Monthly report on bank performance, May 2019

In the favourable economic environment, the situation in the banking system remains stable. In the first quarter of 2019 the balance sheet total increased by almost as much as last year. The main continuing increase is in household deposits, which account for almost half of the banking system’s total funding; the high growth in corporate deposits has been gradually slowing since the middle of last year. The banks remain focused on household lending, although growth in corporate loans also increased. Credit growth is thus continuing to raise interest income, and in the Bank of Slovenia’s assessment is one of the key factors in the banks’ future profitability.

The banking system’s balance sheet total stood at EUR 39.5 billion in March 2019, up 3.7% in year-on-year terms. It increased by EUR 706 million in the first quarter, almost as much as last year, which was a very good year. The ratio of the balance sheet total to GDP stood at 86%, still down 40 percentage points on the end of 2008. On the funding side, the main increase was again in household deposits, which account for almost half of the banking system’s total funding, while there were also increases in government deposits and deposits by other financial institutions. Corporate deposits continued to gradually decline in the first quarter of 2019, which is indicative of firms using internal resources held at banks, which amounted to EUR 6.5 billion in March, as financing for current operations and investment, alongside bank loans.

On the investment side, in contrast to the previous months liquid forms of investment declined by EUR 163 million in March 2019 (but increased by EUR 353 million overall in the first quarter), while investments in securities increased slightly. The banks are continuing to focus on household lending via housing loans and fast-growing consumer loans. The banks also increased their corporate loans by EUR 252 million in the first quarter of 2019, more than in the whole of 2018. Year-on-year growth in corporate loans had increased to 3.5% by March 2019, having averaged 2.9% in 2018.

The quality of the credit portfolio is continuing to improve: the NPE ratio declined to 3.6% in March. The quality of the household portfolio remains good, even though the banks’ exposure to households now accounts for a quarter of the total portfolio.

Figure 1: Loans to the non-banking sector, year-on-year growth, %

Source: Bank of Slovenia

The banking system generated a pre-tax profit of EUR 149.5 million over the first quarter of 2019. The banking system’s net income was down 4.6% in year-on-year terms, as a result of a decline in gross income and growth in operating costs. Despite further growth in net interest income, gross income was down 0.2% in year-on-year terms, as net non-interest income declined on account of a base effect. On the income disposal side, operating costs were up 3.6% in year-on-year terms, an above-average increase by the standards of recent years. The good operating result was also attributable to an increase in the net release of impairments and provisions. ROE stood at 13.3%, but had impairments and provisions been at the level of their long-term average, ROE would have been just a third of this figure.

Figure 2: NPE ratio by client segment, %

Source: Bank of Slovenia

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