at slightly above 5% for the whole banking system. The share of NPLs in retail loans is close to 4%, while corporate NPLs exceed 7%. We expect the ongoing banking system recovery and rising volume of loans to push the NPL ratio further down in 2014.
After a more than 25% decline in net profit back in 2012, 2013 was a more promising year, with the banking sector’s net financial result improving by 13% yoy. This development is largely explained by increasing gross income, decreas- ing operational expenses and lower provisioning costs. Still, the banks’ overall profitability in 2013 was negatively impacted by the high level of the Slovak bank levy (0.4% of total liabilities; this rate is expected to be lowered to 0.2% in Profitability recovered in 2013 despite headwinds from taxation
Growth of retail loans major factor for positive performance, corporate loan growth expected to catch up in 2014 Sound capital and liquidity position supportive to future growth of banking system
Key economic figures and forecasts*
Slovakia 2009 2010 2011 2012 2013 2014e 2015f
Nominal GDP (EUR bn) 63 66 69 71 72 74 78
Nominal GDP per capita (EUR) 11,638 12,137 12,777 13,151 13,301 13,669 14,312
Real GDP (% yoy) -4.9 4.4 3.0 1.8 0.9 2.2 3.0
Consumer prices (avg, % yoy) 1.6 1.0 3.9 3.6 1.4 0.7 2.7
Unemployment rate (avg, %) 12.1 14.4 13.4 13.9 14.2 13.5 13.1
General budget balance (% of GDP) -8.0 -7.7 -5.1 -4.4 -2.8 -2.6 -2.4
Public debt (% of GDP) 35.4 41.0 43.4 52.2 55.4 55.2 56.2
Current account balance (% of GDP) -2.6 -3.7 -3.8 2.2 2.2 2.4 2.2
Gross foreign debt (% of GDP) 72.3 74.5 76.5 71.5 81.6 82.9 83.9
* Slovakia is a euro area member as of 1 January 2009 Source: national sources, wiiw, Raiffeisen RESEARCH
Key banking sector indicators
2009 2010 2011 2012 2013
53,028 54,695 55,775 58,086 59,554
growth in % yoy (15.6) 3.1 2.0 4.1 2.5
in % of GDP 84.1 83.0 80.9 81.7 82.6
Total loans (EUR mn) 31,876 33,452 36,624 37,870 39,909
growth in % yoy 0.7 4.9 9.5 3.4 5.4
in % of GDP 50.6 50.8 53.1 53.3 55.3
Loans to private enterprises (EUR mn) 15,620 15,688 16,677 16,277 16,317
growth in % yoy (3.3) 0.4 6.3 (2.4) 0.2
in % of GDP 24.8 23.8 24.2 22.9 22.6
Loans to households (EUR mn) 13,158 14,773 16,362 17,940 19,733
growth in % yoy 11.2 12.3 10.8 9.6 10.0
in % of GDP 20.9 22.4 23.7 25.2 27.4
Mortgage loans (EUR mn) 9,235 10,581 12,014 13,290 14,860
growth in % yoy 10.8 14.6 13.5 10.6 11.8
in % of GDP 14.6 16.1 17.4 18.7 20.6
Loans in foreign currency (EUR mn) 375 340 330 520 409
growth in % yoy (94.6) (9.5) (2.9) 57.7 (21.3)
in % of GDP 0.6 0.5 0.5 0.7 0.6
Loans in foreign currency (% of total loans) 1.2 1.0 0.9 1.4 1.0
Total deposits (EUR mn) 37,541 39,642 40,426 42,980 44,823
growth in % yoy (8.4) 5.6 2.0 6.3 4.3
in % of GDP 59.5 60.1 58.6 60.5 62.1
Deposits from households (EUR mn) 21,090 22,248 23,869 25,312 25,990
growth in % yoy (1.2) 5.5 7.3 6.0 2.7
in % of GDP 33.4 33.8 34.6 35.6 36.0
Total loans (% of total deposits) 85 84 91 88 89
Structural information
Number of banks 26 29 31 28 28
Market share of state-owned banks (% of total assets) 0.9 0.9 0.9 0.8 0.8
Market share of foreign-owned banks (% of total assets) 99 99 99 99 99
Profitability and efficiency
Return on Assets (RoA) 0.5 0.9 1.2 0.8 0.9
Return on Equity (RoE) 6.5 12.3 14.2 9.1 7.8
Capital adequacy (% of risk weighted assets) 12.6 12.7 13.4 16.0 16.6
Non-performing loans (% of total loans) 5.5 6.1 5.7 5.3 5.2
Source: NBS, Raiffeisen RESEARCH
2015) and the low interest rate envi- ronment. The decreasing margins and interest rates on assets cannot be fully compensated by the liability side. The ownership structure of the Slovak banking sector is stable with foreign owners absolutely dominating the market. Competition has been further intensifying with the most apparent effects in the mortgage market. Con- sidering the small size of the Slovak market, the Top 3 banks have a strong position. On the deposit side, com- petition is mainly driven by smaller banks, which have to pay significantly higher rates to attract the desired vol- ume of deposits.
