Financial Stability Report – November 2021

Správa o finančnej stabilite

Fading of short-term risks related to the pandemic crisis

Growing imbalances in the housing market and its financing

New difficulties for firms in regard to supply chain disruptions and energy prices


The financial sector has so far managed to cope with the pandemic situation, even becoming stronger in several respects. Throughout the pandemic, the sector has maintained financing to the economy, and financial stability has not been disrupted. Thanks to its responsible behaviour, the banking sector has come through this period with its capital position actually strengthened.

It is important that the crisis has not so far caused any permanent economic scarring. Corporate revenues declined and did not start recovering, albeit unevenly, until after the pandemic’s second wave. Firms themselves strove to overcome their difficulties and offset revenue losses by cutting costs. Public support measures helped, too. Although many firms reported lower profits compared with the pre-pandemic period, the number making a loss increased only moderately. Initial concerns that loan defaults would abound have gradually eased. The bulk of loans that were under statutory repayment moratoria are now being repaid without problems.

These factors have had a positive impact on banks’ profitability, which nonetheless still lags behind the EU median. Banks’ prudence was key to the profit recovery, with most credit risk costs having already been recognised in 2020. Besides banks, insurers have also been reporting good results.

But despite several pieces of positive news, some uncertainty about the future remains present. This is particularly the case in certain economic sectors, such as accommodation and food service activities. Future developments in the commercial real estate market are also an area of persisting uncertainty. At the same time, repayment difficulties could still mount in respect of loans to households, especially consumer credit.

With the fading of the crisis, vulnerabilities in the housing market and its financing have again come to the fore. This market, only marginally affected by the pandemic, has been gaining momentum since spring 2021. Because of low interest rates and the accumulation of household savings during lockdowns, demand for real estate is strong.

As housing prices have been accelerating, so the risk of a hard landing has increased. Slovakia’s housing price growth is currently among the highest in the EU, so there may be a risk of overvaluation and subsequent price correction. At the same time, it is important to discuss structural factors contributing to this trend, including underdevelopment of the rental housing market and the issue of low property taxation.

Strong credit growth has led to an acceleration in household indebtedness. On this metric, Slovakia now has highest growth in the EU. One cause of this trend has been income growth, but there have also been risk factors: households excessively topping up their loans and extending the loan maturity. Every second new mortgage is due to mature after the borrower reaches retirement age, and some even after the borrower turns seventy.

These risks have been mitigated by credit standard limits set by Národná banka Slovenska in recent years. The pandemic crisis showed that the limits are well set for now and that they have helped protect the households against default. NBS will nevertheless continue to monitor the risks, in particular the extension of loan maturities beyond the borrower’s retirement age. If necessary, NBS will consider adjusting the limits.

Current developments in the corporate sector may bring new risks. After the fading of the pandemic crisis, firms are exposed to new difficulties in regard to supply chain disruptions and sharply rising energy prices. The ability to meet these challenges will depend on their duration and severity. Another no less important challenge facing firms is the transition to a greener economy.

Financial Stability Report (in Slovak language only)Financial Stability Report

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