By Martin Santa
BRATISLAVA, Nov 30 (Reuters) - The robust capital buffer of Slovakia's banks and their ability to generate net interest income are protecting the sector from the euro zone's worsening economic developments, the central bank said on Friday.
The euro zone country's economic growth in the first half of this year was sound enough to prevent deterioration in debt servicing, but it was not enough to support lending expansion to both households and businesses, the bank said.
The banks' total profit fell by almost 40 percent on the year to 275.5 million euros ($357.56 million), or 25 percent when adjusted for positive one-off effects recorded in the first half of 2011, such as income from shares and other equity.
'Banks felt the effect of the new bank levy in the first half of 2012, as it diminished the sector's pre-tax profit by around 12 percent,' the National Bank of Slovakia (NBS) wrote in its Analysis of the Slovak Financial Sector.
The previous government imposed the tax on corporate deposits at 0.2 percent in January. The new centre-left cabinet, in power since April, raised it to 0.4 percent from October and widened it to cover retail deposits as well.
Moody's credit rating agency warned in October that the heavier levy would hurt profitability and creditworthiness of financial institutions, and eventually dent their loan capacity.
The levy, set to be reversed gradually and abolished once it pumps 1 billion euros into the fund in around 2019, is designed to create a cushion for possible banking crises in the future.
Banks' capital adequacy ratio jumped from 13.3 percent as of end-2011 to 15.2 percent in June, while their core Tier 1 ratio edged up to 14.1 percent from 12.3 percent, both thanks to total own funds and a decline in capital requirements.
The central bank's stress tests showed the number of banks failing to meet a minimum capital adequacy requirement of 9 percent would be one in a baseline scenario, and two and five respectively in progressively more adverse economic situations.
Under the second scenario 73 million euros would be needed to absorb losses and 148 million euros under the worst case one.
'For the banking sector as a whole, corporate credit risk remains most significant, since estimated losses on the corporate loan portfolio would exceed other risk losses,' the bank said.
The country's biggest banks are VUB Banka, a unit of Italy's Intesa Sanpaolo, Slovenska Sporitelna, of Austria's Erste Group Bank, Tatra Banka, of Austria's Raiffeisen Bank International, and CSOB, of Belgium's KBC . ($1 = 0.7705 euros)
(Editing by Stephen Nisbet) Keywords: SLOVAKIA BANKS/
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