Moody’s Investors Service has raised the outlook on Slovakia's banking system to stable from negative citing improving macroeconomic environment that is expected to lower the downside risk to the banks' asset quality and profitability in the coming 12-18 months, the ratings agency said in a report. Slovak commercial banks have healthy capital buffers and stable funding and liquidity profiles, Moody’s also noted.

According to the rating agency, the Slovak banks will operate in better environment thanks to the expected higher economic growth. Moody’s sees Slovakia’s GDP growing by 2.5% this year and by 3.2% in 2015. According to the latest forecast of the country’s central bank, the economy should grow by 2.4% in 2014 and 3.3% in 2015.

The stronger macroeconomic and operating environment will ease the pressure on banks’ asset quality, particularly in retail, trade and manufacturing, and the share of non-performing loans is seen slightly improving from 5.3% at end-2013. Moody's also expects the banks' to remain favourable relative to expected losses, supported by the prudent capital rules of the central bank. The funding and liquidity profiles should also remain stable, while the banks are expected to be able to fully fund their loan books through stable deposit bases.

The aggregate net profit of Slovak commercial banks in February 2014 rose 12.1 y/y to EUR 93.37mn, supported by rising net interest income, according to the latest available data.

Last year, Fitch forecast that the profitability of the Slovak banking sector will probably remain constrained by a moderate growth in 2014 due to the higher tax burden and restrictions on loan fees. In 2012, the government introduced a 0.4% special tax on corporate bank deposits, which was extended to cover also retail deposits as of October 2012.