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© 2007 International Monetary Fund - page 15 / 41





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  • B.

    Major Counterparties of Slovak Financial Institutions

    • 9.

      There have been shifts in the relative importance of counterparties of Slovak

financial institutions since 2002, resulting in parallel shifts in the structure of credit risks. Credit to households has grown consistently faster than credit to the corporate sector (in 2006, credit to households grew by 32 percent versus an overall growth rate in private sector credit of 20 percent).3 There has been an increase in the share of bank loans to non- bank financial institutions (consumer credit companies, leasing companies etc). These institutions are often subsidiaries of banks, and are thus supervised on a consolidated basis. While private sector credit has been growing fairly quickly, it reflects both robust GDP growth and a catching up to developed country intermediation norms, and the rate of growth does not seem excessive.4 Key trends are discussed below and illustrated in Figure 2.

Household sector


The exposure of Slovak financial institutions to households has been growing

rapidly in recent years. As in other Central and Eastern Europe (CEE) countries, rapid

growth in household lending has reflected increasing income as well as optimistic

expectations of future income and wealth growth (related to the EU accession and anticipated Euro adoption), a decline in inflation and in nominal and real interest rates, and the structural shift from corporate to household lending.5 Interest rate subsidies on mortgage loans also played a role at the beginning of the cycle when interest rates were high, but these subsidies

were abolished in 2005 after the rates significantly decreased.


In contrast to many other CEE countries, there has been only limited foreign

currency borrowing by Slovak households (less than 2 percent of all household loans

are in foreign currencies), so that credit risks are lower. Low demand for foreign

currency loans is reported by local observers as due to deeply rooted risk aversion by Slovak households. However, it is likely also due in part to the conservative fiscal policy that has been followed in Slovakia in recent years. This policy has contributed to a more rapid convergence between Slovak and Euro interest rates than in most other emerging European

countries, and thus a lower incentive to borrow in Euros.

3 As banks’ lending to households has consistently grown more rapidly than lending to corporates throughout the period, the stock of corporate loans has fallen from about 75 percent of banks’ total loans as at end-2002 to a little over 60 percent by end-2006.


Some other countries in the region have credit growth of more than 50 percent annually.


In socialist economies, almost all bank lending was directed to corporates.

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