Financial market supervision and stability
Seminar to mark the 20th anniversary of the Czech and Slovak Central Banks
Marek Ličák
Agenda
 Integrated supervision within the NBS
 Financial stability in Slovakia
 Challenges posed by the predominantly foreign owned banking system
and banking union
2
Financial market supervision in transition countries
 Banking supervision in almost all transition countries had a prominent position
in comparison with institutions responsible for other sectors (dominant share
of banks on an overall financial sector)
 Banking supervision was mostly carried out by their central banks
 Central banks were established with strong guarantees of their independence;
guarantee also for banking supervision to be shielded from undue political
influence
 Supervision of other sectors was mostly established within separated institution
or within Ministry of Finance
 Scandinavian countries were the first that established integrated supervision
(Norway 1986, Denmark 1988, Sweden 1991)
 growth of „bancassurance“ business model, financial innovation, economy of
scale, synergies
3
Financial market supervision in Slovakia
 Banking system supervised and regulated by the NBS from 1993
 Insurance sector, capital market– supervised by the Ministry of finance
between 1993-2000
 Financial market authority was established in 2000
 Integrated supervision and regulation of banking sector, insurance,
capital market and pension system within the NBS from 2006
4
Integrated supervision in Slovakia
 Reasons for integration
 Economy of scale, synergies – very important mainly for smaller
countries
 Very strong reputation of the NBS
 Growing importance of other sectors (mainly pension funds)
 View after seven years of integration
 Synergies in many areas (human resources, analytical work,
knowledge and so on)
 One culture of supervision in Slovakia
5
Financial stability in Slovakia
10
70
"baptism by
fire"
9
8
7
"period of
maturing"
6
5
4
60
"period of
new
challenges"
50
40
"childhood
period"
30
3
20
2
10
1
0
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
bank failures or forced administration
Total assets (right, bln.EUR)
Loans to households (right, bln. EUR)
Financial stability in Slovakia
 1993 – 2001
 Banks mostly state owned or owned by domestic capital, low penetration
of banking
 „childhood or teenage period“
 2002 – 2008
 Inflow of foreign capital, significant change in banking culture, high
growth of credit
 „period of maturing“
 2009 - 2010
 Experience with global financial crisis – GDP fall, confidence crisis,
 „baptism by fire“
 2011 Very stable banking sector in SR, debt crisis, slow economic growth, SSM
 „period of new challenges“
7
Financial stability in Slovakia
Comparison of SK banking sector with EU banking sector
EU
EU
Indicator
Lower
Upper
Median
quartile
quartile
1,0
0,1
0,3
0,8
ROE
8,9
1,2
5,7
8,8
Cost- to-income
58,5
49,8
57,1
65,7
Net interest
margin
3,1
1,1
1,7
Median
Upper
quartile
11,3
13,2
14,8
Credit to
corporates
(Y-to-Y)
-1,0
-6,7
-0,9
2,0
Credit to
households
(Y-to-Y)
9,2
-2,3
0,1
3,7
2,3
Share of
domestic GB
20,4
1,7
3,7
7,6
Share of
financing from
interbank
market
5,2
11,4
18,1
20,6
Loan to
deposit ratio
90,3
93,6
119,0
128,4
3,7
5,3
10,0
Coverage of
NPL
81,0
40,3
53,2
58,8
Liquidity
Credit risk
3,8
Median EU
Lower
quartile
14,4
NPL
Slovakia
SR
Tier I ratio
Profitability
ROA
Solvency
SR
Balance sheet
Indicator
Upper and lower quartile EU
8
Challenges posed by predominantly foreign owned banks
 Many positive experience with foreign capital (new banking culture)
 Situation has changed – subsidiaries in Slovakia are in most cases in a better position
than their banking group
 Possible negative effects – transformation of subsidiaries into branches, deleveraging,
outflow of capital, liquidity, cost cutting
 Probability of negative spillovers depends on attractiveness of subsidiaries for parents
Position of largest SK banks within their banking groups
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
2011
2012
ROE
2011
2012
Share of group's
profit
Banking group 1
2011
2012
ROE
2011
2012
Share of group's
profit
Banking group 2
Interquartile range for group
2011
2012
ROE
2011
2012
Share of group's
profit
Banking group 3
Median value for group
2011
2012
ROE
2011
2012
Share of group's
profit
Banking group 4
2011
2012
ROE
2011
2012
Share of group's
profit
Banking group 5
Subsidiary in Slovakia
9
Challenges posed by the banking union




Single supervisory mechanism is a big challenge for the NBS
Transfer of power for the microprudential supervision on the ECB
The NBS will still keep macroprudential powers
Close cooperation with the ECB; the need to understand local
conditions
Challanges posed by
10
Thank you for your attention
Marek Ličák
Director of Macroprudential Policy Department
National Bank of Slovakia
marek.licak@nbs.sk
11