Financial Sector in Slovakia: Pillar of
Stability
Martin Barto
Sberbank Slovensko, a.s.
Some historical remarks
• Situation in 90s: Large state-owned banks, on-going privatisation
into hands of domestic “investors“, Asian crisis
• Result: Three largest banks on the verge of bankruptcy, without
capital, almost 50% of non-performing loans, state was the main
owner of these banks
• Solution: Capital strengthening (620m EUR), bail-out (12% HDP),
privatisation
• Lessons learnt: Bank supervision to be strengthened, stricter
regulation, role of state is only regulatory and supervisory
• Legal basis: Amendments to Constitution, NBS Law, Banking Law,
NBS by-laws
• Institutional platform: New Banking Supervision Unit in NBS since
2002, implementing 25 core Basel principles of prudential
supervision
• World Bank and IMF were involved through EFSAL loan
conditioned by FSAP (2002, 2006)
Financial sector during crisis and euro
adoption
• 2006: NBS became the sole regulator and supervisor of the financial
market
• 2007: New organisational structure, where institutions are
supervised within financial groups. Group approach has proved as
very efficient.
• High ROE in financial sector in these years, banks above 15%
• Slovak financial sector was only marginally negatively influenced by
fall of some asset prices, most investments into domestic quickly
growing economy
• Almost none retail loans denominated in FCY, corporate loans
usually naturally hedged by company receipts from exports
• L/D ratio < 1, no dependence on foreign funding
• Behind this – combination of trustworthy monetary policy (low
inflation expectations) as well as prudent and forward-looking FM
supervision
Financial sector during crisis and euro
adoption
• Slovakia was among few EU member states which did not need to
bail-out any financial institution; although the law was adopted in
line with EU demand
• Other measures were taken:
– NBS decree on liquidity and liquidity management in banks and branches of
foreign banks
– Main shareholders of domestic banks were asked to keep a part of 2008 profits in
bank capital funds
• These measures were meant as prevention against uncontrolled
liquidity and capital outflows to mother companies, some of them
were under heavy stress, applying for a support from their
governments
• Fully in line with the first stage of Vienna initiative
• Three negative impacts on banks in 2009: crisis, loss of money
market and exchange transactions with very limited new business
opportunities (1/7 of total operational income) and decrease in assets
(10bn €) as a result of the end of convergence game
Financial sector during crisis and euro
adoption
• 2009 banking sector profit halved in comparison with 2008, some
banks posted red figures
• Insurance companies, voluntary pension funds increased their ROE
in 2009; asset managements ROE went down by 1/3
• NBS stress tests proved a solid resilience of the banking sector
despite combined negative factors, as well as other segments of the
financial market
• Stability of the financial system was crucial for all phases of the
smooth euro adoption
Financial sector at present
• Financial sector remains the pillar of stability of the Slovak economy
• NBS stress analysis (2013) says that at maximum 2% of present bank
own capital should be added in the case the adverse scenarios realise
• Main risks: corporate credit risk, household credit risk
• Other segments: market risks, but impact on economy less important
than banks
• With ECB assuming the supervisory role as home supervisor for 130
main banks in eurozone, the role of NBS will change partially
• Three largest banks will be supervised directly by ECB, however
details are unknown
• For other banks with mother companies abroad NBS will be in a role
of host supervisor
• Close co-operation with ECB is expected
• Full responsibility for domestic banks – PB, Prima, Privatbanka,
SZRB
• Taking into account ownership structure, this is a tough task
Financial sector at present
• New banking union project underway
• First element: Single Supervision Mechanism was approved by EP
and Council
• SSM will directly apply to 130 banks under ECB supervision, it will
be binding for national authorities, ECB will have access to all data
• AQR for those banks - before implementation - includes three parts:
supervisory risk analysis (liquidity, funding, leverage), asset quality
review and stress tests - resilience
• Recapitalisation needs: 1) markets, 2) national scheme, 3) ESM
• Second element: Single Resolution Mechanism - framework
required: Bank Resolution and Recovery Directive - since 2015,
question whether 130 or all ?
• Single Resolution Authority and Single Resolution Fund
• Resolution: 1) shareholders and creditors, 2) resolution fund made
up by banks, 3) fiscal backstop
• Each bank will be obliged to have an adequate loss-absorbing
capacity
Financial sector at present
• Third element: How to finance failures ?
• Resolution Fund created by banks
• More integrated financial market as a shock absorber
• Insurance scheme for tail and unexpected events
• ESM to play the role of public finance backstop - lender of the last
resort
• This is a partial answer to the problem of banks too large to fall,
single states unable to rescue them or the price is enormous (IRL)
• Nevertheless, this is not a proper answer to the problem of moral
hazard
• Too much regulation and supervision give managements feeling of
ultimate responsibility being with regulator and supervisor
• Existence of SRM, ESF strengthen this feeling
• Conclusion: Even Banking Union cannot exclude bank failures
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