October 22, 2021

Beyond Going Long

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Banks are doing well, doubling their profits year on year

Banks are doing well, doubling their profits year on year

BRATISLAVA, Oct 3 (TASR) – Bank profits have returned to pre-crisis levels. It helped them that they were not currently forced to increase provisions, and the abolition of the bank tax also had an impact on profit generation. The Slovak National Bank (NBS) said in a macro-prudential commentary in September that banks are still strong enough in terms of capital.

“After the big drop in profits last year, bank profits returned to pre-crisis levels. Even in the first seven months of the year, banks made the highest profit since 2016. Compared to last year, their level more than doubled. Stated by the National Bureau of Statistics.

Two factors contributed to the marked improvement in the profitability of banks. While a year ago, the creation of provisions, which were provided by banks as a result of the outbreak of the Corona crisis, led to a significant reduction in the profits of the banking sector, in the first half of 2021, the intensity of their creation significantly weakened due to the improvement. Depending on the situation. The second impact on the profits of the banking sector, is the bank tax paid by the banks in the first half of last year, which no longer burdens financial banks.

While the impact of these factors will recede in the coming months, banks have long been facing the effects of low interest rates, which, according to the National Bureau of Statistics, continue to negatively affect business in the banking sector. As of July, interest income for banks is down 2.5% y/y, which is however a significant slowdown in the y/y decline since the end of 2020 (-3.9%). At the same time, banks reported an increase in net fee and commission income, which rose by 8.6% year-on-year. “Despite the strong recovery, the profitability of the Slovak banking sector is lower than that of most European countries,” The National Bureau of Statistics indicated.

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Banks recorded strong growth in household loans, which continued in the second quarter of 2021. Compared to the beginning of the year, their growth accelerated by 1.6 percentage points (y) to 7.4%. However, the trend of acceleration can be observed across Europe, with Slovakia having the ninth fastest growth rate within the European Union. Housing loans in particular are maintaining strong growth.

Although loans to the corporate sector decreased slightly year-on-year, this development was due to greater repayment of loans by many large and state-owned companies. Thus, the sluggish year-over-year growth in total corporate loans is largely due to the one-time decline in loan volume in April. In the following months of the second quarter, corporate loans hit monthly growth at or slightly above the pre-pandemic level.