## EXECUTIVE SUMMARY

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### Progress and context
- Since the 2007 FSAP update, the Národná banka Slovenska (NBS) has made significant progress in implementing and advancing the macroprudential policy framework.
- Responses to mortgage risks and RRE imbalances:
  - 2014: non-binding recommendation on LTV, DSTI, and maturity limits.
  - Early 2017: recommendations became binding and were progressively tightened, including adding a debt-to-income (DTI) limit.
  - Activation of a counter cyclical capital buffer (CCyB) in 2017, supplementing an existing capital conservation buffer (CCoB) and O-SII buffers.
  - Establishment of a credit register collecting individual borrower data for households.
- Slovakia collaborates extensively with European regulators as a euro-area member.

### Institutional framework: findings and enhancements
- Core findings:
  - Bank Board holds authority to issue, amend, or revoke all macroprudential instruments per law.
  - Ministry of Finance (MoF) can suggest changes during public consultation for BBMs but lacks formal authority to shape macroprudential policy.
  - Effectiveness and appropriateness of measures are routinely evaluated through NBS and European-level processes; transparency and accountability are reinforced through communication.
- Areas for enhancement:
  - Adopt and publish a macroprudential strategy integrating objectives, communication, toolkit, and risk-to-instrument mapping.
  - Integrate Bank Board’s intermediate objectives into a broader macroprudential strategy.
  - Expand Macroprudential Committee membership to include external advisors (academia, subject-matter experts).
  - Broaden legal information-collection powers to include loan-level data and data from unregulated financial institutions; current specific legislation to access household loan data is lacking and access is ad-hoc.
  - Progress toward ongoing access to household loan-level data from banks is underway; data from non-bank financial institutions (NBFIs) remain unaddressed.
- Recommendations (selected):
  - Publish a macroprudential strategy document. Agency: NBS. Timing: I.
  - Open the Macroprudential Committee to external advisory members. Agency: NBS. Timing: NT.
  - Expand information collection powers to cover loan-level data from both banks and non-banks and data from unregulated entities. Agency: Government and NBS. Timing: MT.

### Operational capacity: findings and priorities
- Staffing and resourcing:
  - Financial Stability Department (FSD) has 12 permanent staff; resources are described as "stretched thin" and an increase is essential to limit turnover and expand capacity.
  - Recommendation: increase FSD staffing. Agency: NBS. Timing: I.
- Data gaps and monitoring:
  - Close data gaps in RRE and CRE sectors, including better use of land register transaction data and improvements to monitoring frameworks.
  - NBS datasets: household loan tapes with 99 percent market coverage; NFC credit register aligning with AnaCredit; monthly asset-by-asset SQLite database for NBFI assets.
  - Remaining gaps: cross-border coverage, buy-to-let (BTL) investment data, and loan-level data from non-banks.
  - Recommendation: continue closing data gaps in the RRE and CRE sectors. Agency: NBS. Timing: I.
- Modeling and evaluation:
  - Develop a macrofinancial model with feedback channels and perform regular ex-post evaluations of BBMs.
  - Recommendation: incorporate a macrofinancial perspective into BBM analysis and implement regular ex-post evaluations. Agency: NBS. Timing: NT.
- Technical note preparation and review:
  - Prepared by Julia Otten (Monetary and Capital Markets Department, IMF) with administrative support from Vanessa Guerrero and David Ramirez.
  - Review conducted during September 11–24, 2024.

### Systemic risk and macroprudential policy: findings and policy directions
- CCyB and pnCCyB:
  - Current CCyB rate of 1.5 percent is assessed as adequate for protecting against legacy RRE risks.
  - Recommendation: adopt a positive-neutral CCyB (pnCCyB) framework to safeguard availability of releasable capital and enhance predictability of CCyB decisions.
  - Benefits of pnCCyB adoption:
    - Safeguard releasable capital at any cycle stage, including for shocks unrelated to the financial cycle.
    - Enhance predictability by basing activation on indicators such as bank profits and voluntary buffers.
    - Maintain a positive CCyB during stable periods to provide NBS time to evaluate vulnerability buildup and allow gradual adjustments.
  - Legal question: whether setting a positive CCyB when cyclical systemic risks are not elevated is permitted under Slovak National Law; European-level discussions may clarify.
- BBM effectiveness, leakages, and calibration:
  - BBM package (LTV, DTI, DSTI, maturity limits) is comprehensive and mitigated household credit risk.
  - Leakage identified: co-financing mortgages with consumer loans undermines LTV regulation; uptake is 15 percent.
  - Recommendation: abolish the possibility to co-finance a mortgage with a consumer loan to ensure LTV effectiveness. Agency: NBS. Timing: MT.
  - Use newly available land register transaction data to refine BBM speed limits and differentiate by borrower segments: First-time buyers (FTB), Second-time buyers (STB), Investor/BTL, and Top-ups.
  - Recommendation: implement tighter macroprudential limits for investors and top-ups to reduce procyclicality and better target systemic risk contributions across borrower groups.
- CRE, SyRB, and real estate funds:
  - CRE has developed more favorably than expected but remains sensitive to interest rates and demand, notably in the office segment.
  - NBS should be prepared to activate the Systemic Risk Buffer (SyRB) if CRE risks become systemic; recent stress tests suggested a small sectoral SyRB between 0 and 0.1 percent of total RWA under an adverse scenario, but NBS did not activate it due to relatively high CRE risk weights (~85 percent) and favorable recent developments.
  - Real estate funds are currently a small share; NBS should monitor and be ready to enact measures (leverage limits, aligning redemption limits with asset liquidity) if risks accumulate.

### Key recommendations (condensed excerpt)
- Institutional Framework
  - Publish a macroprudential strategy including objectives, communication, risk monitoring, and toolkit. Agency: NBS. Timing: I.
  - Open Macroprudential Committee to external advisers. Agency: NBS. Timing: NT.
  - Expand information collection powers to cover loan-level data from banks and non-banks and unregulated entities. Agency: Government and NBS. Timing: MT.
- Operational Capacity
  - Increase FSD staffing. Agency: NBS. Timing: I.
  - Close RRE and CRE data gaps and improve monitoring. Agency: NBS. Timing: I.
  - Incorporate macrofinancial perspective into BBM analysis and implement regular ex-post evaluation. Agency: NBS. Timing: NT.
- Systemic Risk and Macroprudential Policy
  - Adopt a pnCCyB framework to maintain releasable capital in normal times. Agency: Government and NBS. Timing: MT.
  - Remove possibility to circumvent LTV limits with consumer loans. Agency: NBS. Timing: MT.
  - Stand ready to deploy SyRB if CRE risks become systemic. Agency: NBS. Timing: MT.
- Timing legend reproduced from source: I = Immediate (within one year); NT = Near Term (within 1 to 3 years); MT = Medium Term (within 3 to 5 years).

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### Cyclogram, CCyB calibration, and buffer governance
- Cyclogram:
  - Composite indicator of 14 variables capturing real economy, credit and housing markets, indebtedness, debt service ratios, and credit risk losses; each variable scored 1 to 9; composite is unweighted average.
  - Used to guide CCyB decisions; NBS publishes an updated buffer guide every quarter with cyclogram and implied buffer rates.
- CCyB calibration and governance:
  - Maximum buffer rate of 2.5 percent of risk exposures is taken to cover losses comparable to those experienced between 2008 and 2010.
  - NBS employs additional models (domestic network analysis, Value-at-Risk) and compares any proposed additional buffer against bank-by-bank capital headroom, projected profits, planned dividends, and senior manager plans.
  - Ex post evaluations use a bank-lending survey to detect changes in lending standards.
- pnCCyB calibration options (Box 2 summary):
  - Typical pnCCyB ranges: most countries set pnCCyB within 1 to 2 percent.
  - Historical accumulated losses approach: link pnCCyB to a percentage of peak accumulated losses.
  - Forward-looking stress-test approach: identify losses pnCCyB needs to cover by difference between overall losses and existing non-releasable buffers; stress tests provide upper bounds but may miss feedback loops.

### Stress testing, household model, and modeling enhancements
- Stress-testing framework:
  - Stress tests conducted at least annually using integrated quantitative models across sectors based on common scenarios.
  - Household credit risk assessed via an integrated dynamic household balance-sheet model using loan-level data.
  - Corporate credit risk estimated by Monte Carlo simulations of firm cash flows; a CRE module integrates firms’ financial statements with project characteristics.
  - NBS performed a climate-related stress test in 2023 using NGFS scenarios.
- Household-sector model:
  - Semi-structural micro-macro model simulates employment, income, expenses, household balance sheets, loans at risk, PDs, and LGDs.
  - Limitation: lacks macrofinancial feedback loop between borrowers, banks, and the real economy.
  - Recommendation: integrate a feedback loop and complement micro-macro model with a macrofinancial model; implement regular ex-post evaluations.

