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Recommendation of the European Systemic Risk Board (ESRB) on vulnerabilities in the commercial real estate sector

On 25 January 2023, the ESRB issued a recommendation on vulnerabilities in the commercial real estate (CRE) sector for the European Economic Area countries. The recommendation does not concern specifically Slovakia. The issuance of the recommendation follows a long-term process of monitoring and analysing the CRE sector by the ESRB. Its release is without prejudice to other risks to financial stability, some of which may be even more significant today.

Finančná stabilita, Odporúčanie Európskeho výboru pre systémové riziká o rizikách v sektore komerčných nehnuteľností

The CRE sector is more sensitive to economic developments than other sectors. The ESRB therefore recommends improving the monitoring of this sector and its financing. In addition to banks, it is necessary to also cover all other sectors of the financial market.

If necessary, the ESRB recommends taking specific measures supporting prudent financing of the CRE sector and strengthening the resistance of financial institutions.

Slovakia has had an experience with the risks related to CRE financing. They appeared, for example, during the economic crisis in 2008 to 2010 and the years afterwards. NBS therefore already closely monitors and analyses these risks and regularly publishes their assessment in the Financial stability reports. In addition, an active approach of the NBS to setting the level of the countercyclical capital buffer partially contributes to banks’ resilience against these risks. If necessary, NBS is prepared to take further steps to mitigate these risks.