Bank lending in Q4 2021

The National Bank of Serbia’s Department for Economic Research and Statistics produces a regular Trends in Lending report, which presents valuable insights into how lenders operate in the Serbian market. The latest edition of this report, looking at Q4 2021, was published recently and suggests lending trends are broadly in line with expectations.

Year-on-year (y-o-y) growth in lending began to accelerate gradually in Q3 2021, when total domestic lending to the non-monetary sector was higher by 6.6 percent relative to the same period of 2020. Loans additionally picked up pace in Q4 2021, with growth driven by credit to both businesses and households.

Lending to businesses

Y-o-y growth in corporate sector loans accelerated to 9.9 percent in December 2021 (from 5.1 percent in September 2021). Excluding the exchange rate effect, in Q4 2021 loans to businesses grew by RSD 58.9bn, or 4.1 percent, the largest increase in recent years and greater than the record quarterly growth seen in Q1 2020 and Q4 2018.

Working capital and liquidity loans accounted for the bulk of the growth in corporate lending (at RSD 30.8bn), supported as they were under the government’s guarantee schemes. Investment loans, other non-categorised loans, and import loans also posted increases in Q4 2021, whilst the stock of export loans declined relative to the previous quarter.

All sectors apart from agriculture registered growth in borrowing in Q4 2021, with energy, real estate operations, and manufacturing seeing the largest increases. Loans to micro-enterprises and small and medium-sized businesses accounted for more than two-thirds of all corporate lending in December 2021, with their y-o-y growth amounting to 6.8 percent. Long-term loans stood at 85.2 percent of all corporate loans in December, unchanged from September 2021.

The share of non-performing loans (NPLs) in total corporate loans amounted to 2.8 percent in Decembe 2021, 0.1 percentage points (pp) lower than in September 2021. Relative to July 2015, immediately before the Serbian Government’s NPL Reduction Strategy (Official Gazette of the Republic of Serbia No. 72 of 19 August 2015) took effect, the share of NPLs in total corporate loans was lower in Q4 2021 by 22.1 pp.

The weighted average interest rate on new dinar corporate loans stood at 3.0 percent in Q4 2021, unchanged from Q3 2021. The weighted average interest rate on new euro corporate loans increased from Q3 2021 to reach 2.5 percent.

Lending to households

Y-o-y growth of household loans again picked up in Q4 2021, reaching 10.8 percent in December 2021 (up from 9.2 percent in September 2021). Excluding the exchange rate effect, the stock of household loans increased by RSD 28.8bn, or 2.1 percent.

Housing loans accounted for the largest proportion of this increase, having seen accelerating y-o-y growth to stand at 17.4 percent in December 2021, buoyed by favourable borrowing terms, rising disposable incomes, and greater demand for real estate. Cash loans came second, followed by liquidity and working capital loans extended to sole traders. Other non-categorised loans decreased by RSD 1.5bn.

Over the course of 2021, the Serbian central bank introduced measures that extended repayment periods for housing loans by a maximum of five years and reduced the deposit for first-time home buyers from 20 to 10 percent of the loan.

New loans to households amounted to RSD 140.5bn in Q3 2021, up 6.8 percent from Q4 2020.

The share of NPLs in total household loans increased in December to 4.0 percent. In comparison to figures seen before the NPL Reduction Strategy was introduced, the share was down by 7.3 pp.

The weighted average interest rate on new dinar household loans stood at 8.3 percent. weighted average interest rate on new euro-indexed household loans stood rose by 0.1 pp relative to Q3 2021 to 3.3 percent.

Credit standards were relaxed in Q4 2021 for both dinar and euro-indexed household loans. Demand for household loans increased throughout the quarter, with banks citing rising demand for housing loans as the primary driver, followed by refinancing and developments in the real estate market. The upward trend is expected to continue in 2022 and will be supported by measures deployed by the National Bank of Serbia.

* Strategy for resolving problem loans (Official Gazette of RS No. 72 of August 19, 2015)