AnnuAl RepoRt 2018 Published by: © Národná banka Slovenska 2019 Address: Národná banka Slovenska Imricha Karvaša 1 813 25 Bratislava Slovakia http://www.nbs.sk Online version available at http://www.nbs.sk/en/publications-issued- by-the-nbs/nbs-publications/annual-report All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. The cut-off date for the data included in this report was 25 March 2019. 978-80-8043-242-3 (online) CONTENTS FOREWORD 5 3.2 Slovak koruna banknotes and coins 40 3.3 Production of euro banknotes and A ECONOMIC, MONETARY AND coins 40 FINANCIAL DEVELOPMENTS 7 3.4 Processing of euro banknotes and coins 41 1 MACROECONOMIC 3.5 Counterfeit banknotes and coins DEVELOPMENTS 8 recovered in Slovakia 42 1.1 The external economic environment 8 1.1.1 Global trends in output and 4 PAYMENT SERVICES AND prices 8 PAYMENT SYSTEMS 45 1.1.2 The euro area 9 4.1 Payment services 45 1.2 Macroeconomic developments in 4.2 Payment systems in Slovakia 45 Slovakia 10 4.2.1 TARGET2 and TARGET2-SK 45 1.2.1 Prices 10 4.2.2 Payments processed by 1.2.2 Gross domestic product 12 TARGET2-SK 46 1.2.3 Labour market 13 4.2.3 The Slovak Interbank Payment 1.2.4 Financial results in the System (SIPS) 47 non-financial corporation sector 14 4.2.4 Payments processed by SIPS 48 1.2.5 Balance of payments 14 4.2.5 Payment cards 49 4.3 Cooperation with international financial 2 EUROSYSTEM MONETARY POLICY 16 institutions 50 2.1 Monetary policy operations 16 5 STATISTICS 50 3 FINANCIAL MARKET 5.1 Statistical developments 50 DEVELOPMENTS 20 5.2 Information systems 53 B NBS ACTIVITIES 23 6 ECONOMIC RESEARCH 54 1 MONETARY POLICY 7 EUROPEAN AFFAIRS AND IMPLEMENTATION INTERNATIONAL COOPERATION 56 AND INVESTMENT PORTFOLIO 7.1 European affairs 56 MANAGEMENT 24 7.2 Cooperation with international 1.1 Minimum reserve requirements 24 institutions 56 1.2 Eligible assets 24 7.3 International activities in the field 1.3 Investment portfolio management 26 of supervision 57 7.4 Technical cooperation with external 2 FINANCIAL STABILITY AND institutions 58 FINANCIAL MARKET SUPERVISION 27 8 COMMUNICATION 59 2.1 Financial stability 27 2.2 Financial market supervision 28 9 LEGISLATION 62 2.3 inancial market regulation 33 2.4 Bank recovery and resolution 36 10 INSTITUTIONAL DEVELOPMENTS 65 2.5 Financial consumer protection 37 10.1 Institutional framework 65 10.2 Organisation and management 65 3 ISSUING ACTIVITY AND 10.3 Human resources 68 CURRENCY CIRCULATION 38 10.4 Training and development 68 3.1 Cumulative net issuance of euro cash 38 10.5 Environmental policy 68 NBS AnnuAl RepoRt 2018 3 C INDEPENDENT AUDITOR’S Abbreviations 106 REPORT AND FINANCIAL Short titles and abbreviations of legal acts 108 STATEMENTS OF NBS AS AT 31 DECEMBER 2017 70 LIST OF BOXES List of Charts 104 Box 1 Euro short-term rate (€STR) 18 List of Tables 105 Box 2 FX Global Code 27 NBS AnnuAl RepoRt 2018 4 FOREWORD FOREWORD Národná banka Slovenska (NBS) celebrated its tion and foreign trade. The euro area’s econom- 25th anniversary in 2018 and organised sever- ic activity growth decelerated sharply in 2018, al events to mark the occasion. The anniversary and while weak exports were the main cause of was also an opportunity to reflect on the chal- the slowdown, all GDP components other than lenges we faced and the successes we achieved changes in inventories contributed to it. The in that time. Among the most notable mile- euro area’s headline inflation rate also began to stones were the currency separation and first fall towards the year-end, amid the impact of de- issuance of Slovak koruna banknotes and coins clining oil prices. (1993), the transition to a floating exchange rate (1998), joining the European System of Central In response to these shifting trends in econom- Banks upon Slovakia’s accession to the European ic activity and prices and to their impact on ex- Union (2004), the integration of financial mar- pectations, the ECB Governing Council has ad- ket supervision into the bank’s remit (2006), and justed its forward guidance – from envisaging Slovakia’s adoption of the euro currency (2009). no change in the key ECB interest rates through NBS successfully managed the euro changeover, the summer of 2019, to projecting no change as well as payment system reform, and the im- through the end of 2019. In 2018 the Eurosys- plementation of the banking union and financial tem continued employing non-standard mon- consumer protection principles. etary policy measures. The monthly pace of net purchases under the asset purchase programme Major issues at expert and high-level meetings in (APP) was reduced from €30 billion to €15 billion 2018 centred on analyses of current and future for the last quarter of the year, and then the