BRATISLAVA, Nov 24 (Reuters) - Slovakia’s banks could see a 40-50 percent drop in net profit by 2019 from last year’s level due to low interest rates, the central bank said in a report on the financial sector released on Thursday.
Slovak banks, which are mostly foreign owned, have held up throughout the global financial crisis, backed by low loan-to-deposit ratios, high capital levels and an economy that has outpaced euro zone peers.
But with low interest rates around Europe biting into profits, banks are trying to compensate by lending more, which in turn leads to higher capital requirements under rules introduced following the global financial crisis.
In 2015, net profit in the sector grew by 12 percent to 626 million euros ($660.12 million). But without one-off effects, profit dropped by 8 percent last year, the report said.
Between 2012 and 2015, Slovak banks paid out dividends equivalent to 65-75 percent of profits but that ratio will have to fall below 50 percent in 2016-2018 if they are to meet their capital requirements, the central bank said.
From August 2017, Slovak banks must set aside a sum equivalent to 10.5 percent of liabilities to protect against potential losses, plus another 0.5 percent as a counter-cyclical capital buffer, introduced last year. The biggest banks face additional buffers of 2-3 percent.
The central bank said on Thursday it did not see reasons to raise the counter-cyclical capital buffer in the near future.
The sector capital adequacy average has decreased from 17.8 percent in 2015 to 17.3 percent in the first half of 2016 as the volume of loans has grown, the central bank said.
Slovak banks survived the European debt crisis with no need for any state aid and with sufficient capital levels.
The main Slovak banks are CSOB, Postova Banka, Slovenska Sporitelna, Tatra Banka and VUB .
The central bank said it saw 13.8 percent annual growth in mortgages in September, the fastest in the European Union, and 14.1 percent growth in consumer loans to households, the second fastest in the EU.
Loans to companies grew by 6 percent in September year-on-year, faster than the EU average, the central bank said.
While the banks have traditionally made most of their profits from mortgage-lending, they will seek to increase income from consumer loans in coming years but growing competition will keep interest rates on check, the central bank said.
$1 = 0.9483 euros Reporting by Tatiana Jancarikova; Editing by Catherine Evans
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