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Macroprudential Commentary - June 2022

Publications, Macroprudential Commentary - June 2022

NBS raises the countercyclical capital buffer rate to

1.5%

Private sector indebtedness is rising sharply
The potential for imbalances to build up is increasing
NBS stands ready to respond immediately

Increasing private sector indebtedness

Lending growth has been strong in 2022, both in loans to households and loans to firms. Because of their concerns about rising property prices, interest rate increases, and elevated inflation, households are inclined to borrow at the expense of savings. Household credit growth in Slovakia has for some time been among the highest in Europe. More recently, corporate lending has also been picking up, as firms seek to meet their financing needs for working capital and fixed investment.

Increasing possibility of a build-up of imbalances

Financial sector developments have for some time now been creating conditions for a build-up of imbalances. These imbalances are related to the evolution of the financial cycle, which has recently been on a strong upswing. At the same time, there are signs of possible underestimation of risk.

Countercyclical capital buffer rate raised from 1% to 1.5%

In response to rising imbalances and current developments in the financial sector, NBS has decided to increase the countercyclical capital buffer (CCyB) rate by 50 basis points, to 1.5%, with effect from 1 August 2023.

Risks associated with the financial cycle’s expansionary phase are adding to risks accumulated in banks’ portfolios. The financial market’s upward trends look set to continue, despite the ongoing war in Ukraine and rising prices of goods and energy.

NBS stands ready to respond immediately

NBS does not envisage any further raising of the CCyB rate in the next quarter.

Meanwhile, NBS is monitoring the risks present and perceives heightened market uncertainty stemming from the uptrend in inflation and the war in Ukraine. If financial market developments require it to do so, NBS is ready to reduce the CCyB rate with immediate effect. For banks, this would free up additional capital that they could use to absorb potential losses.

Also in this edition:
  • How increasing the countercyclical buffer rate will affect the banking sector (page 5)
  • Which countries have already raised the rate (page 5)