-5 0 5 10 15 20
Jan-10 Mar-11 May-12 Jul-13 Sep-14 Household loans (% yoy) Corporate loans (% yoy) Mortgage loans (% yoy) Lending growth*
Source: ECB, RBI/Raiffeisen RESEARCH
The Slovak economy experienced a strengthening of GDP growth to 2.4% in 2014, coming from 1.4% in 2013. The main driving force was domestic de- mand, which was particularly reflected in retail lending trends. The steady growth of loans to households accelerated to 12.1%, with mortgage loans accounting the lion share, but also consumer lending saw a 20% upswing. Although the growth rates are high, we do not see them – yet – as a matter of concern regard- ing too aggressive risk taking. The level of household indebtedness in Slovakia is still somewhat below the average of its CE peers. That, and the steady posi- tive economic performance over the past few years, explain the above average growth of retail loans that was recorded in recent years.
In order to limit the risks of the accelerating retail lending growth, the National Bank of Slovakia (NBS) issued a number of recommendations on tightening credit standards for retail loans. These include, for example, stricter LTV ratios in mort- gage loans, and more detailed checks regarding the borrower’s income sustain- ability and credibility. However, this new policy and its goal to limit retail lend- ing is in some way counteracting the major ECB policy pattern with its historically low interest rates as a stimulus for private consumption. Backed by the European monetary trends, interest rates on new mortgage loans in Slovakia have now al- ready reached the level of France or the Netherlands. This makes us hesitant to expect that the growth of household loans would decrease in 2015, and if at all, we expect the decrease to be only moderate.
In contrast, corporate loans stagnated in 2014. We do not take this as a sign of the corporate sector’s lower loan demand, but rather interpret it as a switch to cross-border financing on intra-group level, facilitated by Slovakia’s accession to the euro area. The NPL ratio increased moderately to 5.4% in 2014 despite the sustainable growth of the loan base. While in part possibly driven by accelerat- ing consumer lending, the NPL ratio may also have been affected by a more con- servative approach of the banks following the ECB’s AQR.
Deposit trends remained reasonable, with customer deposits posting a 4.1% yoy increase, evenly split between households and companies. The L/D ratio in- creased to 91%, leaving substantial room for further loan growth in 2015. The three biggest Slovak banks have successfully passed the AQR and stress tests. The banking sector’s current Tier 1 CAR is around 16% and supported by Increase of aggregate loan volume due to accelerating retail loans
Slovak banks passed AQR and stress test, confi rming buffers for further expansion Low-interest rate environment had a negative impact on margins and profi tability
Key economic fi gures and forecasts*
Slovakia 2010 2011 2012 2013 2014 2015f 2016f
Nominal GDP (EUR bn) 67.2 70.2 72.2 73.6 75.2 77.1 80.6
Nominal GDP per capita (EUR) 12,395 13,012 13,358 13,601 13,885 14,213 14,562
Real GDP (% yoy) 4.8 2.7 1.6 1.4 2.4 2.5 3.0
Consumer prices (avg, % yoy) 1.0 3.9 3.6 1.4 -0.1 0.0 1.5
Unemployment rate (avg, %) 14.4 13.4 13.9 14.2 13.2 12.5 11.9
General budget balance (% of GDP) -7.5 -4.1 -4.2 -2.6 -2.9 -2.5 -1.2
Public debt (% of GDP) 41.1 43.4 52.1 54.6 54.1 54.4 52.3
Current account balance (% of GDP) -3.6 -3.7 2.2 2.1 0.2 0.0 0.0
Gross foreign debt (% of GDP) 73.1 75.2 70.5 81.1 93.6 103.1 92.5
* Slovakia is a euro area member as of 1 January 2009 Source: national sources, wiiw, Raiffeisen RESEARCH
Key banking sector indicators
Balance sheet data 2010 2011 2012 2013 2014
Total assets (EUR mn) 54,695 55,775 58,086 59,554 62,742
growth in % yoy 3.1 2.0 4.1 2.5 5.4
in % of GDP 81.4 79.5 80.5 80.9 83.4
Total loans (EUR mn) 33,452 36,624 37,870 39,909 42,534
growth in % yoy 4.9 9.5 3.4 5.4 6.6
in % of GDP 49.8 52.2 52.5 54.2 56.6
Loans to private enterprises (EUR mn) 15,688 16,677 16,277 16,317 16,203
growth in % yoy 0.4 6.3 (2.4) 0.2 (0.7)
in % of GDP 23.3 23.8 22.5 22.2 21.5
Loans to households (EUR mn) 14,773 16,362 17,940 19,733 22,125
growth in % yoy 12.3 10.8 9.6 10.0 12.1
in % of GDP 22.0 23.3 24.9 26.8 29.4
Mortgage loans (EUR mn) 10,581 12,014 13,290 14,860 16,872
growth in % yoy 14.6 13.5 10.6 11.8 13.5
in % of GDP 15.7 17.1 18.4 20.2 22.4
Loans in foreign currency (EUR mn) 340 330 520 409 400
growth in % yoy (9.5) (2.9) 57.7 (21.3) (2.2)
in % of GDP 0.5 0.5 0.7 0.6 0.5
Loans in foreign currency (% of total loans) 1.0 0.9 1.4 1.0 0.9
Total deposits (EUR mn) 39,642 40,426 42,980 44,823 46,668
growth in % yoy 5.6 2.0 6.3 4.3 4.1
in % of GDP 59.0 57.6 59.5 60.9 62.0
Deposits from households (EUR mn) 22,248 23,869 25,312 25,990 27,041
growth in % yoy 5.5 7.3 6.0 2.7 4.0
in % of GDP 33.1 34.0 35.1 35.3 36.0
