At the time of the 2002 FSAP, the Deposit Protection Fund (DPF) was insolvent,
due to payouts to depositors of four failed banks in the 1999–2001 period.11 The shortfall was covered by a loan from the NBS. The 2002 FSAP team consequently recommended that the authorities develop a plan to bring the DPF to solvency, for example by replacing the NBS loan with capital provided by the Ministry of Finance. In the event, the NBS loan was taken over by a consortium of commercial banks, with amortization payments being made from the banking system’s current contributions to the DPF.12 The contribution rate to the DPF was significantly increased for several years to speed the rate of loan repayment, but it was recently lowered again to eliminate any comparative disadvantage for the Slovak banks vis-à-vis those in neighboring EU member countries. The loan to the consortium will thus only be paid off by end-2010. In the event of the need for a payout before the DPF builds up significant funds again, it is likely the shortfall would again be covered by either the NBS or the rest of the banking system. As a result, while the DPF is designed as a fully funded scheme, it currently is operating to some extent as an ex-post funded scheme. Consideration could be given to some increase in the contribution rate, so as to build up the size of the DPF
more quickly, while bearing in the comparative disadvantage issue.
The failures of the four local banks, as well as the financial problems
experienced in 2005–2006 by one Austrian bank with a Slovak subsidiary, have
contributed to the development of thorough contingency planning arrangements to deal with problem banks.13 A manual of emergency procedures that sets down the general principles that should be followed has been developed. A critical issue for the NBS in dealing
with a problem in a systemically important bank will be the need for close cooperation with the home country supervisor. The experience with the Austrian bank showed that there is room for some improvement in this regard; however, the main impetus can only come from home supervisors.
Accounting and Auditing
As recommended by the 2002 FSAP, Slovakia has fully implemented the
international financial reporting standards (IFRS) for financial sector entities. The new decrees, compliant with EU versions, mandate the use of IFRS for the preparation of individual and consolidated accounts of banks, insurance intermediaries, and listed companies. However, as the IFRS financial reporting framework includes a significant
11 Since the 2002 FSAP, coverage of deposits was amended to be in line with EU minimum requirements, namely coverage at a rate of 90 percent up to a maximum of an equivalent of 20,000 Euros per account.
The Slovak budget law may make it difficult for the Ministry of Finance to provide funding to the DPF.
13 The experiences with the failed local banks also contributed to a significant strengthening in resolution procedures and laws, including Slovakia’s insolvency laws.