The situation in the banking system remains good; systemic risks are elevated in the weakening economy
The strength of the economy has remained the decisive factor in the banking system’s performance this year. The increase in income has been driven by stronger lending to non-financial corporations and households and, gradually, by the rise in lending rates. Profit is up slightly on the same period last year in the wake of a significant increase in net income, and also on account of the low creation of impairments and provisions. In its latest monthly report, which contains data for the first ten months of the year, Banka Slovenije finds systemic risks to the banking system to have remained elevated amid the anticipated economic downturn.
Stock of deposits by non-banking sector remains high
After slowing for a year, year-on-year growth in deposits by the non-banking sector has been rising again since April, driven by growth in household deposits and deposits by non-financial corporations. While the main increase in household deposits came in the spring, deposits by non-financial corporations have been rising more significantly since the summer. The majority of banks remain reluctant to raise deposit rates, which is causing the share of sight deposits to further strengthen.
Higher growth in lending to non-financial corporations and households
Year-on-year growth in loans to the non-banking sector rose sharply this year, peaking in August, when it was among the highest rates in the euro area. It had slowed slightly by October, but nevertheless remained high at 11.9%. Strong lending to non-financial corporations was the largest factor in this growth. The rate was one of the highest in the euro area, and was broadly based across economic sectors and corporate sizes. Loans for financing working capital were the prevalent form.
The stock of household loans was up in year-on-year terms in October, the growth rate sharply outpacing the euro area average. The large monthly inflows of new housing loans began to decline after the first half of the year, the year-on-year rate of growth thus slowing slightly in October. Amid a gentle rising trend in monthly inflows, the stock of consumer loans has almost reached its level of one year ago.
Interest rates on new loans to the non-banking sector have begun to gradually rise this year, and by October were up significantly on loans to non-financial corporations and household loans.
Bank asset quality: NPE ratio remains low
The indicators of bank asset quality have remained favourable and mostly unchanged over the first ten months of the year, with only a small part of the portfolio seeing a deterioration. Banka Slovenije finds that despite the economic slowdown the banks are maintaining low coverage by impairments and provisions, and are actually experiencing a trend of declining coverage in the performing segment of the portfolio. The sole exception is the consumer loans portfolio, where coverage has been increasing since June.
Profit up on same period last year
The banking system’s net income this year is up a quarter on the same period last year, as a result of faster growth in net interest income, a rise in net non-interest income, and only a moderate rise in operating costs.
Pre-tax profit amounted to EUR 433 million over the first ten months of the year, up close to 8% on the same period last year, largely as a result of the low creation of impairments and provisions amid a significant increase in income. ROE meanwhile remains relatively high, and comparable to recent years.
The capital position and liquidity of the Slovenian banking system remain sound, despite a decline in certain indicators.
Publication Monthly report on bank performance, December 2022, is available here.