Bank lending in Q2 2022

Aleksa Lukić • okt 27, 2022

The National Bank of Serbia produces regularTrends in Lending reports that detail the state of the domestic lending market. These quarterly publications provide insight into bank lending, cost of borrowing by businesses and households, and the outlook for the lending market based on credit supply and demand drivers.

The report draws on data collected by the Serbian central bank in its voluntary survey of lenders administered since 2014, as well as on the findings of a survey developed by the European Investment Bank in the context of the Vienna Initiative 2 to monitor deleveraging by cross-border banking groups and the resultant constraints on lending activity.

According to the report, year-on-year (y-o-y) growth in lending to the non-monetary sector accelerated further in June relative to March to reach 13.1 percent. Lending growth in Serbia, which was again among the highest in the region this June, was still largely propped up by corporate rather than by household lending. Additionally, driven by the expansion in lending, total domestic bank receivables to the non-monetary sector (which, in addition to loan receivables, also include receivables in respect of investment in securities, interest and fees and other receivables) also picked up their y-o-y growth to 12.9 percent in June.

1. Lending to businesses

Corporate loans continued to record two-digit y-o-y growth rates in Q2, and their y-o-y growth in June (15.8 percent) was higher than in March (13.9 percent). In nominal terms, corporate loans stood at RSD 1,604.7 bn in June, and their share in GDP at 24.1 percent, up by 0.2 pp from end-2021.

In terms of purpose, liquidity and working capital loans recorded the highest growth (RSD 18.7 bn), followed by other non-categorised loans (RSD 15.1 bn) and investment loans (RSD 11.7 bn). In addition, import loans also went up (RSD 2.0 bn), as did transaction account overdrafts (RSD 0.7 bn). Liquidity and working capital loans, and investment loans still accounted for the bulk of corporate loans, though their shares in June (47.7 and 39.3 percent, respectively) were somewhat lower than in March.

Sector-wise, in Q2 banks mostly lent to trade companies, in contrast to Q1, when the bulk of borrowing was done by businesses in the energy sector. Trade was followed by manufacturing, transport, and real estate sectors, while companies in construction, agriculture, and trade were the only ones to reduce their loan liabilities. Loans approved to micro, small, and medium-sized enterprises (MSMEs) made up slightly more than three-fifths of total corporate loans in June, and their y-o-y growth equalled 3.6 percent.

The volume of new corporate loans in Q2 equalled RSD 294.9 bn, close to where it had stood in the same period last year (up by 1.4 percent). In Q2, companies continued to predominantly use liquidity and working capital loans (55.4 percent), with almost three-fifths of these loans being channelled to MSMEs. Investment loans accounted for 25.9 percent of new corporate loans in Q2, with 56.6 percent of this category being absorbed by the MSME segment of the market.

The NPL share in total corporate loans edged down by 0.2 pp in Q2 to reach a new historic low of 2.2 percent in June. The share of NPLs in total loans extended to companies also contracted by 0.2 pp to 2.4 percent in June. Compared to March, this indicator decreased across all sectors except agriculture, with manufacturing, construction, and real estate indicators dropping to their new record lows. Compared to 2015, when the government’s NPL Resolution Strategy first took effect, the most pronounced decrease in NPLs was recorded in construction, real estate, and trade.

The weighted average interest rate on new corporate euro and euro-indexed loans increased by 0.2 pp to 2.6 percent in Q2. Тhis increase was driven by the rise in the average interest rate on liquidity and working capital loans (by 0.3 pp to 2.5 percent) and non-categorised euro-indexed loans (up 0.1 pp to 2.2 percent), while interest rates on investment loans (2.9 percent) and import loans (1.8 percent) remained unchanged. The average cost of borrowing ranged from 2.2 percent for large corporations to 3.7 percent for micro-enterprises.

2. Lending to households

In Q2, y-o-y growth of household loans decelerated to 9.8 percent in June, down from 10.7 percent in March, as debtors affected by the Covid pandemic took advantage of the government’s loan repayment relief measures. In nominal terms, the stock of household loans in June stood at RSD 1,425.6 bn, or 46.2 percent of banks’ credit receivables from the non-monetary sector and 21.4 percent of GDP.

Discounting the exchange rate effect, household loans gained 2.7 percent or RSD 38.4 bn in Q2, less than recorded in the same period last year. This growth was driven mainly by cash and housing loans, which rose by almost equal amounts (RSD 16.8 bn and 16.6 bn, respectively). These two categories dominated household loans. Other types of household borrowing saw minor changes. Liquidity and working capital loans extended to sole traders rose by RSD 3.2 bn, with investment loans increasing by RSD 1 bn.

The amount of new household loans in Q2 (RSD 149.3 bn) was similar (down by 1.6 percent) to the Q2 2021 level. Cash loans made up 60.5 percent of new household loans in Q2, with housing loans accounting for 21.7 percent. At 32.5 bn, the volume of new housing loans in Q2 testifies to the stable growth in household demand for real estate. With dinar and FX-indexed receivables growing at an equal pace in Q2, the dinarisation of the stock of household receivables remained unchanged from March, standing at 54.4 percent in June. The shares of loans denominated in euros (45.5 percent) and Swiss francs (0.1 percent) did not change relative to March either.

The share of NPLs in total household loans stood at 4.2 percent in June, a figure unchanged from March. Favourable NPL indicators suggest that timely measures deployed by the central bank and the government helped mitigate the impact of the pandemic on household creditworthiness. The NPL share in Q2 declined for housing loans (by 0.1 pp), current account overdrafts (0.3 pp), and credit cards (0.5 pp), whilst remaining unchanged for cash and consumer loans.

In Q2, households borrowed at somewhat higher rates than in Q1, but their cost of borrowing was still seen as affordable. The Q2 weighted average rate on new dinar household loans stood at 9.1 percent, up 0.6 pp from Q1. Interest rates on all types of dinar loans went up, with cash loans, the largest category, registering an increase of 0.6 pp to 9.6 percent. Rates on other non-categorised loans and housing loans went up by 0.5 pp each (to 7 and 7.6 percent, respectively), whilst rates on consumer loans increased by 0.4 pp (to 2.1 percent). The weighted average rate on new euro-indexed household loans was up by 0.2 pp in Q2 to 3.6 percent. The average rates on housing and cash loans increased by 0.2 pp and 0.4 pp to 2.8 and 3.3 percent, respectively. Conversely, a 0.2 pp reduction was observed in average rates on consumer borrowing (4.3 percent) and other non- categorised loans (6.3 percent).

According to the results of the central bank’s July lending survey, after a year of easing, in Q2 banks slightly tightened their household credit standards. The tightening primarily concerned dinar cash loans, refinancing loans, and FX-indexed housing loans. The new restrictions were driven mainly by higher financing costs and uncertainty with the overall economic situation and the consequently diminished risk propensity, as well as expectations of NPL growth. By contrast, competition in the banking sector and the situation in the real estate market worked in the opposite direction. Lenders expect requirements to further tighten in Q3 as well, on the back of the same factors as in Q2 coupled with competition between banks.