Trends in lending, Q4 2022

In March 2023, the National Bank of Serbia published its last report on trends in lending covering Q4 2022, providing detailed information about bank lending, cost of borrowing by businesses and households, and the outlook for the lending market based on credit supply and demand drivers.

In 2022, bank lending to the non-monetary sector increased by 7.3 percent, or 212.1 bn dinars. Year-on-year lending growth slowed in December relative to September, as did total domestic bank lending to the non-monetary sector.

In keeping with past trends, lending in 2022 remained driven more by corporate than by household lending (3.7 pp vs. 2.9 pp).

1. Lending to businesses

Year-on-year corporate loan growth declined in Q4 to 7.1 percent in December relative to 14 percent in September. Corporate loans declined in Q4 by 35.1 bn dinars, or 2.1 percent, with dinar receivables declining more than FX-indexed ones. A major portion of the decline concerned lending to private companies rather than public enterprises, as well as other non-categorised loans. Nevertheless, working capital loans continued to account for the greatest share of lending to businesses.

In addition to liquidity and other non-categorised loans, transaction account overdrafts also declined (by 2.9 bn dinars), whilst investment loans increased.

Q4 saw reduced borrowing by enterprises in the energy, trade, and manufacturing sectors, while a moderate increase was recorded for transportation, education, and healthcare. The share of long-term loans in total corporate lending amounted to 81.7 percent in December (down from 82.4 percent in September).

The volume of new corporate loans amounted to 316.4 bn dinars in Q4, down by 11.5 percent from the same period last year. Liquidity and working capital loans remained prevalent (at 52.6 percent), with micro-, small, and medium-sized enterprises accounting for more than one-half of this lending.

Significantly, the share of non-performing loans (NPLs) in total corporate lending fell to a new low in Q4, equalling 2.1 percent in December, down by 0.1 pp on September. The share of NPLs in total loans to companies declined by the same amount, to 2.3 percent in December. Relative to July 2015, just before the NPL Resolution Strategy became effective, this share has now declined by a total of 22.9 pp, with the most pronounced fall recorded for construction, real estate business and trade.

The weighted average interest rate on new dinar corporate loans increased in Q4, by 1.6 pp to 5.9 percent. Loans of all purposes have become costlier, with an increase (of 2.3 pp, to 7.4 percent) in interest rates on working capital loans, accompanied by similar growth in interest rates on investment loans (1.3 pp to 7.4 percent) and other non-categorised loans (0.5 pp to 3.3 percent).

2. Lending to households

The y-o-y rise in household loans continued decelerating in Q4, from 8.3 percent in September to 6.3 percent in December. In nominal terms, the stock of household loans stood at 1,449.3 bn dinars in December, accounting for 46.6 percent of banks’ loan receivables from the non-monetary sector and 20.4 percent of GDP.

Household loans increased by 0.2 percent or 2.9 bn dinars in Q4 due to FX-indexed loan growth. The increase was driven by housing loans, which went up by 9.9 bn dinars. In addition to these, consumer loan receivables also went up (by 0.3 bn dinars), whilst other household loan categories declined. The most striking decline, however, was registered by cash loans and transaction account debt.

At the annual level, the growth in household loans stood at 85.4 bn dinars, or 6.3 percent, driven by housing loans, which were supported by NBS measures adopted in 2020 and extended into 2022. These policies have included allowing banks to extend repayment terms by as much as five years, reducing the minimum project completion rate for housing loan eligibility, and cutting the mandatory loan deposit for first-time home buyers from 20 to 10 percent. Banks will again be permitted to extend loan repayment by up to an additional five years in 2023.

The volume of new household loans in Q4 was 5.9 percent lower than in Q4 2021. Cash loans accounted for 53.5 percent, and housing loans for 26.1 percent, of new household loans in Q4.

As with corporate loans, household lending also witnessed a drop in NPLs, in this case by 0.2 pp on September to stand at 4.0 percent in late 2022. Favourable NPL indicators suggest that NBS and Government measures were timely and helped avoid a more serious adverse impact of the crises of past three years on household creditworthiness. This share was lower by 7.3 pp relative to just before NPL Resolution Strategy took effect.

The weighted average interest rate on new dinar household loans increased by 1.2 pp on average to 11.9 percent in Q4, whereas the rate on other non-categorised loans increased by an average of 1.2 pp to 5.5 percent.

The NBS’s January Bank Lending Survey found that banks had further tightened their household lending standards in Q4, mostly under the impact of higher costs of financing and uncertainty as to the general economic situation. Dinar-denominated cash loans and refinancing loans were the most affected by this tightening, as were housing loans with an FX clause.

Banks reported household demand for loans had tailed off significantly in Q4, primarily owing to higher property prices and rising interest rates. The banking sector expected demand for loans to continue its downward path in Q1 2023.