Financial stability remains high, but new risks have been introduced, according to the National Bank of Slovakia’s (NBS) latest report on financial stability, which was presented at a press conference on Monday. "The coronavirus crisis we have been facing since March 2020 has been followed by new challenges with a significant impact on the global economic environment. These include, in particular, disrupted supplier-customer relations and an increased level of inflation, including a rapid rise in energy and other commodity prices, which is also associated with a tightening of monetary policy," said Vladimír Dvořáček, executive director of NBS's supervision and financial stability department. Businesses and households facing stronger spending growth may face difficulties in repaying their debts or pressure to reduce consumption, according to Dvořáček. "On the other hand, incomes may grow faster than expenditure in about half of households, and their debts will be easier to repay," he noted. "In an inflationary environment, the upward pressure on rates increases, which may also contribute to worsening the financial situation of indebted households and businesses. Despite the rise in rates, the risk of negative real returns on savings is still present, especially for savings in the form of bank deposits," added Dvořáček.
NBS representative Marek Ličák thinks that the current situation will have an adverse impact on the corporate sector. "Assuming that cost growth continues over the next three years, loans to businesses that may be at risk of financial problems could account for 17 percent of the total portfolio of loans to businesses. The volume of new defaulted loans alone could account for 6 percent of the corporate loan portfolio over three years. However, these estimates don't include any possible action by the government or companies themselves to strengthen their solvency," he remarked. Households are in a better situation than businesses, according to Ličák, but around 2.6 percent of home loans could be at risk of default. Developments in the profitability of both banks and insurance companies remain positive, said Ličák. Bank profits rose slightly year-on-year during the first quarter of 2022, although they remained slightly below the EU median. The profitability of insurance companies also rose slightly and, conversely, they remained among the highest in the EU. The main factor was favourable developments, especially in the non-life insurance sector," he reported.
Source: TASR