### Macroprudential stance, BBMs, and recent settings
- Evolution and current settings:
  - Non-binding 2014 recommendations became binding from 2017 and were subsequently tightened (LTV, DSTI, DTI, maturity limits).
  - Key current BBM parameters:
    - DSTI limit: 60 percent with a 5-percent exception for DSTI between 60 and 70 percent.
    - LTV limit: 80 percent with a 20-percent exception for LTV between 80 and 90 percent.
    - Age-dependent DTI limit: gradually decreases from 8 for borrowers aged 40 and under to 3 for those aged 60 and over, with a 5-percent exception and an additional 5-percent exception for young borrowers (up to 35 years, with an income limit).
    - Maturity limits: 30 years for mortgages (with a 10-percent exception); consumer loans 8 years; energy-saving renovation loans 10 years.
  - CCyB history:
    - Introduced November 1, 2014 at 0 percent; increased up to 1.5 percent by August 1, 2019; reduced to 1 percent effective August 1, 2020; raised to 1.5 percent effective August 1, 2023.
  - Capital conservation buffer:
    - CCoB re-introduced at 2.5% on January 1, 2023 after pandemic suspension.
  - Other selected settings:
    - Leverage ratio limit: 3% introduced June 28, 2021.
    - IFRS 9 forward-looking provisioning: effective January 1, 2018.
    - LCR re-introduced above 100% on January 1, 2022; NSFR above 100% effective June 28, 2021.
    - O-SII buffer rates effective January 1, 2023 listed between 0.25% and 2%; capital buffers for O-SIIs remain at the same value for 2024; as of January 1, 2025 the O-SII list will be reduced by one bank.
- Assessment of BBM effectiveness:
  - Structural-model counterfactual (Q3 2021–Q4 2023): current BBM package estimated to curb credit flow by 7.7 percent and house prices by 1.9 percent (lower-bound estimates).
  - Identified leakage: Q4 2023 data show 15 percent of mortgages close to the LTV limit (>78 percent) were co-financed by a consumer loan; 9 percent of these experienced DTV increases >10 percentage points.
  - Recommendation: prohibit financing down payments with consumer loans and enforce via loan-level data from NBFIs.

### Household vulnerabilities, RRE outlook, and supply-side constraints
- Household and RRE metrics:
  - Share of mortgage portfolios in total loans reached 59 percent in May 2024.
  - Mortgage growth stabilized around 3 percent after slowing in 2022–2023.
  - House prices more than doubled since 2007; corrected by about 10 percent in mid-2022 and have been relatively stable since mid-2023, with some recent recoveries in real price and price-to-income ratios.
  - RRE valuation indicators and European Commission In-Depth Review 2024 conclude overvaluation persists via borrowing capacity, fundamental price, and affordability index measures.
  - RRE price-at-risk: estimate indicates a possible decline of 12.9 percent in Q1 2025 with a likelihood of 10 percent.
- Supply-side issues:
  - Construction lags demand; permitting inefficiencies and shortage of skilled labor; low taxation of RRE and restrictive rental regulations.
  - Recommendations: simplify land use and building permit processes; reform rental regulations to develop formal rental market alternatives.

### CRE, NBFIs, funding, and system structure
- CRE and corporate sector:
  - Banks’ CRE loans ~8 percent of total loan portfolios; investment funds provide the remainder.
  - Office vacancy rate rose to 14 percent; interest expenses 20–30 percent of rental income for most firms in the office sector.
  - NBS stress tests suggested a small SyRB (0 to 0.1 percent of RWA) under adverse scenario; SyRB not activated due to CRE risk weights and recent developments.
- NBFIs and funds:
  - NBFI sector ~21 percent of total financial system assets.
  - Investment funds ~6 percent of sector assets; about a quarter of investment fund assets held by real estate funds.
  - Regulation requires at least 10% of assets in a public special real-estate fund to be liquid.
  - NBS conducts annual leverage assessments under Article 25 of AIFMD and can enact measures (leverage limits, aligning redemption with liquidity) if risks accumulate.
  - Recommendation: remain vigilant and act preemptively if risks approach systemic levels.
- Funding and liquidity:
  - Household deposits share fell from 44 percent at end-2020 to 36 percent; interbank deposits represent 12 percent of funding.
  - Loan-to-deposit ratio reached 110 percent in mid-2023 and has since improved.
  - NSFR: 132 percent. LCR: 189 percent.
  - Banking concentration: banking system holds >80 percent of financial sector assets; five largest banks hold nearly 80 percent of banking-sector assets.

### Bank profitability, buffers, and policy implications
- Bank profitability and buffers:
  - Record profits in 2023 driven by net interest income.
  - End-2023 aggregate total capital ratio: 20.5 percent of RWA; voluntary buffers accounted for 4.4 percent of RWA.
  - RoA and RoE around the 25th percentile vs euro-area peers.
- Fiscal/tax measures and effects:
  - Bank levy introduced January 2024 currently stands at 30 percent of pre-tax profits; scheduled to decrease to 4.356 percent by 2028.
  - Profits moderated by 6.6 percent in the first eight months of 2024 vs same period in 2023.
  - The bank levy and a recently announced financial transaction tax may weigh on profits and buffers as interest rates fall, potentially affecting competitiveness and capital retention.
  - Policy cross-reference: Article IV recommendation to phase out the bank levy as planned; ECB legal opinion (February 14, 2024) warns of potential negative effects on resilience.

### Policy recommendations (numbered highlights)
- Recommendation 4. Increase FSD staffing. Agency: NBS. Timing: I.
- Recommendation 5. Continue closing data gaps in RRE and CRE sectors and improve monitoring frameworks. Agency: NBS. Timing: I.
- Recommendation 6. Incorporate a macrofinancial perspective into BBM analysis and implement a regular ex-post evaluation process. Agency: NBS. Timing: NT.
- Recommendation 7. Maintain availability of releasable capital by adopting a pnCCyB framework. Agency: Government and NBS. Timing: MT.
- Recommendation 8. Refine BBMs and remove possibility to circumvent LTV limits with consumer loans. Agency: NBS. Timing: MT.
- Recommendation 9. Stand ready to deploy the SyRB in case CRE risks become systemic. Agency: NBS. Timing: MT.

*Source: EXECUTIVE SUMMARY and sections II–IV of the IMF technical note — Slovak Republic: IMF technical note (1svkea2025006-print-pdf), review period: September 11–24, 2024.*

### EXECUTIVE SUMMARY __________________________________________________________________________ 5

### EXECUTIVE SUMMARY

### Progress and context
- Since the 2007 FSAP update, the Národná banka Slovenska (NBS) has made significant progress in implementing and advancing the macroprudential policy framework.
- In response to a build-up of mortgage risks and imbalances in the residential real estate market:
  - NBS issued a non-binding recommendation in 2014 on loan-to-value (LTV), debt-service-to-income (DSTI), and maturity limits.
  - These recommendations became binding in early 2017 and have been progressively tightened, including by adding a debt-to-income (DTI) limit.
  - Borrower-based measures (BBMs) have been complemented by the activation of a counter cyclical capital buffer (CCyB) in 2017, supplementing existing capital conservation buffer (CCoB) and other systemically important institutions (O-SII) buffers.
  - Authorities have established a credit register to collect individual borrower data for households.
- As a member of the euro area, Slovakia collaborates extensively with European regulators on macroprudential policymaking.

### Institutional framework: findings and enhancements
- The institutional framework broadly aligns with IMF guidance for effective macroprudential policymaking:
  - The NBS Board (the Bank Board) holds authority to issue, amend, or revoke all macroprudential policy instruments as specified under the law.
  - The Ministry of Finance (MoF) can suggest changes during public consultation for BBMs but does not have formal authority to shape macroprudential policy.
  - Effectiveness and appropriateness of macroprudential measures are routinely evaluated through NBS and European-level assessment processes.
  - Accountability is reinforced through transparent communication.
- Areas for further enhancement:
  - Willingness to act could be enhanced by adopting and publishing a macroprudential strategy and incorporating external advisors into the policy-making process.
  - The Bank Board has adopted clear and comprehensive macroprudential intermediate objectives; these should be integrated into a broader macroprudential strategy including communication, toolkit, and mapping of risks to instruments.
  - Decision-making is effective but could be improved by expanding the Macroprudential Committee’s membership to include external advisors from academia or subject-matter experts.
  - Law establishes extensive information-collection powers, but these should be broadened to include loan-level data and information from unregulated financial institutions.
  - Specific legislation empowering NBS to access household loan data is currently lacking; access to retail loan data from banks is requested on an ad-hoc basis.
  - Progress has been made towards establishing ongoing access to household loan-level data from banks; data from non-bank financial institutions (NBFIs) remain unaddressed.
  - Recommendation: proactively expand information-collection powers to include supervisory data from unregulated institutions.

