RTTNews - Thursday, Moody's Investors Service in a report said the fundamental credit outlook for the Slovak banking system remains negative, reflecting the adverse effects of weaker operating environment on the sector's financial and credit fundamentals.

Moody's expects the weak economic environment to continue to depress asset quality indicators, with deteriorating payments discipline, growing bankruptcy rates in the corporate segment and rising unemployment.

The firm expressed concern about the exposures to real estate development and SMEs, which had grown rapidly in recent years, and it also expects asset quality in retail lending to weaken further, mostly in unsecured lending. The increase in the share of high loan-to-value mortgages in recent years on the back of rapidly growing real estate prices is also a cause for concern, it said.

Moody's noted that Slovak banks could be more vulnerable to the economic downturn than their Western European banking peers, given their relatively unseasoned loan portfolios and untested credit risk management systems and models. Also, the firm noted a high degree of uncertainty in terms of how the authorities, the banks and their stakeholders will behave in the current distressed environment.

But on a more positive note, the firm said the capitalization of most the rated banks remained adequate, which would absorb the likely further worsening of asset quality, given their good revenue-generating ability.

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