Lending developments in Q4 2020

According to the Q4 2020 Trends in Lending Report published by the National Bank of Serbia (NBS), in contrast to the increase in lending activity registered in Q1 and Q2, the final trimester of 2020 saw a slowdown in year-on-year bank lending growth.

Lending to businesses

Covid-19 relief measures, including relaxation of the NBS’s monetary policy, use of guarantee schemes to facilitate lending to micro-enterprises and small and medium-sized businesses, and moratoriums on loan repayments, drove corporate loans up by 114.4 billion dinars year-on-year, an increase of 9.1 percent when adjusted for exchange rate effects.

In Q4 2020, corporate loans adjusted for exchange rate effects fell by 6.7 billion dinars, or 0.5 percent. This slowdown was only to be expected, given the larger outstanding amounts due to the ending of the moratorium and last year’s high basis used for comparison. Maturities decreased slightly, with working capital loans increasing as a proportion of the total.

The share of non-performing loans (NPLs) in total corporate loans increased by 0.4 percentage points in Q4 to 3.1 percent, driven by the manufacturing, transportation, and trade sectors.

The weighted average interest on new euro and euro-indexed corporate loans rose by 2.8 percent, an increase of 0.1 percentage points on the preceding quarter. At 3.3 percent, the weighted average rate on new dinar-denominated loans to corporate entities was also up slightly relative to the preceding quarter.

In this quarter, commercial banks extended EUR 333.3mn in loans under the Government’s guarantee scheme to micro, small and medium-sized enterprises and sole traders, increasing the total stock of loans approved in 2020 to nearly EUR 1.5bn. Even though lending declined in Q4 across all sectors, a y-o-y increase was registered in the stock of loans in all industries.

As expected, Q4 saw a tightening of banks’ corporate lending standards due to increased risk aversion and, less decisively, higher cost of finance. Banks do not expect requirements for corporate loans to change in Q1 2021. In addition to small and medium-sized enterprises, large companies are also likely to spur increased credit demand, which will remain driven by the need to secure liquidity and restructure debt.

Lending to households

Growth of household loans gradually decelerated throughout Q4 and ended at 11.4 percent in December, due to the expiry of the credit moratorium and last year providing a high basis for comparison. In this quarter, the stock of household loans adjusted for exchange rate effects rose by 7.8 billion dinars, or 0.6 percent. Housing loans registered the greatest increase, followed by cash loans.

In December, the NBS extended additional relief to borrowers and introduced measures designed to promote housing loans, in the form of lower deposit requirements for first-time home buyers and eligibility of buildings at earlier stages of completion for loan financing.

The share of NPLs in total household loans ended the year at the September low of 3.6 percent. Housing and consumer NPLs additionally declined in Q4, with slight growth seen in non-performing credit card debt and overdrafts.

At 3.3 percent, the weighted average interest rate on new euro-indexed household loans registered no change relative to the preceding quarter, whilst the weighted average interest rate on dinar-denominated household loans rose by 0.3 percent relative to Q3 to stand at 8.6 percent.

Household lending requirements were also relaxed in Q4. Although more restrictive terms are expected in the future as banks become more risk averse given the uncertainty with the global pandemic outlook, demand is not expected to slacken.