July 26, 2016 / 3:06 PM / 3 years ago

UPDATE 1-Slovaks first in euro zone to impose extra capital buffer as lending booms

(Adds analyst comment, inflation)

BRATISLAVA, July 26 (Reuters) - Slovakia’s banks will have to apply an extra capital buffer of 0.5 percent as of August 2017 in response to fast-growing lending, the central bank said on Tuesday, becoming the first euro zone country to introduce such a requirement.

Lending has far outpaced sluggish credit growth across the rest of the euro zone and Slovakia follows non-euro zone members the Czech Republic, Norway and Sweden in imposing an additional countercyclical capital buffer to limit growth.

Loans to Slovakian households jumped 12.2 percent year-on-year and lending to companies grew by 7.5 percent in March, the most recent indicators taken into account by the central bank. In contrast, loans across the euro zone as a whole rose by less than 2 percent in May, according to the European Central Bank.

A Slovak bank analyst, however, said the decision was not necessary given that Slovakia’s economy, though one of the fastest-growing in the euro zone, is slowing and the move goes against the ECB’s drive to raise prices.

“The decision goes against the ECB’s effort to raise inflation and boost lending in the euro zone, and could lead to a slowdown in lending, especially at banks with smaller capital reserves,” Slovenska Sporitelna’s chief economist Maria Valachyova said.

“We don’t see a risk of bubbles as housing prices in Slovakia are not growing at a rapid pace and we have had deflation for three years,” she said.

Slovakia’s economic growth slowed to 3.4 percent year-on-year in the first quarter of 2016 from 4.3 percent in the final quarter of 2015, and the Finance Ministry expects 3.2 percent growth this year.

Inflation stood at -0.7 percent year-on-year in June.

Slovak banks, including CSOB, Postova Banka, Slovenska Sporitelna, Tatra Banka and VUB , are mostly foreign owned. They already have to meet a 10.5 percent capital requirement, while the five biggest banks face additional buffers of 2-3 percent.

The sector capital ratio average was 17.7 percent in 2015.

Slovak banks have held up well in recent years, backed by low loan-to-deposit ratios, relatively high capital levels and an economy that has outpaced euro zone peers.

Britain also said in March it would raise the buffer for banks from March 2017 but scrapped the decision this month because of the expected hit to Britain’s economy from the referendum decision to leave the European Union. (Reporting By Tatiana Jancarikova; Editing by Jan Lopatka and Susan Fenton)

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