Milovan Kalezić • sep 22, 2023
Trends in lending, Q2 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 decelerate in Q2. Y-o-y growth in total loans to the non-monetary sector stood at 0.8 percent in June with corporate loans going down by 1.1 percent and household loans up by 2.7 percent. Total domestic receivables to the non-monetary sector continued decelerating in y-o-y terms to stand at 0.5 percent in June.
Lending to businesses
The y-o-y growth rate for corporate loans turned negative in Q2 after a prolonged spell of gradually decelerating increase. In June, the stock of corporate loans went down by 1.1 percent from a year earlier due to last year’s high base, maturing guarantee scheme loans, and tightening of monetary policies by both the NBS and the ECB. In nominal terms, the stock of corporate loans equalled RSD 1,584.5 bn in June and their share in GDP was 20.9 percent, down by 1.7pp from year-end 2022.
Corporate loans declined by RSD 1.3bn or 0.1 percent in Q2, with a drop in lending to public enterprises exceeding the rise in loans to companies. The maturing of guarantee scheme loans, approved mainly in dinars (over 60 percent), caused a decline in dinar loans, whilst FX-indexed corporate loans increased.
In terms of intended purpose, the sharpest decline in Q2 was recorded by non-categorised loans (RSD 9n), followed by liquidity and working capital loans (RSD 5.9bn) also reflecting the maturity of guarantee scheme loans. Investment loans went up by RSD 7.6bn, import loans by RSD 3.9bn, and current account overdrafts by RSD 2.1bn. Investment loans rose by 3.1 percent y-o-y in June, so making the greatest contribution to the y-o-y increase in corporate loans. The structure of corporate loans in June changed slightly relative to March, with investment loans increasing their share to 40.9 percent. Liquidity and working capital loans remained dominant at 47.1 percent, followed by other non-categorised and import loans, which accounted for 6.9 and 4 percent, respectively, of all corporate loans.
In Q2, borrowing by manufacturing and energy firms registered the greatest decline, followed by a somewhat lesser reduction for agriculture. Conversely, lending to construction sector corporates and real estate businesses saw the largest growth, followed by corporates in the trade, accommodation and transport sectors. Loans granted to micro, small and medium-sized enterprises accounted for three-fifths of total corporate loans in June and their stock was 2.9 percent lower than a year earlier.
The volume of new corporate loans in Q2 equalled RSD 277.8bn, down 5.8 percent y-o-y as a reflection of tightened financial conditions in the previous period which was necessary to restrain the inflationary pressures. In Q2 as well, the corporate sector predominantly used liquidity and working capital loans (63.8 percent), and slightly over one-half of these loans were channelled to micro, small and medium-sized enterprises. Investment loans accounted for 20.3 percent of new corporate loans in Q2 and 75.6 percent of these loans went to micro, small and medium-sized enterprises.
The degree of dinarisation of corporate receivables declined in Q2 by 1.1pp, to 17 percent in June, whilst FX-indexed receivables continued growing. The share of euro-indexed receivables and euro receivables increased by 1.1pp to 82.8 percent in June, whilst the share of USD receivables was unchanged from the beginning of the year at 0.2 percent.
In June, the share of NPLs in total corporate loans stood at 2.2 percent, or 2.6 percent if borrowing by companies is included. The share of NPLs in June ranged between 0.3 percent for firms in the energy industry and 4.4 percent for agriculture, whilst the real estate sector recorded a new low (at 2.2 percent). Relative to July 2015, immediately before the NPL Resolution Strategy first went into effect, the share of NPLs in total corporate loans went down by 22.7pp, with the most prominent decrease recorded in construction, real estate, and trade.
As the NBS and ECB continued to tighten monetary policy in Q2, interest rates on dinar and euro-indexed corporate loans were pushed further up, but the increase was less pronounced than previously. The weighted average interest rate on new dinar corporate loans went up in Q2 by 0.1pp to 6.5 percent, whilst the average interest rate on new euro and euro-indexed loans to corporates rose by an average of 0.6pp to 6.4 percent.
The results of the NBS’s July 2023 Bank Lending Survey suggest that banks slightly tightened corporate lending standards in Q2. The survey found that the cost of borrowing increased for small and medium-sized enterprises, whilst firms of all sizes saw maximum loan amounts reduced and collateral requirements made more restrictive. Companies’ demand for loans increased in Q2 less than had been expected, whilst demand in the agriculture sector grew more than anticipated.
Lending to households
The y-o-y rise in household loans decelerated further in Q2, to 2.7 percent in June (vs 4.4 percent in March). The deceleration reflects high last year’s base and lower household borrowing due to interest rate increase. In nominal terms, the stock of household loans stood at RSD 1,462.9bn in June, accounting for 47.1 percent of banks’ loan receivables from the non-monetary sector, or 19.3 percent of GDP. In Q2, household loans went up by RSD 14.9bn or 1 percent.
Cash loans which increased by RSD 10.8bn, followed by housing (RSD 1.4bn) and consumer loans (RSD 0.7bn), аs well as borrowing under transaction accounts (RSD 0.5bn). Investment loans to sole traders continued up, by RSD 1.4bn, whilst the stock of liquidity and working capital loans remained at the same level as in March.
The volume of new household loans in Q2 (RSD 138.0bn) dropped by 7.6 percent y-o-y. Cash loans made up 64.9 percent of new loans in Q2, whilst housing loans accounted for 16.3 percent of new household loans (less than in 2022, when they made up 23.5 percent of new household loans on average), as a consequence of elevated real estate prices and costs of borrowing.
The dinarisation of household borrowing rose by 0.2pp in Q2 to 53 percent in June. At the same time, the share of euro receivables edged down by 0.1pp to 46.9 percent, whilst the share of loans in Swiss francs remained unchanged (at 0.1 percent).
The share of NPLs in total household loans equalled 4.3 percent in June, 6.9pp lower than immediately before the entry into force of the NPL Resolution Strategy.
The tightening of NBS and ECB monetary policies in response to inflationary pressures has continued having a knock-on effect on the cost of household loans, which have lost pace to some extent, in common with corporate loans. The weighted average rate on new dinar household loans increased slightly relative to Q1, measuring 13.5 percent in Q2. The average interest rate on cash loans, the largest category, remained unchanged (at 14.1 percent), whilst the rate on other non-categorised loans dropped by 0.1pp to 11.1 percent, аnd rates on consumer and housing loans increased by 0.1pp each, to 2.9 and 12.4 percent, respectively. Relative to where it stood before the NBS began to tighten its monetary policy, as of June 2023 the interest rate on new dinar household loans had increased by 4.7pp.
In Q2, the weighted average rate on new euro-indexed household loans rose by 0.4pp on average, coming in at 7.2 percent. Increases were recorded for interest rates on housing loans (by 0.7pp to 6.5 percent) and other non-categorised loans (by 0.3 pp to 9.2 percent), whilst the cost of consumer loans fell by 0.1pp to 6.3 percent, аnd that of cash loans by 0.7pp to 3.6 percent. In comparison to the period immediately before the ECB embarked on a cycle of rate increases, as of June 2023 the average rate on new household loans denominated in euros was 3.5pp higher.
The July 2023 Bank Lending Survey conducted by the NBS found banks had further tightened household credit standards in Q2. The tightening mostly affected dinar consumer loans, as well as dinar cash and refinancing loans and housing loans. Household credit demand expanded mildly in Q2, with the public mostly interested in dinar cash loans, refinancing loans and FX-indexed consumer loans, whilst demand for euro-indexed housing loans contracted.