VZCZCXRO9712
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHSL #0483/01 2941619
ZNR UUUUU ZZH
P 201619Z OCT 08
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 2028
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 BRATISLAVA 000483 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/CE K. ERTAS, L. LOCHMAN 
STATE FOR EEB/IFD/OMA 
STATE PLEASE PASS TO TREASURY FOR L. NORTON 
 
E.O. 12958: N/A 
TAGS: EFIN ECON LO
SUBJECT: SLOVAK BANKING SECTOR CALM IN GLOBAL STORM 
 
SUMMARY 
------- 
 
¶1. (SBU) The banking scene here is calm, as Slovak banks have 
been largely insulated from the crisis by practicing 
conservative banking.  The government has put in place an 
unlimited guarantee on deposits and some restrictions on 
moving short-term assets to foreign parents of banks.  PM 
Robert Fico has reassured the public that the banks are 
stable, and that the government, as the only responsible 
player, will protect its citizens and thus, regrettably, the 
banks.  The real risks to the Slovak economy lie in the 
longer-term effects of the crisis on the real economy, 
particularly export demand and real estate; a consensus 
forecast of about 4-4.5 percent GDP growth is forming, down 
from 6.5 percent.  Unless consumer demand in the Western 
economies begins to falter visibly, Slovaks are assuming the 
wave will pass.  End summary. 
 
 
SLOVAK BANKS "TOO PRIMITIVE" TO HARM 
------------------------------------ 
 
¶2. (U) Bankers and regulators alike have so far kept their 
calm in the face of the global banking crisis, and they have 
offered a simple explanation: banks in Slovakia have followed 
conservative business practices.  As an official at the 
central bank (the National Bank of Slovakia, or NBS) put it, 
the banking sector here is "too primitive" to be susceptible 
to the crisis.  Most bankers would agree: they have strong 
liquidity within the country and have funded loans mostly 
with deposits.  Mortgages have followed traditionally strict 
qualification criteria, and there is nothing approaching a 
subprime market here.  Slovakia being a high-growth market 
with high demand for deposits and an underdeveloped debt 
market, banks have not been tempted to add exotic derivatives 
from foreign markets to their balance sheets. 
 
¶3. (U) A senior official at the central bank told us that 
banks doing business in Slovakia have if anything an excess 
of liquidity, which they park in sterilization accounts at 
NBS. This means that there is no interbank lending--another 
layer of insulation from the liquidity crisis. 
 
 
PROACTIVE ON PREVENTION 
----------------------- 
 
¶4. (SBU) Still, with other European countries adopting 
aggressive measures to deal with the crisis, the Slovak 
government has been loath to stand still.  As a measure to 
prevent money from crossing the Austrian border for higher 
guarantees, the GoS has instituted an unlimited guarantee on 
deposits.  At least some observers have told us this was an 
unnecessary step, given that there was already a guarantee 
for 90 percent of deposits up to 20,000 Euro.  It is thought 
that bumping the guarantee to 100 percent would have stopped 
any trickle westward, which to this point has not been 
measurable. 
 
¶5. (SBU) Another concern has been that the overwhelmingly 
foreign-owned banks here (of the top 20 banks, Slovaks own 
only 3) may be in danger of having their parent companies 
pull short-term assets across the borders to solve their own 
liquidity problems.  Again, industry insiders tell us that 
there have thus far been no moves to do this.  Nevertheless, 
the GoS has, with the approval of the industry, imposed 
restrictions on the movement of liquidity from Slovak 
subsidiaries. 
 
¶6. (SBU) Predictably, PM Robert Fico has taken the 
opportunity to lambaste capital markets and portray himself 
as the defender of the people against rapacious capitalists. 
In his version of a confidence-building statement after the 
Brussels summit last week, Fico made the observation that the 
banks are liquid and stable, and that the GoS would take 
whatever measures are needed to keep them that way.  After 
saying that the GoS would not look for ideologically pure 
solutions, he took a swipe at the markets: "The government 
behaves itself responsibly, morally, and ethically; the 
markets are waiting for whatever the government is going to 
do, and then they'll do more of whatever they want, because 
unlike governments, markets don't recognize either morality, 
nor responsibility, nor ethics." 
 
 
 
BRATISLAVA 00000483  002 OF 002 
 
 
THE REAL RISKS: EXPORTS AND REAL ESTATE 
--------------------------------------- 
 
¶7. (SBU) The larger risk to Slovakia is seen as coming from a 
slowdown in the real economy both beyond and within its 
borders.  The GOS appears to be particularly concerned about 
a potential drop in demand for exports, which have been 
responsible for a large share of economic growth since 2000. 
Already, Volkswagen is rumored to have seen a 10 percent drop 
in orders, and other export-oriented companies are now 
revising their forecasts downward.  This could affect the 
revenue assumptions in the draft budget, which currently 
projects 6.5 percent growth for 2009 (a conservative number 
when it was adopted at mid-year, when real growth looked to 
be around 8 percent).  But even the downside scenario is not 
gloomy; a consensus seems to be forming around an enviable 
4-4.5 percent growth. 
 
¶8. (U) An internal source for slowdown could be real estate. 
Slovakia, and particularly Bratislava, have seen sharp 
increases in real estate prices over the past several years, 
and an economic downturn could threaten the demand for office 
space, as well as the mortgages behind overpriced properties. 
 Even so, economic experts here report that Slovakia has seen 
little wealth effect, so there should be relatively few 
ramifications from a setback in property prices, at least in 
comparison with other inflated real estate markets.  As to 
other risks for consumers, there is little participation in 
equities or money markets (except for second pillar pension 
funds, which are not seen as subject to wealth effect), and 
so little knock-on effect from faltering global markets. 
 
 
COMMENT: THE USUAL CAUTIOUS OPTIMISM 
------------------------------------ 
 
¶9. (SBU) The general thinking here is that Slovakia, along 
with much of the rest of the region, has dodged a bullet. 
There is some genuine worry about the medium-term effects of 
the crisis, but not much consensus.  Strong fundamentals 
leading up to the crisis lead experts to think that the wave 
will pass, and the rich countries will go back to business as 
usual after a couple of bad quarters.  The notion that the 
last several years' growth was based on a credit bubble has 
yet to sink in, nor has the generally gloomy tone of 
pronouncements from the U.S. and Western European capitals. 
Once the crisis weakens consumer demand in the West, the 
Slovaks will likely grow more worried. 
OBSITNIK