Bank lending increases in Q2 2020

Despite the impact of the crisis caused by the Covid-19 pandemic, which seriously disrupted lives and businesses in the first half of 2020, the latest Trends in Lending report released by the National Bank of Serbia reveals lending has rebounded in the country in Q2 2020.

Overall, lending recorded year-on-year growth of 13.9 percent in late Q2. Year-on-year growth of loans to businesses was slightly greater, at 15.9 percent, an increase of 45.3 bn dinars. Lending to households rose at a year-on-year rate of 12.9 percent, which represented growth of 50.7 bn dinars.

The bulk of loans to businesses were intended to finance current liquidity and working capital, with this borrowing promoted by the Serbian Government’s guarantee scheme designed to help businesses weather the Covid-19 pandemic. May and June saw the disbursement of loans worth 638.4 mn euros under the guarantee scheme, and the total volume of credit extended with the Government’s Covid-19 support is expected to reach 2 bn euros.

The weighted average interest rate on new euro and euro-indexed corporate loans stood at 2.7 percent, whilst the weighted average interest rate on new dinar corporate loans was somewhat higher, at 3.4 percent.

Looking at future corporate lending trends, banks can be expected to tighten their risk policies, which will reduce maximum loan amounts, shorten repayment periods, and lead to stricter collateral requirements. In parallel, businesses’ needs for liquidity loans can be expected to rise, whilst the uncertainty generated by the crisis is likely to drive demand down and extend approval times for investment loans.

In the household sector, cash and home loans accelerated, as did consumer loans and credit card debt.

The weighted average interest rate on new euro-denominated household loans stood at 3.6 percent, whereas the average dinar rate was much higher, at 8 percent.

As with the corporate segment, there is good reason to believe banks will become more risk-averse, which will constrain household lending, in particular cash, refinancing, and home loans. Future credit policies are certain to call for more collateral and increased down payments. These developments are expected to be accompanied by an increase in demand for household credit, led by greater appetite for cash and refinancing loans.