Financial analyst: Juraj Valachy (+421 2 5919 2033), Tatra banka, a.s., Bratislava
Slovenska Sporitelna (Erste) 20.7%
VUB Banka (Intesa) 19.0%
Tatra Banka (Raiffeisen) 15.7% CSOB (KBC) 9.3% UniCredit 6.9% Postova banka 5.5% Prima Banka (Penta)
3.4% Volksbank Slovensko (Sberbank) 2.9% OTP Banka 2.3% Others 14.2%
Market shares (2013, eop)
% of total assets
20% 40% 60% 80% 100% 5,000 15,000 25,000 GDP per capita (EUR at PPP)
To ta l lo an s ( % o f G D P)
Total loans vs. GDP per capita
Data for 2013, red triangle shows Slovenia vs. all other CEE markets
Source: BSI, national sources, Raiffeisen RESEARCH
-20 -15 -10-5 0 5 10 15 20 25
Jan-10 Dec-10 Nov-11 Oct-12 Sep-13 Household loans (% yoy) Corporate loans (% yoy) Mortgage loans (% yoy)
Lending growth (% yoy)
Source: ECB, Raiffeisen RESEARCH
2013 brought successful attempts to solve the Slovenian banking sector’s most pending issue of the past few years – the system’s recapitalization and the start of its restructuring. In December 2013, the system’s total EUR 4.8 bn lack of capital was made public, and the largest systemically relevant banks – state-controlled Nova Ljubljanska banka (NLB), Nova Kreditna Banka Maribor (NKBM) and Abanka Vipa (Abanka), which together account for over two thirds of the Slo- venian banking system’s assets – received capital injections of around EUR 3 bn (in total) from the Slovenian government. These three banks have also transferred sizeable parts of their NPL portfolios (amounting to EUR 4.5 bn in total) to the state-run Bank Asset Management Company (BAMC). This transaction was made in exchange for state-guaranteed bonds worth EUR 1.6 bn, which in turn, can be used as a fund-securing tool, and serve as collateral for ECB funding in particular. The three banks are also obliged to start restructuring their business models and governance, and are subject to privatization up until 2016.
Although the measures outlined above have resolved the system’s immediate sol- vency concerns, the systemic banking crisis in Slovenia is still far from being resolved. The banks’ aggregate loans and assets are still in a steep downward trend, and the banking sector’s net financial result has been negative for several years already. Over the past three years, the volume of loans contracted by 22%, in 2013 alone by 8.5%, which adds to the vicious circle between the banking sector and the macroeconomic weakness of the country. Banks are suffering from a lack of revenue-generating opportunities, a situation that erodes their capital base, limits their access to global market funding, and thus prevents any quick fundamental revival. The system’s recovery now depends on a number of criti- cal factors with the macroeconomic performance as one of the most important determinants. The problems of the past have a high probability of repeating them- selves, as long as the real sector and public finances remain in distress.
With regard to the macroeconomic situation, there are some early signs of re- covery, which might help gaining ground against additional downside risks (e.g. in terms of asset quality). At the same time, the high concentration of loans from large holding companies as well as from the construction and real estate sectors in the corporate loan portfolio remains the main weakness of the Slovenian banks’ asset mix. Before the clean-up, some banks’ impairment ratio in this category of