Macroprudential Commentary – September 2023

Loan growth still subdued

Growth in loans to households remains slow, as does growth in loans to non-financial corporations. Mortgage origination is stable, though it is down by a third compared with the previous three years. The riskiness of new lending remains elevated but stable. The downward pressure on loan growth is due to reduced demand, as rising interest rates and living costs have made households less inclined to take on debt. After their previous sharp increase, interest rates have not risen significantly in recent months.

Housing prices declining

Housing prices are now, on average, 10% below where they were in the autumn of last year. Prices of both houses and flats have declined for three successive quarters. The downtrend is broad-based across houses and flats of all sizes and in most regions of the country. It is caused by weakened demand, as people confronted with rising borrowing costs and falling property prices are in no hurry to buy a home. With wages rising and housing prices falling, housing affordability has gradually improved.

Banks remain profitable and well capitalised

Banks are doing well in terms of profits. Despite slower lending growth, rising interest rates have boosted banks’ interest income and improved their profitability. Even so, in terms of return on equity, banks in Slovakia remain among the less profitable in Europe. At the same time, however, their capitalisation is sufficiently stable and strong, and they are comfortably meeting capital and liquidity requirements.

No need to adjust the CCyB rate

The financial cycle’s cooling is not a reason to adjust the countercyclical capital buffer rate. The build-up of risks associated with the financial cycle is far slower now than it was in the previous two years. There is therefore currently no need to change the CCyB rate.

Also in this edition:

• Households will feel the effect of interest rate resets, but they will cope (p. 2)
• What’s new in the world of macroprudential policy (p. 6)

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