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Macroprudential Commentary - December 2023

The financial cycle is in a cooling phase

The countercyclical capital buffer (CCyB) rate remains at 1.5%

Christmas decoration

Loan growth has stabilised at a lower level

Higher interest rates are subduing demand for housing

Banks remain stable

Loan growth has stabilised

New mortgage originations have stabilised at two-thirds of their 2021 levels. The slowdown since then is due not to banks tightening standards, but to a decline in loan demand. Meanwhile, in an environment of rising prices, consumer credit growth has accelerated.

Signs of stabilisation can also be seen in lending to non-financial corporations.

Higher interest rates are subduing demand for housing

Housing market activity is far weaker than it was in the summer of last year. In recent months, however, housing prices have not been falling as sharply as they were around the turn of the year. Faced with elevated interest rates, households have become less inclined to buy their own home. Housing affordability has stopped deteriorating after two years in significant decline, but it remains at a diminished level.

Banks are stable

Banks in Slovakia are generating profits and continue to have strong capital positions. Driven up by growth in net interest income, banks’ net profit has increased by half compared with last year. In terms of return on equity, however, the sector is still below the median for European banks, owing to the slower pass-through of higher interest rates to household lending. The total capital ratio of Slovak banks has continued rising and moved above 20% in the third quarter of 2023.

No need to adjust the CCyB rate

With the financial cycle in a cooling phase, the risks associated with the cycle are not building up excessively. Even so, there are no reasons to reduce the CCyB rate, given that banks’ portfolios still carry risks that arose in previous years. For now, neither non-performing loan ratios nor net provisioning are significantly different from their usual levels.

Also in this edition:
  • The amount of household deposits has not changed significantly (p. 2)
  • What’s new in the world of macroprudential policy (p. 6)