Financial Crime World

Slovakia’s Financial Sector Faces Reliability Concerns

Foreign Currency Market Challenges

The foreign currency market in Slovakia is heavily influenced by the country’s credit rating and that of individual banks. According to recent data, foreign banks account for a staggering 84% of total turnover, citing low independence and individuality ratings as well as freedom from reserve requirements in swap trades.

  • Domestic banks have seen a decline in participation, with swaps making up over 70% of transactions.
  • Spot and forward trades accounted for only 27.3% and 1.1%, respectively.
  • The average daily turnover in the foreign currency market has been estimated at USD 42 million.

Capital Market Challenges

The capital market is also facing challenges, with some experts describing it as non-functional for private needs. Despite efforts to revitalize the market through privatization transactions and public covenant realizations, the absence of a single stock exchange remains a major hindrance.

  • The future reform of Slovakia’s pension system could be key in addressing these issues.
  • Experts have expressed concerns about the lack of a single stock exchange in the country.

Payment System Challenges

The payment system in Slovakia is managed by the Bank Clearing Centre (BZCS), with all banks required to execute domestic payments through this clearing centre. While the system has several advantages, including efficient data processing and 24-hour operation, it also faces limitations such as a daily closing time of 13:00 hours and lack of real-time gross settlement.

  • The National Bank of Slovakia (NBS) is working on a new Act on Payment Systems, which aims to introduce real-time gross settlement for large interbank payments.
  • The NBS is also implementing measures to improve the functioning of the securities clearing system, including the introduction of a credit register.

SME Challenges

The small and medium-sized enterprise (SME) segment plays a crucial role in Slovakia’s economy, accounting for 65% of employment and 52% of GDP. However, these companies face significant challenges, including complex legislation, high administrative burdens, limited access to financing, and lack of seed and venture capital.

  • The NBS is working on a credit register that will provide banks with information on clients’ creditworthiness.
  • Experts have raised concerns about the accuracy and completeness of the data in the credit register, citing issues such as indefinite client identification and lack of standardization.

Conclusion

The financial sector in Slovakia faces several challenges, including reliability concerns in the foreign currency market, capital market challenges, payment system limitations, and SME difficulties. Addressing these issues will be crucial for the country’s economic growth and stability.