Slovak banking sector earnings grow 7.4% y/y in Jan-July 2013

By bne IntelliNews September 2, 2013

The aggregate net profit of Slovak commercial banks for the first seven months of 2013 rose 7.4% y/y to EUR 345.6mn, buoyed by a strong growth in non-interest income, central bank data showed.

The sector’s net non-interest income jumped 21% y/y to EUR 361.3mn in Jan-July 2013, while the banks' main source of revenue - the net interest income, edged up 0.7% y/y to EUR 1.03bn. The robust growth in net non-interest revenue was driven mainly by a 30% rise in dividends received and by a 62% drop in costs related to debt securities transactions. Net creation of reserves and provisions for the seven-month period swelled by 63% y/y to EUR 136mn.

IntelliNews comment: The aggregate net profit of Slovak commercial banks dropped 27% last year to EUR 488.2mn mainly due to the introduction of a 0.4% special tax on corporate bank deposits as of January 1, 2012, which was extended to cover also retail deposits as of October 2012. Commercial banks’ earnings performance was also negatively affected by historically low interest rates, which, coupled with the weakening lending activity and intense competition between banks for borrowers and depositors, squeezed interest rate margins.

We expect the banking sector to remain under pressure this year as its profitability is affected by the hike in the special tax and by the increase in the corporate tax rate from 19% to 23% as of Jan 1, 2013, as well as by a projected significant slowdown in the domestic economy and an expected further narrowing in margins due to intensifying competition for deposits. On the other hand, those negative factors seem to be counteracted by the strong growth in non-interest income, observed since April. If this trend continues, it would have a positive effect on the sector’s full-year earnings. However, we must also note the significant expansion of the net creation of reserves and provisions, which reflects the worsened economic situation in the country and suggests a risk from escalation of bad debts.

BANKING SECTOR INCOME STATEMENT    
EUR mn Jan-July-2013 Jan-July-2012 y/y change
Net interest income 1,034.6 1,027.7 0.7%
Net non-interest income 361.3 299.2 20.8%
--ow: gross fee and commission income 371.3 350.7 5.9%
Net operating profit/loss -128.3 -154.3 -16.8%
General operating expenses 692.3 682.0 1.5%
Net creation of reserves and provisions -136.0 -83.2 63.4%
Profit before tax 439.4 407.4 7.8%
Net profit 345.6 321.7 7.4%
Source: National Bank of Slovakia      

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