Bank lending in Q1 2021

The Q1 2021 Trends in Lending Report published by the National Bank of Serbia (NBS) suggests lending continued its upward trend in the first quarter of the year. However, given the high base for comparison registered in early 2020 and larger amounts becoming due in the wake of the second loan repayment moratorium, growth of total domestic lending slowed in Q1 2021 to an average of 8,7% percent year-on-year (y-o-y).

Lending to businesses

Growth of corporate was depressed due to the significant quantity of previously extended finance maturing, with y-o-y increase here amounting to 4.9 percent in Q1 (as against 9.1 percent in December 2020). In Q1, once exchange rate effects are excluded, corporate loans rose by 8.4 billion dinars, or 0.6 percent.

This growth was driven exclusively by dinar-denominated loans, in particular the disbursement of 24.9 billion dinars in loans under the Guarantee Scheme in Q1. The maturities of these loans were slightly trimmed, with long-term loans accounting to 86.0 percent of all corporate borrowing in March, 0.9 percentage points (pp) lower than in late 2020.

At 8 billion dinars, investment loans registered the highest growth in Q1 2021, with increases also recorded for working capital loans (currently the largest group) and liquidity loans (2.8 billion dinars). Businesses in the transport, accommodation, and construction sector accounted for the bulk of corporate borrowing.

Non-performing loans stood at 3.1 percent of all loans in Q1 2021, unchanged from year-end 2020, and lower by 21.9pp relative to July 2015 (immediately before the government’s NPL Resolution Strategy* was first introduced). NPL coverage has remained high, with allowances for impairment of total loans standing at 91.2 percent in March, whilst NPL impairments amounted to 58.8 percent.

The weighted average interest rate on new dinar loans to businesses fell from 3.3 percent in Q4 2020 to 2.8 percent in Q1 2021, unlike the interest rate on euro-indexed loans, which declined by only 0.3pp.

Lending to households

In March, the y-o-y growth of household loans (at 11.5 percent) was similar to that seen in December 2020. Discounting exchange rate effects, in Q1 2021 household loans rose by 22.5 billion dinars, or 1.8 percent. Nearly three-quarters of this growth was attributable to housing loans.

In 2020, the NBS introduced several measures that contributed to the favourable performance of household loans in Q1 2021. The volume of new household loans in Q1 amounted to 126.2 billion dinars, an increase of 22.1 percent on Q1 2020. Banks were allowed to extend housing loan repayment periods by five years, whilst the minimum deposit required of first-time home buyers was cut from 20 to 10 percent and the completion rate for homes eligible for loan finance also reduced.

The share of NPLs in total household loans stood at 4.1 percent in March, 0.4pp more than at year-end 2020. In Q1 2021, this share remained unchanged for housing loans and fell for non-categorised lending, whereas other categories of loans saw an increase of 0.4pp each.

The weighted average interest rate on new euro-indexed loans household loans was 3.2 percent in Q1 2021, 0.1pp less than in the preceding quarter.

Credit standards remained unchanged in this quarter in spite of expectations they would be tightened. Following heightened restrictions, these requirements are expected to be relaxed somewhat in the upcoming period, mostly under the impact of a more favourable outlook in the real estate market and lower risk aversion.

* Non-Performing Loan Resolution Strategy (Official Gazette of the Republic of Serbia, No. 72 of 19 August 2015)