### Operational capacity: findings and priorities
- Operational capacity is generally high, with improvements recommended at the margins:
  - Increase staff of the Financial Stability Department (FSD) to reduce turnover risk and ensure capacity to fulfill responsibilities and expand into new domains.
  - Close data gaps in the residential real estate (RRE) and commercial real estate (CRE) sectors, particularly by obtaining high-quality data from the land register and enhancing monitoring frameworks.
  - Develop a macrofinancial model and perform regular ex-post evaluation of BBMs, including the use of a model with a macrofinancial feedback channel.
- The technical note preparation and review:
  - Prepared by Julia Otten (Monetary and Capital Markets Department, IMF) with administrative support from Vanessa Guerrero and David Ramirez.
  - Review conducted during the period of September 11–24, 2024.

### Systemic risk and macroprudential policy: findings and policy directions
- CCyB and pnCCyB:
  - The current CCyB rate of 1.5 percent is assessed as adequate for protecting against legacy risks in the RRE market.
  - Adopting a positive-neutral CCyB (pnCCyB) framework is recommended to further safeguard the availability of releasable capital in the future.
  - Slovakia’s current practice of keeping CCyB relatively high aligns with a pnCCyB framework; formal adoption would:
    - Safeguard availability of releasable capital at any stage of the cycle, including for shocks unrelated to the financial cycle.
    - Enhance predictability of CCyB decisions by basing activation on indicators such as bank profits and voluntary buffers.
    - Maintain a positive CCyB during stable periods to provide NBS additional time to evaluate vulnerability buildup and allow more gradual buffer adjustments.
  - There remains an open legal question about setting a positive CCyB when cyclical systemic risks are not elevated under Slovak National Law; ongoing European-level discussions may provide clearer guidance.
- BBM effectiveness and loopholes:
  - The BBM package (LTV, DTI, DSTI, maturity limits) is comprehensive and has helped mitigate household credit risk.
  - Co-financing mortgages with consumer loans undermines LTV regulation; uptake of this practice is 15 percent.
  - Although total debt remains subject to DTI and DSTI limits and consumer loans are subject to a tighter maturity limit, the 15 percent uptake is non-negligible. Recommendation: abolish the possibility to co-finance a mortgage with a consumer loan to ensure LTV effectiveness.
- Use of transaction data and targeted BBM calibration:
  - Newly available real estate transaction data from the land register provide an opportunity to revise the macroprudential framework to better mitigate procyclicality of credit and house price growth while preserving structural resilience.
  - Factors driving strong correlation between credit and house price growth:
    - Flexibility of mortgage refinancing.
    - Intensified competition from mortgage brokers leading to surge in refinancing and top-ups during low interest rate periods.
    - Perception of RRE as an investment asset prompting purchases to hold apartments.
  - Recommendation: leverage transaction data to refine speed limits within BBM package, with focus on First-time buyers (FTB), Second-time buyers (STB), Investor, and Top-up categories.
  - Implement tighter macroprudential limits for investors and top-ups to reduce procyclicality and better target systemic risk contributions across borrower groups.
- CRE sector and SyRB:
  - CRE has developed more favorably than expected but remains sensitive to interest rates and lower demand, particularly in the office segment.
  - NBS should be prepared to activate the Systemic Risk Buffer (SyRB) if CRE risks become systemic.
  - Real estate funds currently represent a small share of the financial system; NBS should monitor closely and be ready to enact measures (e.g., leverage limits, aligning redemption limits with asset liquidity) if risks become systemic, avoiding procyclical tightening.

### Key recommendations (excerpt from Table 1)
- Institutional Framework
  - Publish a macroprudential strategy document including objectives, communication, risk monitoring framework, and available toolkit. Agency: NBS. Timing: I.
  - Open the Macroprudential Committee to external advisory members (e.g., academia and experts) to strengthen diversity of perspectives. Agency: NBS. Timing: NT.
  - Expand information collection powers to cover loan-level data from both banks and non-banks and data from unregulated entities. Agency: Government and NBS. Timing: MT.
- Operational Capacity
  - Increase staffing of the FSD to limit turnover risk and to ensure that it can continue to fulfill its responsibilities. Agency: NBS. Timing: I.
  - Continue to work on closing data gaps in the RRE and CRE sectors and on improving monitoring frameworks. Agency: NBS. Timing: I.
  - Incorporate a macrofinancial perspective into BBM analysis and implement a regular ex-post evaluation process. Agency: NBS. Timing: NT.
- Systemic Risk and Macroprudential Policy
  - Maintain the availability of releasable capital in normal times by adopting a pnCCyB framework. Agency: Government and NBS. Timing: MT.
  - Refine the borrower-based measures and remove the possibility to circumvent LTV limits with consumer loans. Agency: NBS. Timing: MT.
  - Stand ready to deploy the SyRB in case risks in the CRE sector become systemic. Agency: NBS. Timing: MT.
- Timing legend reproduced from source: I = Immediate (within one year); NT = Near Term (within 1 to 3 years); MT = Medium Term (within 3 to 5 years).

*Source: EXECUTIVE SUMMARY (1svkea2025006-print-pdf) — Slovak Republic: IMF technical note (review period: September 11–24, 2024).*

### 3.      This technical note assesses Slovakia’s macroprudential framework and its

### 3. This technical note assesses Slovakia’s macroprudential framework and its effectiveness

### Institutional framework — assessment principles
- Evaluation follows IMF guidance (Staff Guidance Note (IMF, 2014a), background note (IMF 2014b), and additional IMF policy documents).
- Framework assessed against three principles (IMF, 2014a):
  - Willingness to act: clear mandate, accountability, communication to counter inaction bias.
  - Ability to act: legal powers, data access, toolkit, operational independence.
  - Effective coordination: domestic and international cooperation to identify and mitigate systemic risks.

### A. Willingness to Act — key findings and recommendations
Findings:
- The NBS holds a clear mandate for financial stability and general macroprudential policy; capital-tool powers are shared with the ECB.
- Specific legal coverage:
  - BBMs for mortgages: Act No. 90/2016 on housing loans, Article 8(16) (adopted December 9, 2015; effective March 21, 2016).
  - BBMs for consumer loans: Amendment No. 299/2016 to Act No. 129/2010 on consumer loans, Article 7(41) (adopted October 12, 2016; effective January 1, 2017).
- NBS general mandate: Amendment No. 519/2005 Z. z. to Act No. 566/1992 on NBS, Article 2(3) (“contribut[ing] to the stability of the financial system as a whole and to the secure and sound functioning of the financial market, with the aim of ensuring financial market credibility, the protection of financial consumers and other financial market customers, and compliance with competition rules”).
- Legal assignment of CCoB: Act No. 483/2001 on banks, Article 33b(1).
- NBS is the only Slovak institution with macroprudential powers; modifications to BBMs on housing loans require consultations with the MoF but the MoF has no formal decision power on substance.
- Macroprudential objectives adopted by the Bank Board (available on the NBS website) include:
  - mitigating and preventing of excessive credit growth;
  - limiting direct and indirect concentration risk;
  - mitigating and preventing market illiquidity and excessive maturity mismatches in bank balance sheets;
  - limiting the systemic impact of misaligned incentives, with a view to reducing moral hazard;
  - strengthening the resilience of the financial market infrastructure.
- Decision-making: Financial Stability Department (FSD) prepares analysis and recommendations; Macroprudential Committee (senior NBS staff) advises Bank Board; Bank Board adopts measures by simple majority voting (Governor’s vote carries double weight in event of a tie).
- Macroprudential Committee convenes at least bi-annually; Bank Board meets twice a month.
- Evaluation processes: internal NBS feedback loops, impact analyses, stress testing; NBS presents financial stability trends to Parliament twice a year; ESRB warnings/recommendations and ECB top-up powers provide external incentives.
- Communication: Financial Stability Report (FSR) and Macroprudential Commentary; FSR submitted to Government and Parliament; FSR release accompanied by press conference and social media dissemination.

