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NBS Blames Crisis for Decline in Banks Profits in Report
Wednesday 08 September 2010 Zoom in | Print page
Bratislava, September 8 (TASR) - Last year saw the global economic crisis spilling over into Slovakia's banking sector, with the profits of domestic banks sinking by 50 percent year-on-year to €250 million, partly as an adverse effect of euro-adoption, wrote the Slovak central bank (NBS) in its 'Report on the State of Financial Market for 2009', which was approved in Parliament on Wednesday.
"In addition to the adverse effect of euro-adoption on foreign-exchange reserves, the decline in profits stemmed especially from a rise in the cost of covering losses," stated the central bank.
On the other hand, NBS made a positive assessment of capital adequacy, which signals a bank's ability to cope with an unexpected increase in losses. Many financial houses increased their capital in 2009, mainly from profits made a year earlier.
Last year's performance is described as conservative, as banks changed their attitude to lending returns, focusing on lower-risk loans. In financing businesses banks centred on less risky sectors and entities and cut financing for other financial intermediaries such as leasing or hire-purchase companies. "A decline in demand for loans from businesses was also largely instrumental in reducing lending to businesses when the number of investment opportunities dropped," stated NBS in its report.
NBS doesn't expect pre-crisis growth figures in the period ahead. The global medium and long-term problem is mainly the high level of debt among businesses and households, and activity in these segments is essential for kick-starting sustainable economic growth.
Weak confidence in the recovery of the global economy remains in place and is largely reflected in the reduction in lending. "Meanwhile, in most European countries including Slovakia, this has a great impact on the financing of the real economy," notes the bank.
A growing sovereign debt represents a new type of risk in financial markets. A gradual tightening of monetary policy by the European Central Bank may also have an impact on the liquidity of the European banking area. "This may manifest itself in falling liquidity in the Slovak banking sector as result of an outflow of liquidity abroad," stated the bank.
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