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APPENDIX I: SLOVAK REPUBLIC: STATUS OF THE MAIN RECOMMENDATIONS OF THE 2002

FSAP

Recommendations

Status

Financial Sector Supervision Strengthen cross-border prudential supervision. Strengthen the supervision of nonbank financial institutions, which are modest in size but growing rapidly. Apply same standards of disclosure and transparency used for financial institutions to the existing supplementary pension insurance fund management companies, and to the pension management companies (second pillar) that will emerge as part of pension reform. Insolvency and Creditor Rights Framework Adopt new comprehensive insolvency legislation that improves efficiency, follows international best practice, and introduces a functional rehabilitation scheme.

Ongoing Ongoing

A new regulation on voluntary pension schemes was approved in 2005 that addressed most of the regulatory issues raised in the 2002 FSAP. A law approved in December 2006 leaves some providers of voluntary savings in a less competitive situation.

At the beginning of 2006, the new Bankruptcy Act came into effect which is more creditor friendly, and emphasizes the restructuring of insolvent debtors as opposed to bankruptcy proceedings. Several amendments have been passed to reform the court system— including a January 2006 amendment to speed up court proceedings— but it remains inefficient.

Exit policies for financial institutions, as well as private enterprises more generally, have been significantly improved.

Credit Bureaus Develop credit bureaus to facilitate the expansion in consumer finance, small sector lending, and leasing and housing finance.

The regulatory framework has been modified. The corporate credit registry operated by the NBS has been reorganized and subject to major improvements. The three largest banks have established a commercial register for retail finance with open access. This register has 16 participants and is based on a state of art software and communications platform.

Public Debt Management Develop the primary and secondary markets for government securities through strengthening public debt management, by reducing the number of issues, bringing the issue policy in line with the overall objectives of debt management, and increasing the role of the Ministry of Finance (MOF)in guiding the market through regular dialogue.

Important improvements in public debt management have taken place since 2002. Debt is managed by a specialized agency (ARDAL), and strategic decisions are taken by the MOF. Maturities have increased significantly, and the size of bonds on issue is at least SKK 40 billion. Yearly calendars for auctions and types of bond issues are published as is the debt management strategy. A number of issues remain: secondary market of government securities has remained illiquid; the number of issues is rather large; coordination between the MOF, ARDAL, and the NBS should be improved.

Accounting Standards Bring Slovak accounting standards and practices in line with International Accounting Standards, to allow investors and creditors to make meaningful use of financial statements.

FSAP recommendations on IFRS have been fully implemented. Applicable regulations require the use of IFRS, as endorsed by the European Union, for the preparation of individual and consolidated accounts of banks, insurance and listed companies. Financial statements now meaningfully express financial condition and performance.

Deposit Protection Fund (DPF) The Ministry of Finance should consider providing the DPF with a combination of equity and loan funds that will improve the financial condition of the DPF and allow a return to a more reasonable level of deposit insurance premiums for healthy banks and establishing, together with the NBS, a formal line of credit for the DP. Exit Policies

Funding for the SDIF funds shortfall is currently provided by a consortium of banks (previously by the NBS). In the event of a need for further funding, the expectation is that this would in the first instance come from the NBS or commercial banks. The improving financial position of the SDIF enabled a reduction in premiums from 0.75 percent of protected deposits to 0.2 percent in 2006.

Housing Finance Rationalize fiscal incentives to encourage housing finance.

The incentives were removed in 2005, but introduction of new incentives in this area (mortgage subsidies) is being contemplated.

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