Recommendations:
- Publish macroprudential objectives as part of a comprehensive macroprudential strategy, including communication, available tools, and mapping of risks to instruments.
- Open the Macroprudential Policy Committee to external advisors (e.g., academia, subject-matter experts) to strengthen diversity of perspectives.

### B. Ability to Act — key findings and recommendations
Findings:
- Designation powers:
  - NBS regulatory perimeter is wide and deep, covering banks and non-banks; NBS can expand the perimeter as needed.
  - NBS designates O-SII buffers at least once a year and can impose/remove buffers based on changing systemic importance.
- Information-collection powers:
  - Enshrined in law: Act No. 566/1992 on NBS, Article 34a; Act No. 747/2004 on Financial Market Supervision, Articles 35(1); Act No. 483/2001 on Banks, Articles 38(1), 42(2), 93a(4).
  - NBS can request data from domestic and foreign banks for the registry on loans to non-financial companies (NFCs).
  - No specific legal framework for retail loan registry data; current access to household loan data is ad-hoc and time-consuming (for each quarterly wave, access must be requested in a letter signed by the Executive Director).
  - Progress: talks concluded with MoF and the Office for Personal Data Protection on legislating continued access to household loan-level data from banks, pending Parliament approval.
  - Gaps: loans from non-banks are not included in the household loan registry; non-banks represent around 10 percent of the consumer loan market; NBS lacks authority to collect supervisory data from unregulated financial institutions.
- Calibration and implementation powers:
  - NBS has hard powers to calibrate and implement a broad range of macroprudential measures, subject to the ECB’s top-up powers for capital buffers.
  - Process to change capital buffers: draft by FSD → Macroprudential Committee discussion → preliminary Bank Board decision → formal consultation with ECB (ECB may exercise top-up powers) → final Bank Board approval → publication in official NBS Journal.
  - Process for BBMs: draft by FSD → Macroprudential Committee → several rounds of stakeholder consultation including MoF; changes to BBMs may require amendment of national law if authority is lacking.
  - Where law limits immediate action, NBS can issue soft powers (public recommendations) to raise awareness; example: Recommendation 1/2021 on capital and profit distributions during COVID-19.
- Evaluation frequency:
  - CCyB assessed quarterly; O-SII weights and SyRB assessed annually.
  - No regular schedule for assessing calibration of BBMs.

Recommendations:
- Promptly legislate the right to continued access to household loan-level data from banks to avoid delays in policymaking.
- Extend data collection powers to include loan-level data from non-banks and supervisory data from unregulated financial institutions to capture emerging risks preemptively.
- Consider establishing a regular schedule for assessing the calibration of BBMs.

### C. Effective cooperation and coordination — key findings
Domestic cooperation:
- NBS is the sole domestic macroprudential authority; cooperation with other domestic agencies is limited but effective.
- Long-term information-sharing agreements exist with: Statistical Office, Social Insurance Agency, Financial Administration, Cadastre Authority, Central Office of Labour, Social Affairs, and Family.
- Consultation on BBMs: law mandates consultation for BBMs on housing loans; in practice NBS consults MoF on consumer loan BBM changes despite no legal mandate.

European/international cooperation:
- NBS extensively collaborates with ECB and ESRB; regularly shares supervisory data.
- Regular consultation with ECB and ESRB on significant planned changes to macroprudential toolkit.
- FSD staff meet with ESRB to discuss RRE and CRE sector developments.
- ECB produces a semi-annual Macroprudential Report with country-level risk assessment and targeted soft recommendations; NBS participates in ECB-led working groups.
- NBS submits data on Significant Institutions (SIs) supervised directly by the ECB and follows ESRB Recommendation ESRB/2019/18 on information sharing.
- Recent assessment: NBS compliance report for ESRB/2019/18 found NBS had “sufficiently explained inaction”.
- Reciprocity framework: CRD mandates reciprocity of a Countercyclical Capital Buffer (CCyB) of up to 2.5 percent; CRR requires institutions with relevant exposures to apply tighter standards where applicable.
- ESRB reciprocity framework (ESRB/2015/2) encourages reciprocity of other measures; Slovakia was found fully compliant in the most recent compliance report from September 2023.
- Example of reciprocity: NBS fully reciprocated the Estonian SyRB.

Recommendations:
- Maintain and deepen data-sharing and coordination with European bodies to ensure timely alignment with union-wide guidance and to manage cross-border risks.
- Continue adherence to the ESRB reciprocity framework and regular compliance assessments to preserve consistency across the banking union.

*Source: IMF technical note assessing the Slovak macroprudential framework (sections II–IV).*

### 18.      The NBS cooporates with other international organizations and regional bodies on

### 18.      The NBS cooporates with other international organizations and regional bodies on macroprudential policies.

### Cooperation and external engagement
- The NBS collaborates on analytical studies and joint projects with international organizations, including:
  - A partnership with the IMF focused on credit growth and macroprudential measures in Slovakia (IMF, 2018).
  - A joint project with the ECB and IMF examining the effectiveness of BBMs in Slovakia (Jurča et al., 2020).
- At the regional level, the NBS maintains regular exchanges with the Czech National Bank and organizes an Annual Financial Stability Seminar series in collaboration with neighboring countries and the ECB.
- Coordination rules noted:
  - If the proposed change pertains to capital buffers, consultation is mandatory.
  - For BBMs, discussing planned changes is voluntary, but any changes must be communicated to European regulators upon adoption.

### Recommendations (numbered as in source)
- Recommendation 1: Publish a macroprudential strategy document including objectives, communication, risk monitoring framework, and available toolkit.
- Recommendation 2: Open the Macroprudential Committee to external advisory members (e.g., academia and experts) to strengthen diversity of perspectives.
- Recommendation 3: Expand information collection powers to cover loan-level data from both banks and non-banks and data from unregulated entities.

### Operational capacity — overview
- Effective systemic risk assessment requires:
  - A comprehensive set of monitored indicators.
  - A diverse array of models.
  - Streamlined policy-making processes.
- Evaluation focuses on Resources, Data Availability and Gaps, and Risk Modeling and Analysis.

### A. Resources — Financial Stability Department (FSD)
- Mandate and responsibilities:
  - All aspects related to financial stability and macroprudential policy, including surveillance data updates, monitoring frameworks, stress-testing models, initiating and calibrating macroprudential measures, implementing legislative changes, evaluating effectiveness, and internal/external communication.
- Staffing and capacity:
  - The FSD has only 12 permanent staff members.
  - With 12 permanent staff, resources are described as "stretched thin" and an increase in staffing is deemed essential to mitigate turnover risk and to expand into emerging areas.

### B. Data availability and gaps
- Macroeconomic and administrative data access:
  - The Statistical Office of the Slovak Republic produces macroeconomic data in line with the European Statistical System.
  - Bilateral contracts provide access to: social security data from the Social Insurance Agency; tax data from the Financial Administration; real estate market data from the Cadastre Authority; and data on social benefits and unemployment from the Central Office of Labour, Social Affairs and Family.
- Key NBS datasets and features:
  - Household loans:
    - Banks report complete outstanding portfolios of retail loans on a quarterly basis (‘loan tapes’) at the formal request of the NBS.
    - Loan-level data collection began in 2018.
    - All relevant banks comply with the reporting requirements, achieving 99 percent market coverage.
    - The dataset includes origination-time data (type of loan, LTV, DTI, DSTI, maturity, granted amount, interest rate, interest-rate fixation, installment), reporting-time data (outstanding amount, interest rate, installment, current financial assets, credit risk, provisions, probability of default), property details (collateral value, type, characteristics, region), borrower characteristics (age, gender, education, income, source of income), and a borrower ID enabling loan merging at household level. New categories can be easily added.
  - NFC loans:
    - NBS operates an NFC credit register collecting monthly data for over 20 years.
    - The register aligns with the ECB Regulation on AnaCredit.
    - It covers all loans by Slovak banks to non-bank legal entities, regardless of loan size and type, and captures terms, conditions, collateral identifiers, and links to firm registers and financial statements.
  - NBFI assets:
    - A monthly asset-by-asset database (‘SQLite’) covering debt securities, equities (including shares of investment funds and ETFs), bank accounts, and derivatives.
    - Includes market indicators such as interest rates, equity indices, foreign exchange rates, and credit spreads.
- Survey datasets:
  - Household Financial Consumption Survey, Survey of Income and Living Conditions, Classification of Individual Consumption According to Purpose (Statistical Office), Bank Lending Survey, and the ECB’s Survey on the Access to Finance of Enterprises.
  - NBS can conduct ad-hoc surveys (example: a survey monitoring households' ability to continue loan repayments after moratoria expiry).
- Remaining data gaps and actions:
  - Recent work with the Cadastre Authority produced first wave data on whether borrowers are first-time or subsequent buyers; data are still subject to further checks.
  - Buy-to-let (BTL) investment purchase data are not included.
  - The NBS has expanded the credit register (in line with ESRB guidance) to include project classification, an under-construction flag (including permits), and type of real estate used as collateral.
  - The NBS has begun collecting CRE demand indicators: vacancy rates, rental yields, rental price per square meter, volume and number of transactions; tracks CRE firm financial health via profits and interest coverage ratios; and conducts targeted on-site and off-site reviews of real estate funds.
  - Gaps persist: cross-border coverage in the credit registry should be expanded; constructing a national CRE price index is challenging but potential solutions should be explored.

