Trends in Lending, Q4 2023

The National Bank of Serbia (NBS) has published its Q3 2023 Trends in Lending report, an in-depth assessment of bank lending, cost of borrowing by businesses and households, and the outlook for the lending market based on credit supply and demand drivers.

Lending slowed throughout 2023 under the impact of higher lending interest rates due to the tightening of European Central Bank (ECB) and NBS monetary policies. Nevertheless, December saw a rebound in lending, with the year ending in a mild y-o-y increase.

Lending to businesses

Corporate loans lost pace in 2023, registering a y-o-y contraction from May to November. In nominal terms, the stock of corporate loans stood at RSD 1,611.5bn in December, and their share in GDP amounted to 19.9 percent, down 2.6pp from end-2022. Overall, corporate loans grew by 0.9 percent in 2023.

Corporate loans rose by RSD 8.4 bn or 0.5 percent in Q4, excluding the exchange rate effect, thanks to elevated borrowing in December, with the private sector accounting for the bulk of this growth (at RSD 7bn).

Looking at the intended purposes of bank lending, growth in Q4 was led by investment loans (RSD 8.3bn), whose y-o-y growth measured 4.4 percent in December, followed by liquidity and working capital loans (at RSD 5.5bn), which recorded a mild fall in 2023 due to the maturing of guarantee scheme loans. The share of investment in total corporate loans increased to 41.9 percent (from 41.6 percent at end-Q3), and the share of liquidity and working capital loans to 46.8 percent (from 46.7 percent at end-Q3). These were followed by other non-categorised and import loans, which accounted for 6.5 and 3.8 percent, respectively, of total corporate loans.

By industry, companies operating in the real estate, construction, and transport sectors borrowed the most in Q4, followed by corporates from the manufacturing and agriculture industries. At the same time, borrowing in the trade and energy sectors declined. Owing to increased borrowing by micro and medium-sized businesses, as well as reduced liabilities of large companies, the share of loans granted to micro, small and medium-sized enterprises in total corporate loans increased to 59.1 percent in December (up from 58.3 percent in September), while their stock was 1.6 percent lower than one year ago.

The volume of new corporate loans in Q4 equalled RSD 345bn, 9 percent up on the same period in 2023. Liquidity and working capital loans remained dominant, with their y-o-y value rising by 32.1 percent. Slightly more than one-half of these loans were approved to large enterprises. Investment loans accounted for 22.9 percent of new corporate loans.

The degree of dinarisation of corporate receivables increased in Q4 by 1.1pp to 17.3 percent, driven by the increase in dinar receivables and a drop in FX-indexed ones. At the same time, the share of euro-indexed and euro-denominated receivables decreased by 1.1pp to 82.5 percent in December, while the share of USD receivables remained unchanged from the beginning of the year at 0.2 percent.

The share of non-performing loans (NPLs) in total corporate loans stood at 2.1 percent in December, or 2.4 percent if only private-sector loans are considered, a figure unchanged from September 2023. The share of NPLs in December ranged between 0.8 percent in the energy sector and 4.9 percent in agriculture, whilst the transport and real estate sectors both recorded new lows (at 2.3 and 1.8 percent, respectively). These figures suggest support introduced during the covid pandemic was adequate and timely and that bank asset quality was preserved even after these measures were phased out, as well as that the growing servicing cost of existing corporate loans has not pushed NPLs up. Relative to July 2015, before the Serbian government’s NPL Resolution Strategy was first introduced, the share of NPLs in total corporate loans went down by 22.8pp, with the most prominent decrease recorded in construction, real estate, and trade.

The results of the January 2024 NBS Bank Lending Survey showed banks mildly tightened their corporate lending standards in Q4, a trend also anticipated to continue into Q1 2024. Standards were made more restrictive for both dinar and FX-indexed loans to large enterprises but eased for small and medium-sized firms and farmers. The tightening was motivated primarily by higher costs of finance and the riskiness of the required collateral and NPLs, which reduced risk appetite.

Lending to households

Household loans grew by 1.2 percent over the course of 2023, but fell in Q4 by RSD 3.4bn, or 0.7 percent, due to the decline in the stock of housing loans and lower debt in transaction accounts. Conversely, the use of cash and consumer loans increased.

As a result, the share of cash loans, the dominant loan category, inched up to 44.7 percent in Q4 (from 44.3 percent in September), whilst the share of housing loans declined to 39.3 percent.

To relieve stress caused by rising interest rates to borrowers with housing loans, in September 2023 the NBS temporarily capped the interest rate for first-time users of variable-rate housing loans below EUR 200,000 approved before the cap came into force. For those borrowers, the nominal interest rate was fixed for a 15-month period, starting from the October instalment, whilst banks will not be allowed to claim any interest rate difference incurred as a result of the cap.

The volume of new household loans in Q4 equalled RSD 144.9bn, 9.7 percent up on the same period of 2022. Elevated real estate prices and costs of borrowing have constrained credit growth relative to one year previously.

The increase in dinar loans and a reduction in FX-indexed lending pushed up the dinarisation of household receivables in Q4 by 0.5 pp, to 54 percent in December 2023. Whilst the share of receivables in Swiss francs remained unchanged, the share of euro receivables went down by 0.5pp to 45.9 percent, Close to 80 percent of all FX-denominated and FX-indexed loans were linked to EURIBOR, with the six-month rate the most commonly used metric. Around two-thirds of all dinar-denominated household loans were granted at fixed rates, whilst most variable-rate loans were linked to three-month BELIBOR.

The share of NPLs in total household loans stood at 4.4 percent in December 2023, suggesting that NBS and government measures were timely, helping avert a serious impact of the crises of the past three years on household creditworthiness.

Lastly, the findings of the January 2024 NBS bank lending survey showed that, overall, banks did not change household lending standards. Standards for dinar consumer loans were tightened, while those for dinar cash loans were eased and standards for loans for other purposes and indexation remained the same. Banks expect the easing of household credit standards in Q1 2024. By contrast, with demand for cash, consumer, and refinancing dinar-denominated loans increasing in the final quarter of 2023, banks are assuming that growth in demand is set to continue.