Moody’s rating agency has downgraded the outlook for the Slovak banking sector from stable to negative, basing its decision on the downside risks facing economic growth and the quality of assets in the sector.
Moody’s changed the outlook as part of its new Banking System Outlook, which it released yesterday, as it expects a general economic slowdown in the EU, which will have a knock-on effect on bank profits. This will be partly balanced out by healthy liquidity and capitalisation. The Slovak economy is strongly linked to export demand, with Germany and the Czech Republic being its main trading partners.
Moody’s projects the GDP growth at just 1.7% for 2012, a huge slump from the 3.1% seen in 2011, with a slowdown in lending, higher loan costs, the new bank tax in 2012, and falling interest rates all expected to impact the banking sector, which has enjoyed growth and profit over the past two years. This will help the sector weather the expected upcoming negative period.
The full Moody’s report is available from www.moodys.com.