### C. Risk modeling and analysis
- Broad-based vulnerability assessment:
  - The NBS focuses on bank portfolios and determines the position in the financial cycle by monitoring banks’ available releasable capital and constructing a composite “cyclogram” indicator.
  - The cyclogram is used to guide decisions on the CCyB and is detailed further in Table 2 and Box 1.
- Bank-focused leading indicators of financial stress (used to assess need for relaxation of the CCyB):
  - absolute change in non-performing loans (NPL) /  risk-weighted assets (RWA);
  - annualized net provisioning / RWA; and
  - domestic government bonds spreads.
- Sector-specific monitoring:
  - Household sector: credit dynamics, residential real estate developments, share of loans at or near regulatory limits (LTV limit, DSTI limit, DTI limit, Maturity limit), indicators of household indebtedness (credit growth, growth of household-debt-to-income ratio), and real estate prices (by segments) with thresholds indicated by the RRE dashboard.
  - Corporate sector: credit growth by firm size/economic segments, credit risk (NPLs, bankruptcies, loans at risk), profitability, liquidity, leverage, lending conditions, and CRE market indicators (vacancies, financing, lending conditions).
  - Liquidity/funding: Liquidity Coverage Ratio (legislative threshold of 100%), Net Stable Funding Ratio (legislative threshold of 100%), and Loan-to-Deposit Ratio (benchmarked against history and other EU countries).
- Cyclogram indicator and domestic gap:
  - Cyclogram comprises 14 variables capturing real economy, credit and housing markets, indebtedness, debt service ratios, and credit risk losses; each variable is scored between 1 and 9 and the composite is the unweighted average of the 14 scores.
  - The domestic-credit-to-GDP trend ("domestic gap") is computed as the sum of private non-financial sector debt originated by domestic banks divided by the nominal GDP trend, applying a one-sided HP filter with a lambda of 15,000 to annual nominal GDP data (moving sum of four quarters).
  - Basel guidance uses a one-sided HP filter with a lambda of 400,000 for the credit-to-GDP gap, but the NBS finds this excessive for Slovakia.
  - Observations:
    - The domestic gap falls within the range of IMF staff estimates.
    - The cyclogram has largely mirrored the domestic gap but shows a more moderate decline since mid-2022.
    - The NBS considers the domestic gap unreliable in isolation due to end-point problems in filtering techniques.
- Empirical and methodological notes:
  - Basel III guidance: buffer calibration suggestions (0 to 2.5 percent of RWA based on credit-to-GDP gap), but thresholds are not prescriptive and require country-specific judgment.
  - For Slovakia, many authorities find credit-to-GDP based estimates insufficient and exercise judgment; the NBS uses the cyclogram alongside judgment.
- Text fragment in source: The source text ends an incomplete sentence: "It is estimated that the Slovak banking sector would require an additional capital buffer of" — the remainder of this estimate is not present in the provided content.

*Source: 1svkea2025006-print-pdf - 18.      The NBS cooporates with other international organizations and regional bodies on*

### 2.5 percent of risk exposures to cover losses comparable to those experienced between 2008 and

### 1svkea2025006-print-pdf - 2.5 percent of risk exposures to cover losses comparable to those experienced between 2008 and

### Cyclogram, CCyB calibration, and buffer governance
- The cyclogram is used to indicate the speed at which systemic risk builds up; it does not necessarily reflect a consistently high level of vulnerability and is complemented by expert judgment when determining CCyB rates.
- A maximum buffer rate of 2.5 percent of risk exposures is taken to cover losses comparable to those experienced between 2008 and 2010 (Rychtárik and NBS, 2018).
- Every quarter, the NBS publishes an updated buffer guide containing an updated cyclogram and implied buffer rates.
- The NBS employs additional models depending on the risk environment, including domestic network analysis and a Value-at-Risk model when relevant.
- To evaluate macroeconomic impacts of raising the CCyB, any proposed additional capital buffer is compared against existing capital headroom on a bank-by-bank basis, taking into account:
  - current capital headroom,
  - projected future headroom based on planned dividend distributions and expected profits,
  - planned changes reviewed with senior managers of major banks.
- For ex post evaluations, a bank-lending survey allows respondents to indicate any changes in lending standards.

### Stress-testing framework and systemic risk monitoring
- Stress tests are conducted at least annually and use a well-integrated suite of quantitative models across sectors, based on common assumptions.
- The FSD develops baseline and stressed scenarios forming the foundation for sector-specific models.
- Household credit risk is assessed using an integrated dynamic household balance sheet model leveraging loan-level data.
- Corporate credit risk estimation uses Monte Carlo simulations of individual firms’ cash flows.
- A new module monitors exposures to the CRE sector for banks and non-banks, integrating firms’ financial statements with project characteristics.
- Results from modules and simulations of other balance-sheet components contribute to overall resilience assessment.
- The FSR typically reports the proportion of at-risk households and non-NFCs and corresponding NPLs but could provide clearer insights into assumptions underlying capital and profitability results.
- In 2023, the NBS conducted a stress test focused on climate-change-related risks using scenarios from the Network for Greening the Financial System (Kalman et al., 2023).
- The NBS regularly performs stress tests on non-core financial segments (insurance, collective investment, pension sectors) for market risks using the SQLite database, and conducts an annual interconnectedness analysis including NBFIs.
- Stress testing of climate-related risks has been ad-hoc to date, with efforts underway to integrate it into regular stress-testing protocols.

### Household-sector model and recommended enhancements
- The household-sector semi-structural micro-macro model (see Jurča et al., 2020) integrates micro-simulations of employment status, income, and expenses with macro data under adverse scenarios to simulate individual household balance sheets and estimate loans at risk, PDs, and LGDs during adverse conditions.
- The model can be used for cost-benefit analysis of BBM changes and for back-testing (see Cesnak et al., 2021).
- Limitations:
  - Lacks a feedback loop between borrowers, banks, and the real economy (no macrofinancial perspective).
- Recommendation: The FSD should integrate a feedback loop between borrowers, banks, and the real economy in stress-testing, potentially by complementing the micro-macro model with a more macrofinancial model.
- Recommendation: Implement a regular ex-post evaluation process to ensure no legacy measures remain unnecessarily restrictive.

### O-SIIs identification and buffers
- O-SIIs are identified following harmonized European regulation with an annual update of the list and capital buffers using a two-step EBA-guideline procedure (EBA, 2013):
  - Step 1: O-SII score calculated using standardized EBA methodology (uniform indicators and weights).
  - Step 2: NBS discretion to add institutions using a national methodology tailored to Slovak banking system specificities.
- Capital buffer decisions are informed by the national methodology score and consider ECB minimum capital buffers.

### RRE monitoring framework and indicators
- The NBS’s RRE Dashboard includes a range of indicators, most updated quarterly (see Cesnak et al., 2024 for methodology).
- Two core metrics identified for assessing RRE overvaluation risks:
  - Housing Affordability Index: ratio of the average monthly mortgage payment to the average net disposable income (net disposable income defined as amount remaining after accounting for minimum expenses in Slovakia).
  - Fundamental Price: price implied by demand-side determinants such as disposable income and debt burden; compared to prevailing market price (RRE price index derived from secondary-market apartment prices; primary-market sales excluded).
- Additional indicators: buy-to-rent indicator (ratio of average rental costs to average mortgage payments) for the capital region, composite index, borrowing capacity indicator, and house price decomposition.
- Recommendations for the RRE Dashboard:
  - Provide a clearer narrative on which indicators are most informative and how they influence housing-market assessment.
  - Distinguish between indicators measuring the speed of vulnerability buildup (e.g., composite index) and those assessing accumulated vulnerabilities (e.g., gap to fundamental price, gap to price implied by borrowing capacity).
  - Enhance the fundamental price model by incorporating supply-side factors such as number of completed flats and construction permits granted.