Total loans (% of total deposits) 84 91 88 89 91
Structural information
Number of banks 29 31 28 28 28
Market share of state-owned banks (% of total assets) 0.9 0.9 0.8 0.8 0.8
Market share of foreign-owned banks (% of total assets) 99 99 99 99 98.5
Profi tability and effi ciency
Return on Assets (RoA) 0.9 1.2 0.8 0.9 0.9
Return on Equity (RoE) 12.3 14.2 9.1 10.9 10.3
Capital adequacy (% of risk weighted assets) 12.7 13.4 16.0 17.2 17.4
Non-performing loans (% of total loans) 6.1 5.7 5.31 5.20 5.4
Source: NBS, RBI/Raiffeisen RESEARCH
good profitability (RoE close to 10% in 2014). We expect the sector’s finan- cial result in 2015 to be further sup- ported also from the legislative side. The bank levy has halved since the beginning of 2015. Another support- ive stance will be a lower contribution to the deposit protection scheme start- ing from 2015 onwards. At the same time, we expect some negative pres- sure on the sector’s financial stand- ing from shrinking interest margins, as the Slovak banks cannot bring down the level of deposit interest rates in ac- cordance with the decreased interest rates on loans. Interest rates on term deposits are currently above EURIBOR
and can hardly be trimmed any more despite negative margins. As much as 45% of primary deposits are kept on current accounts with basically zero interest, thus limiting the room for an additional decrease of the aggregate deposit interest rate. Besides, strong competition on the refinancing market is further squeezing the banks’ margins and increases the neg- ative effect on their gross income.
Financial analyst: Juraj Valachy (+421 2 5919 2033), Tatra banka, a.s., Bratislava
Slovakia
Slovenska Sporitelna (Erste), 22.3%
VUB Banka (Intesa), 19.2%
Tatra Banka (Raiffeisen), 16.6% CSOB (KBC), 10.3%
Postova banka, 7.2% Prima Banka (Penta),
3.3% Sberbank, 3.5%
OTP Banka, 2.5%
Others, 23.0% Market shares (2014, eop)*
% of total assets; * UniCredit not shown as operations in Slovakia are parts of Czech operations Source: NBS, RBI/Raiffeisen RESEARCH
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 2014, red triangle shows Slovenia vs. all other CEE markets
Source: BSI, national sources, RBI/Raiffeisen RESEARCH
-32 -24 -16-8 0 8 16 24 32
Jan-10 Mar-11 May-12 Jul-13 Sep-14 Household loans (% yoy) Corporate loans (% yoy) Mortgage loans (% yoy) Lending growth*
Source: ECB, RBI/Raiffeisen RESEARCH
After two years of decline in growth, the Slovenian economy grew again by 2.6% in 2014. Our positive outlook for 2015/16 is an indication that the re- cent reforms took effect. In addition, the regulator made a clear commitment to improve the situation of the banking sector, which already started to show an im- provement in the major performance parameters. The main push for this positive development was the banking sector clean-up, which started in late 2013. The major measures during this process included the EUR 3 bn recapitalization of the largest state banks, the transfer of EUR 1.6 bn in impaired loans from Nova Ljubljanska banka, Nova KBM and Abanka to the government-funded Bank As- set Management Company (BAMC) as well as the write-off of EUR 440 mn of non-performing debt and the unwinding of Probanka and Factor Banka. Follow- ing these measures, the share of non-financial private sector NPLs came down to 16% in the third quarter of 2014 (as per an estimate of the European Commis- sion). This can be seen as a notable stabilization sign of asset quality, albeit the ongoing loan base contraction in Slovenia continues.
The stock of private sector loans kept contracting in 2014, due to low corporate demand, continual high leverage of large corporations, and the ongoing restruc- turing of the banking sector’s funding structure. The latter was mostly related to the gradual replacement of external funding by domestic deposits. According to the National Bank of Slovenia (NBS), these replacements have exceeded EUR 11 bn since 2008, thereof EUR 2.8 bn in 2013 and about EUR 1 bn in 2014. Al- though this development was positive and necessary for the sustainability of the sector’s funding, the replacement of external funding also had constrained new loan issuances in 2014. External debt redemption demanded sizeable resources that hence could not be used for domestic lending, and as a result, the non-finan- cial private sector loan stock decreased by 12%. Corporate lending growth de- clined by 19%, whereas retail loans remained flat.
Government deposits are gradually losing their importance for the banking sec- tor’s funding. There was very limited, if any, new placement by the government, and “old” deposits were used for recapitalization needs. In total, state-related de- posits contracted by EUR 0.7 bn in 2014.
The sector’s refinancing risk is gradually improving due to external debt redemp- tion and moderate private deposits growth. As at year-end 2014, the share of