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Financial Stability Report - May 2022

Financial stability remains high, but new risks have emerged

Firms and households are exposed to increased risk

NBS set to partially adjust regulatory requirements for loans extending beyond retirement age


Financial stability remains high, but new risks have emerged

After two years of the pandemic crisis, we are facing new global challenges in the form of supply chain disruptions and sharply rising energy prices, all exacerbated by the war in Ukraine. Moreover, if inflation continues to rise, its adverse impact on financial stability could become even more pronounced.

Certain firms are at risk of financial difficulties

On the whole, firms coped reasonably well with the pandemic crisis. Even so, they have still not fully rebounded and are therefore still somewhat vulnerable to new shocks. Some firms in particular may face financial difficulties, and it is estimated that as many as 17% of corporate loans could be problematic within three years.

Households appear more resilient but also face risks

Housing loans are not expected to be a source of significant losses. In the case of consumer credit, however, delinquency risk is an issue, and we are already seeing an increase in the default rate.

Inflation will have an important say. Households should keep track of their finances and trim their expenditure as and when necessary.

Growth in household investment demand

Household demand for pension and investment fund products has been increasing at a record pace, stoked to some extent by gradually rising inflation. Equity investments have become increasingly popular, particularly among younger customers.

Housing prices continue to surge

Housing price growth continues to outpace household income growth. Housing affordability, while still relatively favourable, is rapidly deteriorating. If interest rates continue to rise, housing will become less and less affordable. Hence the upward pressure on housing prices can be expected to moderate.

NBS to respond to strong household loan growth by adjusting the debt-to-income ratio limit

Despite the climate of uncertainty, housing loan growth has accelerated further and even consumer credit growth has picked up. This trend, however, entails new risks to which NBS must respond. The current calibration of regulatory lending limits is generally sound. One problem, however, is the extension of housing loan maturities to beyond the borrower’s retirement age. This is partly caused by households repeatedly increasing their existing borrowing. NBS is therefore proposing to partially adjust the debt-to-income (DTI) ratio limit, but only for loans that extend beyond retirement age. This will have almost no effect on the current market, but it will prevent housing loan maturities being shifted further into retirement.

NBS supports the transition to a green economy

It is proposed to ease regulatory lending requirements for house renovation loans, so as to support financing under a green project included in Slovakia’s recovery and resilience plan.

Banks and insurers remain profitable, well capitalised and resilient even under an adverse stress scenario

The profitability trends of banks and insurers remain favourable. Solvency has increased in both sectors, and stress testing confirms the financial sector’s resilience. Nevertheless, the financial cycle is in an expansionary phase and NBS is therefore considering raising the countercyclical capital buffer rate.