### Engagement with market participants
- The NBS regularly meets senior managers of major banks to gather insights on trends, risks, business strategies, and expectations regarding asset quality, profitability, and liquidity (timing aligned with FSR drafting).
- Banks are required to report business and capital plans to the NBS regularly.
- The NBS holds ad-hoc meetings with RRE and CRE market professionals to obtain qualitative updates including price movements, market sentiment, and valuation practices.

### Key recommendations (excerpted)
- Recommendation 4: Increase staffing of the FSD to limit turnover risk and ensure continued fulfillment of responsibilities.
- Recommendation 5: Continue closing data gaps in the RRE and CRE sectors and improve monitoring frameworks.
- Recommendation 6: Incorporate a macrofinancial perspective into BBM analysis and implement a regular ex-post evaluation process.

### Macroprudential stance, BBMs, and recent developments
- Evolution of borrower-based measures and macroprudential tools:
  - Non-binding LTV, DSTI, maturity recommendations in 2014 became binding from 2017 and were tightened over time, including adding a DTI limit.
  - Current BBM settings include:
    - DSTI limit: 60 percent with a 5-percent exception for new loans with DSTI between 60 and 70 percent.
    - LTV limit: 80 percent with a 20-percent exception for share of loans with LTV between 80 and 90 percent.
    - DTI limit: set to gradually decrease from 8 for borrowers aged 40 and under to 3 for those aged 60 and over, with a 5-percent exception and an additional 5-percent exception for young borrowers (up to 35 years, with an income limit).
  - CCyB activated in 2017, gradually increased to 1.5 percent in 2019, lowered to 1 percent in 2020 during COVID-19, and raised back to 1.5 percent in August 2023.
- Table 3: Current macroprudential settings (selected entries preserved exactly)
  - Countercyclical capital buffer: Effective August 1, 2023, the CCyB was increased to 1.5%.
  - Capital conservation buffer: After a temporary suspension relating to the COVID-19 pandemic, a CCoB of 2.5% was re-introduced on January 1, 2023, with exemptions for small and medium-sized firms.
  - Limit on leverage ratio: A limit on the leverage ratio of 3% was introduced on June 28, 2021.
  - Forward-looking loan loss provisioning requirement: Effective January 1, 2018, IFRS 9 was implemented.
  - Cap on loan-to-value ratio: Effective July 1, 2018, an LTV cap of 80% on all housing loans collateralized by residential property, with 20% of new housing loan production may be provided with LTV between 80% and 90%.
  - Cap on debt-to-income ratio: Effective January 1, 2023, for loans with maturity exceeding into retirement, the DTI limit is set to gradually fall from 8 times for borrowers aged 40 and under to 3 at age 60 and over, with an exemption for 5% of loans, plus an additional 5% of loans for young borrowers (with additional conditions).
  - Cap on debt-service-to-income ratio: Effective January 1, 2020, a DSTI cap of 60% on all housing and consumer loans was implemented; maximum share of new loans with DSTI ratio between 60% and 70% is 5%, with some exceptions.
  - Limits on amortization periods: Effective January 1, 2017, caps set as follows: 30 years for mortgages, 8 for consumer loans, with some exceptions.
  - Liquidity Coverage Ratio: After temporary suspension relating to the COVID-19 pandemic, an LCR of above 100% was re-introduced on January 1, 2022.
  - Net Stable Funding Ratio: Effective June 28, 2021, banks must maintain a NSFR of above 100%.
  - O-SII buffer rates (effective January 1, 2023): 
    - (1) Československá obchodná banka, a.s., – 1.25%,
    - (2) 365.bank, a.s., – 0.25%,
    - (3) Slovenská sporiteľňa, a.s., – 2%,
    - (4) Tatra banka, a.s., – 1.5%,
    - (5) Všeobecná úverová banka, a.s., – 1.75%,
    - (6) Prima banka Slovensko, a.s., – 0.25%.
  - The capital buffers for O-SIIs remain at the same value for the year 2024.
  - Effective January 1, 2023, a G-SII must maintain a leverage ratio buffer equal to 50% of the risk-weighted G-SII buffer rate.

### Broad-based vulnerabilities, cycle assessment, and outlook
- Financial cycle and credit conditions:
  - Most credit gap estimates remain negative and are trending downward.
  - Domestic credit-to-GDP ratio has consistently declined since mid-2022.
  - The rate of decline in the NBS’s composite cyclogram indicator has recently slowed, indicating a potential turning point.
  - Housing loan growth stabilized over the past year; house prices are no longer decreasing.
  - Recent decline in private-sector credit growth driven primarily by a demand-driven decrease in NFC sector growth.
  - With ECB easing having started, financial conditions have begun to loosen; mortgage rates have yet to decrease, possibly due to correlation with government bond yields which have risen recently due to widening spreads.

### Bank profitability, buffers, and policy implications
- Bank profits and voluntary buffers:
  - Profits of Slovak banks reached record highs in 2023 driven by substantial net interest income.
  - By end-2023, aggregate total capital ratio rose to 20.5 percent of risk-weighted assets (RWA), with voluntary buffers accounting for 4.4 percent of RWA.
  - Return on Assets (RoA) and Return on Equity (RoE) remained at approximately the 25th percentile compared to euro-area peers.
- Expected impacts:
  - The bank levy introduced in January 2024 is expected to moderately reduce profits in 2024.
  - Footnote details: The bank levy currently stands 30 percent of pre-tax profits; however, it is scheduled to be steadily decreased to 4.356 percent by 2028. Profits have moderated by 6.6 percent in the first eight months of 2024 compared to the same period in 2023.
  - Maintenance of the levy, even at a low rate, could weigh on profits and buffers as interest rates fall.
  - The recently announced financial transaction tax (details unclear) is likely to increase banks’ operational costs.
- Policy concern: Competitiveness of Slovak banks may decrease relative to peers, or capital may be redirected to more profitable jurisdictions, potentially eroding capital buffers over time.
- Cross-reference: See Article IV recommendation to phase out the bank levy as planned; ECB legal opinion dated February 14, 2024, warns of potential negative effects on banking sector resilience.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1svkea2025006-print-pdf.pdf*

### 43.      Capital buffers were implemented between 2014 and 2016 to align with new EU

### Capital buffers were implemented between 2014 and 2016 to align with new EU regulations.

### Capital buffer implementation and timeline
- CCyB:
  - Introduced on November 1, 2014, the CCyB rate was initially set at 0 percent.
  - Increased up to 1.5 percent by August 1, 2019.
  - In June 2019, the NBS announced an increase of the CCyB rate to 2 percent, effective August 2020; this decision was reversed on April 28, 2020, in response to the COVID-19 pandemic.
  - Instead, the rate was reduced to 1 percent, effective August 1, 2020.
  - Following the economic recovery, the rate was raised back to 1.5 percent, effective August 1, 2023.
- CCoB:
  - The NBS introduced a CCoB of 2.5 percent of banks’ total risk exposure effective October 1, 2014, with exemptions for small and medium-sized investment firms.
  - The CCoB was 1.5 percent of total risk exposure between August 1, 2014, and September 30, 2014.
  - The CCoB requirement was suspended during the pandemic but was reinstated on January 1, 2023.
- SyRB and O-SII:
  - The SyRB was introduced alongside O-SII buffers, effective January 1, 2016.
  - The maximum O-SII buffer was set at 2 percent initially; to maintain combined buffer requirements when SyRB was reduced to zero, the maximum O-SII buffer requirement was increased to 3 percent.
  - An update to EU regulation (CRD V) mandated that the SyRB could only be utilized to protect against specific types of exposure, leading to its reduction to zero, effective January 1, 2022.
- Additional tools:
  - Leverage ratio limit of 3 percent, with a temporary exclusion of central bank exposures during the pandemic.
  - Forward-looking loan loss provisioning requirement.

### Rationale for CCyB settings and recent NBS decisions
- Objectives and context:
  - The current CCyB rate of 1.5 percent aims to balance a cooling financial cycle with ongoing elevated legacy risks.
  - The CCyB is the only tool with an explicitly cyclical objective; other broad-based measures remain constant aside from pandemic suspensions and O-SII adjustments.
  - Slovakia maintained a releasable capital buffer without fully releasing it at the onset of the pandemic to preserve a buffer for when potential losses would emerge.
- Drivers for maintaining 1.5 percent:
  - Legacy risks—particularly concerning households—stemming from the prolonged boom in the RRE sector.
  - Lingering risks from the pandemic.
  - Implications of sharply rising inflation and interest rates.
  - Banks experiencing increased margins, indicating capacity to build additional releasable buffers.
  - Alignment with ESRB and BCBS guidance to build buffers while banks’ profits remain robust and credit supply is ample.
- Cyclogram and guided rates:
  - The cyclogram indicated a potential increase to 2.5 percent at one point; after the financial cycle cooled, the NBS opted to maintain 1.5 percent even as the cyclogram suggested a zero rate.
  - There is an inherent lag between decision and implementation of CCyB changes, typically one year in Slovakia; guided rates generally lead actual rates.

