Trends in lending, Q1 2023

The National Bank of Serbia (NBS) publishes quarterly reports that provide 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.

Year-on-year (y-o-y), bank lending to the non-monetary sector continued to slow down: excluding the exchange rate effect, total lending to this sector decelerated y-o-y to 3.7 percent in March, with corporate loan growth slowing to 2 percent and that of household loans to 4.4 percent. These developments were driven by last year’s high base, maturing guarantee scheme loans, and rising interest rates against a backdrop of restrictive monetary policies pursued by the NBS and the European Central Bank (ECB).

Lending to businesses

Year-on-year growth in corporate loans continued to lose pace in Q1, standing at 2 percent in March (down from 7.1 percent in December 2022) and reflecting the high 2022 base, maturing guarantee scheme loans, and monetary policy tightening by the NBS and ECB. The nominal stock of corporate loans stood at RSD 1,586.5 bn in March, amounting to 21.7 percent of GDP, down 0.9 pp compared to end-2022.

In Q1, corporate loans decreased by RSD 12.5 bn or 0.8 percent, excluding the exchange rate effect. Due to the maturing of guarantee scheme loans, most of which (over 60 percent) are denominated in dinars, dinar loans recorded a decrease. Loan receivables from corporates went down, whilst loans to public enterprises increased.

In terms of purpose, investment loans shrank the most (by RSD 6.5 bn) in Q1, followed by liquidity and working capital loans, as well as non-categorised loans, which decreased by RSD 3.6 bn each. At the same time, current account overdrafts fell by RSD 1.5 bn, whilst only import loans went up, by RSD 2.6 bn. The structure of corporate loans in March changed only slightly relative to end-2022 and remained dominated by liquidity and working capital loans, as well as investment lending, which accounted for 47.4 and 40.4 percent of the total, respectively. Other non-categorised and import loans made up 7.5 and 3.8 percent of corporate lending, respectively.

Borrowing decreased in most sectors in Q1, with companies in manufacturing, agriculture, and transport taking on less debt in particular. On the other hand, only energy companies increased their borrowing.

The volume of new corporate loans in Q1 equalled RSD 238.8 bn, down by 7.7 percent y-o-y, reflecting the tightening in financial conditions, a measure necessary to curb inflationary pressures. Over one-half of all liquidity and working capital loans were channelled to micro, small, and medium-sized enterprises. Investment loans accounted for 23.3 percent of new corporate borrowing, with over 80 percent of these funds absorbed by micro, small, and medium-sized firms.

The degree of dinarisation of corporate receivables decreased in Q1 by 1.3 pp to 18.1 percent in March, as dinar receivables partly contracted due to the maturing of guarantee scheme loans, predominantly denominated in dinars, whilst FX-indexed receivables went up. At the same time, the share of euro-indexed and euro-denominated receivables edged up by 1.3 pp to 81.7 percent in March, whilst the share of dollar receivables (0.2 percent) remained unchanged compared to end-2022.

The share of NPLs in total corporate loans in March dropped to a historic minimum of 2.0 percent, down by 0.1 pp compared to end-2022. This share recorded a new low in the real estate sector, remained unchanged in manufacturing, trade, and construction, and increased mildly in transport and agriculture.

Continued monetary policy tightening by the NBS and ECB in Q1 led to further growth of interest rates on dinar and euro-indexed corporate loans. Interest rates on all loan categories went up, regardless of the company size. Interest rates on working capital and investment loans increased (by 1.0 pp to 8.3 percent and by 0.9 pp to 8.4 percent, respectively), whilst the cost of other non-categorised loans (3.25 percent) was somewhat lower than in Q4 2022. Average interest rates in Q1 ranged between 4.7 percent for large corporates and 9.6 percent for micro-enterprises. Relative to September 2021, when the NBS began making its monetary policy more restrictive NBS, the rate on new dinar corporate loans rose by 3.2 pp to March 2023.

Lending to households

The y-o-y rise in household loans decelerated further in Q1 to 4.4 percent in March, down from 6.3 percent at end-2022. This was partly the result of dampened loan demand amid rising interest rates and the effects of last year’s high base. In nominal terms, the stock of household loans stood at RSD 1,448.3 bn in March, accounting for 46.8 percent of banks’ loan receivables from the non-monetary sector and 19.8 percent of GDP.

In Q1, household loans decreased by RSD 0.8 bn or 0.1 percent. Non-categorised loans shrank (by RSD 1.7 bn), as did cash loans (by RSD 0.6 bn) and consumer loans (by RSD 0.1 bn). In contrast, housing loans grew by RSD 1.4 bn, with their y-o-y growth standing at 8 percent in March 2023. Overdrafts were also on the increase (by RSD 1.3 bn). These trends led to the share of housing loans in the total stock of household loans to edge up by 0.1 pp in Q1 to 40.4 percent in March, whilst the share of cash loans (43.7 percent) remained the same as at end-2022. At the same time, investment loans to sole traders continued growing, by RSD 1.6 bn, whilst liquidity and working capital loans fell by RSD 2.8 bn.

The volume of new household loans in Q1 (RSD 120.0 bn) was 6.1 percent lower than in Q1 2022. Cash loans made up 60.3 percent and housing loans accounted for 19.3 percent of new household lending in Q1.

The rise in FX-indexed receivables and the decline in dinar receivables in Q1 reduced the dinarisation rate of household receivables by 0.3 pp to 52.8 percent in March. At the same time, the share of euro receivables went up by 0.2 pp to 47 percent, whilst the share of receivables in Swiss francs (0.1 percent) remained unchanged.

The share of NPLs in total household loans edged up 0.1 pp from end-2022, measuring 4.1 percent in March. Relative to end-2022, the share of NPLs in March was unchanged for housing loans, edged down 0.5 pp for current account overdrafts, and, lastly, grew by 0.2 pp for credit cards, 0.3 pp for cash, and 0.6 pp for consumer loans.

The weighted average rate on new dinar household loans increased in Q1 by an average of 1.5 pp to 13.4 percent. Interest rates on almost all types of dinar loans rose, with the rate on cash loans, the commonest type, went up by 1.6 pp to 14.1 percent. The interest rate on housing loans rose similarly (by 1.5 pp to 12.4 percent), whilst the rate on other non-categorised loans went up by 0.9 pp to 11.2 percent. Only the rate on consumer loans went down, by 0.1 pp to 2.8 percent.

The weighted average rate on new euro-indexed household loans went up by 1.3 pp on average in Q1 to 6.8 percent. Rates grew across the board for all types of loans, with housing and consumer loans seeing increases by 1.1 pp to 5.8 percent and 6.4 percent, respectively. The average cost of other non-categorised loans went up by 1.2 pp to 8.9 percent, whilst that of cash loans grew by 1.4 pp to 4.3 percent.

According to the NBS April 2023 Bank Lending Survey, banks further tightened both corporate and household credit standards, with lending policies becoming more restrictive equally for dinar and FX-indexed loans, and stringency increasing the most for large businesses. Contrary to expectations, in Q1 corporate demand for loans tailed off, whilst interest in borrowing by farmers continued unabated.

In the household lending sector, credit tightening primarily affected dinar and refinancing loans. According to the April 2023 Bank Lending Survey, household demand for lending fell in Q1, which affected both euro-indexed and dinar loans. Banks believe the property market was the key factor behind this loss of demand as real estate prices have remained high.