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Financial System Stability Assessment Update

Prepared by the Monetary and Capital Markets Department

Approved by Jonathan Fiechter and Susan Schadler

May 22, 2007

This Financial System Stability Assessment (FSSA) Update is based on the work of the joint IMF/World Bank Financial Sector Assessment Program (FSAP) update mission that visited Bratislava from November 29 to December 12, 2006.

The FSAP team comprised Mark O’Brien (mission chief, IMF), Sonja Brajovic-Bratanovic (deputy mission chief, World Bank), Joseph Crowley, Vassili Prokopenko (both IMF), Heinz Rudolph, Eric van der Plaats (both World Bank), Rob Bakker (insurance expert, formerly Dutch Insurance and Pensions Supervisory Authority), Keith Bell (bank supervision expert, formerly Canadian Supervisory Authority), Jörg Genner (bank supervision expert, German Supervisory Authority), Tyge Rasmussen (securities market expert, formerly Copenhagen Stock Exchange), and Shannon Bui (administrative assistant, IMF). The mission received excellent cooperation and support from the authorities. The main findings of the FSAP update are:

  • Financial intermediation in Slovakia has continued to deepen. Solid progress has been achieved since the 2002 FSAP in strengthening the supervisory and regulatory framework.

  • Banking system financial soundness indicators are good, and stress tests indicate that banks remain resilient to a range of possible adverse shocks.

  • While rapid, the rate of credit growth presently seems manageable. In contrast to many other Central and Eastern European countries, lending is funded to a large degree by domestic deposits and is predominantly denominated in local currency.

  • Nonbank financial institutions are growing quickly but the sector as a whole is still small and not currently a source of systemic vulnerability. The securities markets are also small and with limited liquidity.

The main authors of this report are Mark O’Brien and Vassili Prokopenko.

FSAPs are designed to assess the stability of the financial system as a whole and not that of individual institutions. They have been developed to help countries identify and remedy weaknesses in their financial sector structure, thereby enhancing their resilience to macroeconomic shocks and cross-border contagion. FSAPs do not cover risks that are specific to individual institutions such as asset quality, operational or legal risks, or fraud.

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