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Monthly information on bank performance, October 2017

10/10/2017 / Press release

The Governing Board of the Bank of Slovenia has discussed the October 2017 Monthly information on bank performance*, which covers bank performance until the end of August 2017.

The banking system’s total assets stood at EUR 37.3 billion in August, up 2.1% in year-on-year terms. The figure is up EUR 1 billion on September of last year, when it reached its lowest level since 2008, and has recorded positive year-on-year growth since March of this year. On the asset side, growth in lending to the non-banking sector is increasing and financial assets are declining, while on the liability side there has been a continuation of debt repayments on wholesale markets and an increase in deposits by the non-banking sector. Growth in deposits remains solid, at 5.2% in year-on-year terms in August, and they accounted for 72% of the banks’ total funding. The proportion of sight deposits is increasing: in August they accounted for almost 68% of total deposits by the non-banking sector. The banks have large holdings of liquid assets, part of which could be redirected into loans in the future.

Growth in loans to the non-banking sector is strengthening: the year-on-year rate increased to 5.1% in August. Loans to households and non-financial corporations (NFCs) have increased by approximately EUR 0.6 billion this year, where the increase in loans to NFCs was just half of the increase in loans to households. Despite the relatively small monthly increases, growth in loans to NFCs is rising, and reached 7.5% in year-on-year terms in August, partly as a result of a base effect, loans to NFCs having contracted last year. According to survey data, corporate demand for loans is increasing, whether loans for investment or loans for current operations. The portion of demand for loans that is not realised in the conclusion of a loan agreement remains relatively high, partly as a result of client creditworthiness, and partly as a result of loan applicants’ high expectations of more favourable terms.
Corporate borrowing in the rest of the world has slowed over the last two years, and in certain sectors the decline in foreign financing has been reflected in positive growth in borrowing at domestic banks. However, given the high stock of financing in the rest of the world reached (it has reached 80% of the stock of corporate loans at domestic banks in value terms), it is difficult to expect firms under majority foreign ownership that have already put in place direct and indirect financing via their (foreign) owners to reorient to domestic banks.

The trend of increasing growth in loans to households has continued, the year-on-year rate reaching 7.5% in August. Growth in consumer loans continues to strengthen, reaching 13% in year-on-year terms in August, while growth in housing loans has remained slightly above 5% for almost the entire year, and stood at 5.2% in August. Despite the relatively high growth in bank lending, the indebtedness of Slovenian households remains low. Year-on-year growth in residential real estate prices reached 8.3% in the second quarter. Given the rise in the number of issued building permits and sales of land for construction, the gap between supply and demand in the housing market can be expected to narrow in the future.

The trend of improvement in the quality of the credit portfolio is continuing. The NPE ratio declined by 1.3 percentage points over the first eight months of the year to 7.2% in August, while the stock of NPEs contracted by EUR 0.5 billion over the same period to EUR 3 billion. The improvement in the credit portfolio is also evident in the corporate segment, which accounts for two-thirds of the banking system’s NPEs. The NPE ratio for the corporate segment stood at 14.6%, down 2.2 percentage points on December 2016. Asset quality in the household segment remains favourable, with an NPE ratio of 3.1%.

The banks generated a pre-tax profit of EUR 341 million over the first eight months of the year. Gross income during this period was down 4.5% in year-on-year terms. Interest income and interest expenses were both down on the same period last year. However, the decline in both has reduced in recent months. The slightly more favourable developments in the banking system’s net interest income reflect the banks’ increased lending activity and a funding structure that is highly favourable in cost terms. The contraction in net interest income came to an end in August, a reflection of increased credit activity and the banks’ increased focus on generating higher non-interest income. The banks released impairments and provisions in the amount of EUR 32 million over the first eight months of the year, significantly more than in the same period last year. Operating costs remain comparable to the same period last year.

The banking system’s capital adequacy declined slightly in the second quarter of 2017. In the wake of growth in lending to the non-banking sector, there was a larger increase in capital requirements than in capital. Capital adequacy nevertheless remains at a favourable level. At the end of June the total capital ratio stood at 20.5% on an individual basis, and 18.7% on a consolidated basis.

The surplus in the Slovenian banking system’s current liquidity remains high. The first-bucket liquidity ratio has recently declined slightly, but remains at a solid level. Secondary liquidity increased to 20% of total assets, as the concentration of Slovenian government securities in secondary liquidity continued to decline.