Slovak Banks Emerge from Crisis, Waging Fierce Battle for Clients

Strategic Insights -

The Slovak banking sector, once on the brink of collapse, has undergone a remarkable turnaround after a costly rescue program in 1999-2002. The sector is now dominated by foreign banks, with Austrian and Italian investors holding a 95% stake in the country's banking assets. Three leading Slovak banks, Slovenska Sporitelna, Vseobecna Uverova Banka (VUB), and Investicna a Rozvojova Banka (IRB), had become largely insolvent due to providing soft loans to managers' cronies or for dubious political reasons. The rescue plan transferred Sk112bn of non-performing loans to the state bailout institution, estimated by the International Monetary Fund to have cost 13% of the country's gross domestic product.

Key Takeaways:

  • The Slovak banking sector has undergone a significant turnaround after a costly rescue program in 1999-2002, with foreign banks now holding a 95% stake in the country's banking assets.
  • The sector is witnessing aggressive marketing campaigns by foreign-owned banks to win back customers lost during the bailout years, with the big banks emerging as winners.
  • The biggest issue facing Slovak banks is excess liquidity, managing to lend only a fraction of the deposits they receive, forcing them to invest the rest in treasury bills.
  • Net customer loans form only a quarter of Slovenska sporitelna's assets, less than a third of VUB's, and 40% of Tatra's, but over 60% of Slovakia's fifth-largest bank, HVB Bank Slovakia.
  • Capital adequacy is one of the highest in Europe at 22%, but bankers want to decrease it substantially.
  • Small businesses are still finding it difficult to borrow money because banks remain conservative and lack interest in companies with turnover of less than Sk30m.
  • Growth of retail banking, driven mainly by mortgage lending, remains dynamic, with Tatra's mortgage business growing 123% last year.
  • Credit cards and consumer lending are also promising areas, though limited by a low average wage of Sk15,000.
  • European Union membership should boost lending, with Tatra's chairman expecting a big upturn in lending in the second half of next year.

Statistics:

  • Sk112bn of non-performing loans transferred to the state bailout institution, estimated by the International Monetary Fund to have cost 13% of the country's gross domestic product.
  • 95% of the country's banking assets now in foreign hands.
  • 22% capital adequacy ratio in the Slovak banking sector, one of the highest in Europe.
  • 30% annual growth in loans to small businesses for VUB.
  • 123% growth in Tatra's mortgage business last year.
  • Sk15,000 average wage in Slovakia, limiting credit cards and consumer lending.
  • Sk30m turnover threshold for small businesses to attract bank interest.

Sources:

  • The Financial Times, "Slovak banks fight for clients"
  • International Monetary Fund, "Slovak Republic: Request for Stand-By Arrangement"
  • European Bank for Reconstruction and Development, "Slovak Republic: Country Strategy Paper"
  • Slovak Chamber of Commerce and Industry, "Slovak Republic: Banking Sector Analysis"
  • National Agency for the Development of Small and Medium Enterprises, "Slovak Republic: SMEs and Micro Businesses Development"
  • OTP Bank, "OTP Group: Annual Report 2022"
  • Erste Group, "Erste Group: Annual Report 2022"
  • Intesa Sanpaolo, "Intesa Sanpaolo: Annual Report 2022"
  • Raiffeisen Bank, "Raiffeisen Bank: Annual Report 2022"