Moody's: Outlook stable for Slovak banks

Moody's Investors Service said the outlook for the Slovak banking sector remains stable, reflecting the banks' focus on domestic retail and small- and medium-sized enterprise activities and healthy financial fundamentals. In addition, the banks' local-currency deposit ratings are underpinned by their foreign ownership and Moody's assessment of the probability that the Slovak authorities would extend support in the event of need.

"Slovak banks are focusing on their domestic activities, and the retail and SME segments in particular, as they offer good growth prospects and wider margins than corporate lending. Although this should improve overall profitability and increase revenue diversification, it is resulting in fiercer competition," Gabriel Kadasi, a Moody's associate analyst, said in an agency report.

Although there has been some evidence of banks relaxing their strict lending standards for SMEs, which has been traditionally a more risky segment due to lack of transparency and lower risk awareness, Moody's believes the overall risk profile of the Slovak banks is improving.

However, credit risk remains the banking system's main threat, as banks' risk-management systems have yet to be tested through an economic downturn, the agency noted.

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