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19

exchange in the country. A significant number of securities transactions is concluded through over the counter trading outside the BSSE and afterwards reported to the BSSE.

22.

The market for mortgage bonds has been growing, but liquidity in the corporate

bond and municipal bond markets is nearly nonexistent.10 There seems to be little possibility in the short term for developing a corporate bond market (other than for bank bonds) because the up-front costs and the small sizes of the issues makes them expensive relative to bank loans. Banks are also competing aggressively, so that they are providing a flexible funding source for companies.

23.

The equity market is also inactive. There are only 13 listed companies, and their

number has been decreasing due to takeovers. Market capitalization is low, with the

estimated free float at no more than 15 percent. In addition to the listed market, there is a free

market mainly stemming from the voucher privatization process, currently consisting of around 300 companies (down from about 800 in 2000). Trading activity is mainly done as pre-negotiated trades and has recently been falling in value.

    • IV.

      STRENGTHS AND VULNERABILITIES: THE FINANCIAL STABILITY POLICY FRAMEWORK

      • A.

        Regulatory and Supervisory Frameworks

  • 24.

    The regulatory and supervisory frameworks have been strengthened

significantly across all parts of the Slovak financial sector since the 2002 FSAP. This reflected the authorities’ desire to better address the challenges and risks facing the Slovak financial system and to bring the legal framework in line with European laws as part of the EU accession process. As a result, financial sector regulations are of a high standard. As with other EU members, transposition of European directives into domestic law is an ongoing project.

25.

The reassessment of Basel Core Principles for Effective Banking Supervision

(BCP) showed a high level of observance (Annex). Whereas the 2002 FSAP found that

there were significant weaknesses in banking supervision, the BCP reassessment found only minor shortcomings that do not hamper the NBS’s capability to perform its supervisory tasks. The regulatory framework now complies with the requirements arising from EU directives, and the NBS seems well equipped to cope with the challenges resulting from the implementation of the Basel 2 capital framework. Cooperation and exchange of information

with foreign supervisors have improved, but will become of even greater importance in the

10

The present legislation requires banks to issue mortgage bonds for 90 percent of the mortgage loans.

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