APP challenges posed by economic, monetary and purchases were discontinued as of 31 December financial developments. The mounting uncer- 2018. NBS participated in the APP in accordance tainty and unease surrounding Brexit was and with its obligations to the Eurosystem, and its remains a risk. From the global economic per- portfolio of securities purchased under the APP spective, one of the most serious threats appears amounted to €21.8 billion by the year-end. to be the escalation of trade protectionism and the risk of a full-blown trade war breaking out. While favourable developments in the domestic Slovakia’s economy continued to expand in 2018, economy were mitigating immediate risks to fi- with GDP growing by 4.2% year on year. The main nancial stability, the rapid increase in household driver of that growth was domestic demand, in indebtedness was making the household sec- particular growth in household consumption as tor more vulnerable to any deterioration in the well as in investment. The labour market situa- economic situation. Although annual growth tion also remained favourable, as employment in loans to households slowed to around 10%, increased and the unemployment rate dropped it was still higher than the rate in any other EU to a historical low. These dynamics were reflect- country. ed in wage growth, which accelerated not only in nominal terms but also in real terms – i.e. after In order to reduce financial stability risk in Slo- taking into account the average annual inflation vakia, NBS in 2018 increased the countercyclical rate, which in 2018 stood at 2.5%. capital buffer (CCyB) rate and tightened limits on loan-to-value ratios. In addition, the bank intro- Given the export orientation of the Slovak econ- duced a new limit on borrowers’ debt-to-income omy, the main risks to its outlook lie in the ex- ratio. ternal environment. During 2018 we observed a deterioration in the global macroeconomic Payment and settlement system operation is one outlook. World GDP growth moderated, largely of NBS’s main tasks, and 2018 saw a significant because economic slowdowns in Europe, Japan development in this area: the launch of the Eu- and China were more pronounced than expect- rope-wide TARGET Instant Payment Settlement ed. Growth declined in both industrial produc- (TIPS) system, which offers secure, around the NBS AnnuAl RepoRt 2018 5 FOREWORD clock settlement of instant payments in euro in the production of €50 banknotes which NBS a few seconds. had commissioned in the previous year was completed in 2018. NBS also commissioned the The year 2018 was the 25th anniversary not only production of more than 50 million euro coins of NBS, but also of the establishment of Slovakia in 2018, including all denominations apart from as an independent state. To mark the national the €1 coin. All the euro coins issued by Slova- anniversary, NBS issued a €2 commemorative kia are produced by the state-owned Kremnica coin and a €25 silver collector coin. The bank Mint (Mincovňa Kremnica). issued a further seven precious metal collector coins in 2018, including one commemorating Národná banka Slovenska reported a net profit the 100th anniversary of the establishment of of €172 million for 2018, generated mostly by the former Czechoslovak Republic. As part of income from monetary policy operations. Under its obligations as a Eurosystem member, NBS a decision of the NBS Bank Board, the entire 2018 commissioned the production of an allocated profit was set off against losses from previous volume of €5 banknotes in 2018. In addition, years. March 2019 Jozef Makúch Governor NBS AnnuAl RepoRt 2018 6 SECTION A ECONOMIC, MONETARY AND FINANCIAL DEVELOPMENTS A CHAPTER 1 1 MACROECONOMIC DEVELOPMENTS 1.1 THE EXTERNAL ECONOMIC tinuing monetary policy accommodation sup- ENVIRONMENT ported investment demand growth, but did not boost household consumption growth, which was lower in 2018 than in the previous year. Ex- 1.1.1 GLOBAL TRENDS IN OUTPUT AND PRICES port growth also eased, resulting in a decline in Global economic growth remained solid in 2018. net exports’ contribution to GDP growth. The According to IMF estimates, world GDP growth UK’s economic growth in 2018 was its weak- slowed only slightly, from 3.8% in 2017 to 3.7%.1 est since the global financial crisis. GDP growth But in contrast to the previous year, when the was dented significantly by the uncertainty sur- expansion was strong and highly synchronised rounding the future trade relations between the throughout the year, the second half of 2018 saw UK and the European Union, which weighed the start of economic deceleration and signs of on consumer confidence and consequently on lower business cycle synchronisation.