COVID-19 brought considerable restrictions to Slovakia. Economic and social life slowed significantly, and some sectors ground almost to a halt.

However, in the third quarter of 2021, the country’s GDP appeared to be approaching the pre-pandemic high of late 2019. Annual GDP growth could exceed 4% in 2021 and even accelerate further next year, thanks to new investment from European Union funds and strong growth in foreign demand from the euro area.

This was largely due to a summer recovery in segments such as retail, restaurants, accommodation, culture and sport. This is no surprise, says Alexander Resch, CEO and Chairman of the management board at VUB Banka: “As the pandemic has got under control, people have started to consume and produce.”

Slovakia is a big exporter and heavily reliant on industry. Currently, the country is facing significant supply-chain bottlenecks. “In Slovakia, we concentrate heavily on the automotive sector,” says Resch, “but we are missing automotive chips and production is slowing down significantly because we just can’t ensure a constant supply.” Energy is also an issue, with prices rising dramatically.

However, the labour market is exceeding expectations. “Even before the crisis, we were carefully looking at the unemployment rate, afraid we’d see something like the financial crisis of 2010. But we didn’t,” says Resch.

This, he says, was mostly because the government intervened “in a timely manner”. He says the government looked to Germany for inspiration, and used subsidies to encourage companies not to lay off staff. “Unfortunately,” he adds, “there are so many open positions now, we’re probably going to start to suffer a skills shortage.”

VUB Banka is playing a clear role in Slovakia’s economic transformation, says Resch: “We are active in various different platforms, bringing together industry and policymakers to discuss what needs to be done – typically in the educational system, simplification of public administration and digital infrastructure.”

The bank has also developed a Strategic Competency Index, which helps compare Slovakia to other countries to understand areas of concern. Resch says: “We clearly see that GDP growth of 3% to 5% will be not sustainable. And this is what we want to prevent – so we are looking for solutions together within the ecosystem.”

VUB Banka is one of the market leaders in all relevant segments in Slovakia, says Resch. “We recognise that many, many peers are looking at what we are doing and how we are moving. So everything we do is from a market-leader position.”

To that end, the bank’s plans focus on optimising return on equity. “We know our asset quality is stable and our productivity is best in class,” says Resch. “A real issue in terms of income is how to make our business model sustainable – especially as we are operating in the euro area. We need to work on our operating income.

“If we want to get rid of the dependency on the net-interest income, which is driven by euro interest rate levels, we need to work significantly on our fee-based business – and making it a stronger component than it is now.

VUB has achieved good returns in fee income and excellent results in trading revenues. At the same time, it has maintained efficient operations and made structural savings in administrative costs – with the result that the cost-to-income ratio has improved by 67 basis points. The transformation of the bank levy has also had an impact on profitability.

A huge topic for the bank is digitization. “This helps us standardise and optimise,” says Resch. “For all the low-added-value activities or repetitive activities, there is no sense in using brains and potential, so we will move to robotisation.”

VUB is one of the most important co-financiers of property construction. Prices in real estate have been driven up by the slow implementation of projects, high commodity prices and especially high demand due to cheap mortgages. The debate about rental flats revolves around how many to build and how to finance them in an economically sustainable way.

Meanwhile, the market seeks to regulate demand through lower supply and rationalisation measures, while encouraging the construction of modular, flexible buildings that adhere to the principles of long-term sustainability. There is sufficient liquidity and interest in real estate projects on the market, making office buildings a promising segment.

ESG (environmental, social and governance) concerns are also high on the list. “We are one of the most vocal on this in our market,” says Resch, “and we are pushing a lot to bring this topic forward.

“There are a lot of things to be done to meet the climate goals, and we are working with various ministries to make that happen for our country.”

Financial inclusion is also a consideration. “There's a huge risk that we are going to face energy poverty,” Resch says, “and here we need discussions with ministries, but also with regulators.”