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Macroprudential Commentary – June 2023

Financial cycle slowing down

No change in the countercyclical capital buffer (CCyB) rate. The July 2022 CCyB rate decision remains in force, raising the rate to 1.5% with effect from 1 August 2023.

Mountain peaks at sunset

Property market cooling significantly

Credit market also easing

Banks remain well capitalised

Property market sees most pronounced cooling

Residential property prices fell for a seventh successive month. The decline is broad-based across Slovak regions and all sizes of flats. The reason is weakening demand. Amid rising interest rates and expectations that prices may drop further, the supply of new-build flats has dried up and the number of new-build sales has cratered. The times when properties would be sold soon after going on the market are over. As a result, prospective buyers are now in a better position.

Credit market also slowing

Slower growth is particularly noticeable in mortgage lending. Interest rate hikes, rising costs, housing price expectations, and heightened uncertainty have made households less willing to take on debt. On the other hand, interest rates on new mortgages are rising more slowly now than they were last year, and slowdown in new mortgage lending has eased considerably. With the corporate sector still facing rising input prices and uncertainty, growth in corporate loans is slowing; nevertheless, firms continue to need short-term working capital financing in order to deal with rising costs.

Banks remain well capitalised

The capital ratios of domestic banks remain well above the regulatory minimum level. By retaining some of last year’s earnings, banks also have a sufficient voluntary capital buffer, which further supports their lending to the economy and coverage of potential risks. Banks’ current ability to generate profits is giving them scope to maintain solvency.

No need to adjust the CCyB rate

Growth in lending to households has moderated. The financial cycle slowdown means that risks are not building up as quickly as they previously were, although an increasing share of new mortgages have riskier attributes (a high DSTI ratio with a 30-year maturity). Moreover, the countercyclical capital buffer rate is due to be raised to 1.5% as of 1 August 2023, under an NBS decision taken last year. In this context, there is no need for a further buffer rate adjustment.

Also in this edition:
  • Household deposits are not growing (page 2)
  • What’s new in the world of macroprudential policy (page 6)