### pnCCyB (positive-neutral CCyB) considerations and recommendations
- Observed practice:
  - The NBS’s CCyB has recently appeared akin to a positive-neutral CCyB (pnCCyB), although it remains formally distinct.
  - A pnCCyB increases the CCyB rate to its neutral level as soon as bank profits and voluntary buffers have recovered, preventing procyclical reductions in credit supply.
- Benefits of formal adoption:
  - Safeguards releasable buffers and reduces the risk of delayed action.
  - Particularly pertinent for Slovakia as a small open economy without an independent monetary policy; maintains a positive CCyB during stable periods to allow more time to evaluate vulnerability buildup.
  - Formalization and automatization enhance predictability and minimize risk of delayed action or inaction.
- Key issues to consider for formal conversion:
  - Legal underpinnings:
    - Relevant legislation for CCyB is Section 33g of the Act No 483/2001 on banks, which references cyclical risk; a change in the law may be necessary to adopt the pnCCyB.
    - Ongoing discussions at the European level are focused on formalizing a more supportive stance on the pnCCyB.
  - Communication:
    - Methodological shift needs clear communication to market participants.
    - Indicators guiding increases/releases around the positive neutral level would remain unchanged; improved transparency expected by better aligning actual rates with guided rates.
  - Adoption cost:
    - Since the NBS already maintains a positive CCyB of 1.5 percent, the cost associated with formally adopting a pnCCyB would be limited.
    - If the NBS sets the pnCCyB higher, phase-in must be carefully timed to avoid disrupting credit supply; implement when banks are profitable and possess voluntary buffers.

- Calibration options (Box 2 summary):
  - Typical pnCCyB ranges: most countries set pnCCyB within 1 to 2 percent.
  - Historical accumulated losses approach:
    - Link pnCCyB to a percentage of peak accumulated losses (example: Dutch Central Bank covers half of peak accumulated losses since the GFC).
  - Forward-looking stress-test approach:
    - Identify losses pnCCyB needs to cover by calculating difference between overall losses and existing non-releasable buffers (O-SII, CCoB, SyRB), minus typical capital headroom banks wish to maintain.
    - Stress testing under severe scenarios provides an upper bound; milder recession scenarios yield mid-range calibrations.
    - Limitations: stress tests often fail to capture negative feedback loops between credit supply, real economy, and banking sector health; integrating feedback effects would enhance calibration.

### Household vulnerabilities, RRE exposure, and macroprudential tools
- Household credit trends and composition:
  - Share of mortgage portfolios in total loans reached 59 percent in May 2024.
  - Mortgage growth slowed during 2022-2023 due to rising interest rates and decreasing real wages, resulting in a negative household credit gap, but has recently stabilized at around 3 percent.
  - Consumer loan growth picked up with increasing inflation as households took loans to finance more expensive durable goods.
  - Interest rates for most household loans are fixed for up to 5 years; some older loans have longer fixation periods.
- Historical and recent dynamics:
  - Since the early 2000s, household credit has continuously risen; estimates of the household credit gap have consistently been positive since reporting began in 2004.
  - Some credit growth has been excessive, with borrowers taking increasingly larger loans; excessive growth apparent leading up to Euro adoption and during 2014-2016 recovery.
  - Significant surge in new mortgages prior to the rate hike in mid-2022 was partly fueled by anticipation of the increase and refinancing demand.
- Mortgage portfolio characteristics and resilience:
  - Banks’ exposure to the RRE sector is relatively high compared to other EA countries.
  - Existing mortgage portfolio shows moderate LTV and loan-service-to-income (LSTI) ratios, but a significant share of loans with relatively high loan-to-income (LTI) values.
  - Retail NPLs remain low; stress tests indicate the banking sector remains solvent and liquid even under adverse shock scenarios.
  - About 26 percent of mortgage rates have been reset to higher levels, alleviating some risk as ECB begins to lower interest rates.
  - Lower interest rates in the longer term likely to stimulate mortgage growth and could reignite house price increases.
- Residential real estate (RRE) market and valuation:
  - Residential property prices more than doubled since 2007; the market corrected by about 10 percent when rates increased but has remained relatively stable since mid-2023.
  - Real house prices and price-to-rent and price-to-income ratios declined; price-to-rent has stabilized while real house price and price-to-income ratios have recently begun to recover.
  - Despite correction, house prices and sustainability indicators remain at historically high levels, contributing to deteriorating housing affordability.
  - Housing supply increased since the GFC but house construction has stagnated recently.
  - Multiple methods and the European Commission In-Depth Review 2024 conclude that overvaluation persists; NBS RRE Dashboard indicators imply residual overvaluation via borrowing capacity, fundamental price, and affordability index.
  - RRE price-at-risk analysis indicates significant downside risk to RRE prices while also showing unprecedented uncertainty with substantial likelihood of positive—and potentially excessive—price increases.
- Macroprudential borrower-based measures (BBMs):
  - NBS issued recommendations in 2014 to limit risky lending practices, including LTV and maturity limits; recommendations made binding in 2016 and tightened in subsequent decrees by adding DTI and DSTI limits.
  - BBMs in Slovakia are treated as structural measures rather than cyclical tools.

*Italic: Source — IMF staff report content (extracted from the supplied PDF chapter).*

### Section 2, the calibration of BBMs and speed limits, including the age-differentiated DTI, is

### Section 2 — Calibration of BBMs and speed limits, including the age-differentiated DTI

### Calibration and key parameters of borrower-based measures (BBMs)
- LTV limit:
  - Set at 80 percent, with an exception permitting 20 percent of loans to have an LTV of up to 90 percent.
- (Stressed) DSTI limit:
  - Limit set at 60 percent, with an exception allowing 5 percent of loans to have a (stressed) DSTI of up to 70 percent.
  - DSTI calculation distinctions in Slovakia:
    - The subsistence level is deducted from income.
    - DSTI is determined as the maximum of the DSTI based on the actual rate and maturity, and the DSTI based on a stressed rate (the actual rate plus 2 percentage points, capped at 6 percent).
  - Algebraic representation: DSTI = max{ DSTI(min(i + 2%, 6%), 30 years), DSTI(i, m) }, where i is the interest rate and m is maturity in years.
- DTI limit:
  - Introduced in 2018 at 8; as of 2023 it is age-dependent, varying from 3 to 8 for a subset of loans with maturities exceeding into retirement.
- Maturity limits:
  - Housing loans: 30 years, with a 10 percent exception.
  - Consumer loans: 8 years; loans for energy-saving renovations: 10 years.

### Empirical context and portfolio characteristics
- House price and market developments:
  - House prices increased since the early 2010s but underwent a 10-percent correction starting in mid-2022; recently prices have started to pick back up.
  - Statistical overvaluation measures (various filters and indicators) peaked at nearly 40 percent in mid-2022 and seem to have bottomed out around 10 percent after the correction.
  - Two non-statistical measures indicate overvaluation of 21 percent and 35 percent, respectively.
- RRE downside risk (price-at-risk) estimate:
  - Results suggest house prices could decline by 12.9 percent in Q1 2025, with a likelihood of 10 percent.
- Mortgage portfolio snapshot (2024Q1):
  - Existing mortgages concentrated at relatively low values of LSTI and LTV ratios.
  - Significant share with relatively high LTI ratios.
  - Almost half of the existing portfolio has a maturity of more than 26 years.
- Banks’ exposure:
  - Banks’ exposure to the RRE sector is high compared to other Euro area countries but NPLs remain low.

### Effects of BBMs on household risk metrics and behavior
- Distributional impacts:
  - Median DTI decreased recently and the distribution narrowed significantly.
  - DSTI limit tightening since 2016 reduced median DSTI and upper percentiles; since mid-2022 rising interest payments have increased median DSTI and the 75th percentile, with the 90th percentile reaching the 60-percent DSTI limit.
  - LTV distribution relatively unchanged over six years: median LTV around 70, 75th percentile at 80 (binding limit for ~80 percent of loans), and more recently the 90th percentile equals 80.
  - Loan maturities have approached the 30-year limit, particularly as interest rates rose and borrowers extended maturities to mitigate debt service increases.
- Complementarities across BBMs:
  - Different BBMs become binding at various stages of the financial cycle:
    - In low interest rate periods, DSTI ratios fall and DSTI limit becomes less effective; DTI tends to be more binding.
    - For older borrowers the age-differentiated DTI may remain restrictive even in low-rate environments.
    - LTV limit is often more binding during low interest rates and rising house prices, increasing down-payment requirements and potentially delaying purchases.

