Slovak Republic: Financial System Stability Assessment

This paper discusses Financial Sector Stability Assessment report as part of Financial Sector Assessment Program (FSAP) in Slovak Republic. The Slovak Republic FSAP took place amidst an economic recovery and tighter financial conditions, despite the start of an accommodative cycle and signs of overvaluation in real estate markets. The financial system remains predominantly bank-centered, highly concentrated, with significant foreign ownership and no material direct interconnections within the system. Banks rely on a domestically oriented traditional business model and maintain high capital buffers and ample liquidity. The systemic risk analysis focuses on the banking, nonfinancial corporates, and real-estate sectors. Key risks to financial stability stem from external factors coupled with potential corrections in residential and commercial real estate valuations. The stress tests found the banking system resilient to severe macro-financial shocks with all banks meeting minimum capital requirements and most banks remaining liquid against adverse shocks. It is imperative to strengthen supervisory powers to ensure operational independence and streamlining off-site supervisory activities to align with risk classification; and strengthening on-site inspections for key risk areas.