Announcement: Moody's: Continued negative outlook for Slovakia's banking system

London, 16 August 2010 -- -- The outlook for Slovakia's banking system remains negative, reflecting the ongoing pressures on the banks' financial and credit fundamentals and the uncertain economic environment , says Moody's Investors Service in its new Banking System Outlook on Slovakia.

According to Moody's, although the operating environment has improved significantly since its last report on the Slovak banking system (published in August 2009), the weaker profitability means that the Slovak banking system remains more vulnerable to potential negative changes in macroeconomic conditions compared with other banking systems in the region.

"While Slovakia's economy and banking sector were not affected by the early stages of the crisis, the country's GDP contraction in 2009 highlighted the country's vulnerability to its main export markets. Fiscal stimuli applied in a number of countries supported the revival of Slovakia's exports, but Moody's notes that these could deteriorate quickly if the fragile global recovery slows down," explains Oscar Heemskerk, Moody's lead analyst for Slovak banks.

The banks' ability to generate sufficient profits to absorb increased volumes of problem loans has been negatively affected by a loss of revenues from FX transactions after the adoption of the Euro in 2009, sluggish business activity and a low interest-rate environment. According to Moody's, the banking sector's profitability was the weakest among its peers in 2009 and the rating agency expects that in 2010 it will be weaker only in Hungary, as revenue growth will be modest while provisioning is likely to match 2009 levels. Although Moody's expects the sector as a whole to remain profitable, its results are likely to be in line with 2009's low level.

"Moody's base-case expectation for asset quality is that the problem loan ratio will peak during 2010. However, given the higher concentration risk in banks' corporate loan portfolios, defaults cannot be ruled out especially in the industries that have not benefited from the export revival. We are particularly concerned about commercial real estate, as demand cannot keep up with the supply of new properties within this sector. Any future change in the banking system outlook to stable will depend on more evidence of sustainability of the current economic recovery, which is unlikely to emerge before late 2010," adds Mr Heemskerk.

Despite these negative factors, the rating agency notes that the Slovakian banking system has good future growth prospects, especially in the retail and SME segments that remain relatively underbanked and offer higher margins. The banks typically focus on traditional banking activities and have limited exposure to structured asset classes, while the liquidity profile for Slovakian banks is good, especially for the larger banks.

Moody's report, entitled "Banking System Outlook: Slovakia", is available on www.moodys.com

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London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Oscar Heemskerk
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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