### Identified leakages and data/enforcement issues
- Co-financing with consumer loans:
  - Product-based BBM regulation applies to banks and NBFIs and extends to refinancing; however, financing down payments with consumer loans is a remaining loophole circumventing the LTV regulation.
  - Q4 2023 data: 15 percent of mortgages close to the LTV limit (greater than 78 percent) were co-financed by a consumer loan; 9 percent of these experienced debt-to-value (DTV) increases of more than 10 percentage points.
  - Consumer loans subject to an 8-year maturity limit and higher interest rates than mortgages, which constrains uptake, but the leakage could frontload credit demand.
  - Recommendation: prohibit financing down payments with consumer loans and enforce via loan-level data from NBFIs (Recommendation 3).
- Transaction data opportunity:
  - Newly available land register transaction data should be used to refine BBM speed limits by borrower segments (first-time buyers, second-time buyers, investors, top-ups) to better mitigate procyclicality.

### Assessment of age-differentiated DTI and suggested redesigns
- Critique of age-differentiation:
  - Age-differentiated DTI aimed to protect elderly borrowers with high DTI ratios in retirement, but the European Mortgage Credit Directive already requires banks to ensure loans can be repaid solely with income, including after income declines in retirement.
  - Older borrowers tend to have more collateral and lower LTVs; systemic risk from older-borrower DTI appears limited.
  - From a macroprudential perspective, age-differentiation of DTI is likely suboptimal for capturing contributions to systemic risk.
  - Currently exemptions are not fully used by banks, so age-differentiation has not materially restricted credit access yet, but this could change.

### Structural-model counterfactuals and alternative BBM designs
- Structural-model simulation (Q3 2021–Q4 2023):
  - Counterfactual without BBMs: current BBM package estimated to curb credit flow by 7.7 percent and house prices by 1.9 percent (lower-bound estimates under assumption banks maintain some internal risk limits).
- Cross-country comparisons and alternative packages:
  - Slovak BBM package sits in the middle range of stringency compared with other European countries.
  - Model experiments show that eliminating exemptions and differentiating LTV limits by borrower segment (FTBs, STBs, investors/BTL, top-ups) can affect credit and price dynamics.
  - Option example: remove DSTI exemptions, set maturity to 30 years, age-independent DTI of 8, and set FTB LTV at 90 percent while others at 80 percent — similar average stringency but streamlined and borrower-segment differentiated.
- Policy implication:
  - Implementing tighter macroprudential limits for investors and top-ups is shown to reduce procyclicality of credit and house price growth; differentiating limits across borrower segments is recommended to better target systemic sources of risk.

### Supply-side constraints and complementary policies
- Supply-side contributors to overheating:
  - Construction activity has lagged demand; permitting inefficiencies (especially in larger cities) and a worsening shortage of skilled labor.
  - Low taxation of RRE and an underdeveloped formal rental market; restrictive rental regulations hinder formal market expansion.
- Recommendations to relieve pressure on the housing market:
  - Simplify land use policies and building permit processes to improve supply responsiveness.
  - Reform rental regulations to balance owners’ and tenants’ rights and develop the formal rental market as an alternative to owner-occupation mortgages.

*Source: Section 2, the calibration of BBMs and speed limits, including the age-differentiated DTI, from the provided IMF document.*

### Box 4. Slovak Republic: Effects of BBMs on Credit and House Price Growth (Concluded)

### Box 4. Slovak Republic: Effects of BBMs on Credit and House Price Growth (Concluded)

### Effects of borrower-based measures (BBMs) on credit and house prices
- Option 2 (vs Option 1): introduces a tighter LTV for investors/BTL and for equity withdrawal/top-ups, aiming to mitigate procyclicality in these categories; this modestly reduces credit and house price growth.
- Option 3: imposes an even stricter LTV for equity withdrawal/top-ups (noting this behavior can be highly procyclical), producing a slightly larger reduction in credit and house price growth.
- Options 1–3 keep a relatively high LTV of 90 percent for FTBs.
- Lowering the FTB LTV to 85 percent alone does not significantly affect housing credit or prices because only a small proportion of lending falls in the 85 to 90 percent LTV range.
- Tightening the DTI to 6 (closer to the current average) together with an 85 percent FTB LTV results in an additional reduction in house prices and credit growth.
- A streamlined regulatory framework that:
  - excludes exceptions for income-based measures and the maturity limit, and
  - differentiates LTV by borrower segment,
  can significantly curb credit and house price growth while reducing procyclicality and enhancing borrower resilience.

### Corporate sector vulnerabilities and CRE exposure
- Non-financial corporate (NFC) debt:
  - Increased during 2022–23, then stabilized; NFC debt-to-GDP ratio remained relatively stable despite post-pandemic credit surge.
  - Growth tapered off with higher interest rates, approaching nearly zero at the beginning of 2024.
  - NPL and bankruptcy rates have remained low and relatively stable; recent NPL rates decreased toward pre-pandemic levels.
- Commercial real estate (CRE) exposure and risks:
  - Banks’ loans to the CRE sector represent about 8 percent of total loan portfolios and account for 90 percent of all CRE-related loans; investment funds provide the rest.
  - Real estate investment funds in 2023:
    - relied up to 87 percent on the retail investor base,
    - were exposed up to 76 percent to CRE via equity shares and debt exposures.
  - Vacancy rate in the office sector has risen to 14 percent.
  - Interest expenses now account for 20–30 percent of rental income for most firms in the office sector.
  - Exposure to office-sector assets is currently at 20 percent.
  - According to NBS stress tests, a small sectoral SyRB would be needed under an adverse scenario (between 0 and 0.1 percent of total RWA); the NBS decided against activating the SyRB due to relatively high CRE risk weights (around 85 percent) and more favorable recent sector developments.

### Bank funding, liquidity, and financial system structure
- Bank funding composition:
  - Household deposits share declined from 44 percent at end-2020 to 36 percent currently.
  - Interbank deposits now represent 12 percent of total funding.
  - Retail deposits still constitute approximately half of available stable funding (close to EU average).
  - Market-based funding reliance remains minimal.
- Liquidity and stability metrics:
  - Loan-to-deposit ratio reached 110 percent in mid-2023; has since improved.
  - Net Stable Funding Ratio (NSFR): 132 percent.
  - Liquidity Coverage Ratio (LCR): 189 percent.
- Financial system concentration and buffers:
  - Banking system holds more than 80 percent of financial sector assets; five largest banks hold nearly 80 percent of banking-sector assets.
  - NBS applies O-SII buffer rates; requirement can be as high as 3% of total risk exposure and currently ranges between 0.25% and 2%. As of January 1, 2025, the O-SII list will be reduced by one bank.

### Non-bank financial institutions (NBFI) sector developments and risks
- NBFI sector size and composition:
  - NBFI sector accounts for approximately 21 percent of total financial system assets.
  - Insurance companies share decreased to 4 percent by end-2023 (from 9 percent in 2006).
  - Pension funds share increased to 11 percent (from 3 percent in 2006).
  - Investment funds now constitute 6 percent of the sector (virtually non-existent in 2006).
  - Approximately a quarter of investment fund assets are held by real estate funds (primarily domestically owned).
  - Ratio of retail investor base in real estate funds to household deposits in banks is around 5 percent.
- Regulation and monitoring:
  - Regulation requires at least 10% of the value of assets in a public special real-estate fund to consist of liquid assets.
  - NBS conducts an annual assessment of leverage under Article 25 of AIFMD and can enact additional measures (leverage limits, aligning redemption limits with asset liquidity) if sector risks accumulate.
  - Recommendation that NBS remain vigilant and be prepared to tighten measures before risks become systemic.

### Policy recommendations (numbered as in source)
- Recommendation 7. Maintain the availability of releasable capital in normal times by adopting a pnCCyB framework.
- Recommendation 8. Refine the borrower-based measures and remove the possibility to circumvent LTV limits with consumer loans.
- Recommendation 9. Stand ready to deploy the SyRB in case risks in the CRE sector become systemic.

*Prepared together with Jaunius Karmelavičius (Monetary and Markets Department, IMF).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1svkea2025006-print-pdf.pdf_