Banks performing well as the year draws to a close

The moderate economic growth and the continuing monetary policy measures by which high inflation is being addressed within the framework of the ECB brought an additional improvement in the performance of Slovenian banks over the first ten months of the year. The banks have passed the rise in interest rates through into lending terms for the non-banking sector, which has been a factor in this year’s stagnation in the stock of loans to non-financial corporations and the modest increase in the stock of housing loans. Following the high growth in deposits by the non-banking sector seen in previous years, the rate has slowed this year, but the stock remains at record levels. In the wake of the rise in interest rates on deposits, the share of fixed-term deposits is only increasing slowly, and remains lower than the euro area average. This is a factor in this year’s pronounced increase in net interest income, which is being reflected in a sharp increase in gross income in the banking system. Amid low net impairments and provisions, pre-tax profit over the first ten months of the year was well up on the figure from the whole of 2022.

The maturity breakdown of deposits is changing only slowly.

Deposits by the non-banking sector remain a robust source of bank funding, and their maturity breakdown is slowly shifting in the direction of an increase in fixed-term deposits. After gradually slowing for one year, year-on-year growth in deposits by the non-banking sector stood at 4.4% in October, similar to March of last year, the lowest rate of the last five years. After the majority of Slovenian banks slightly raised their interest rates on fixed-term deposits, this encouraged savers to fix their deposits for longer periods. The differences in interest rates did not lead to major switching of deposits between banks. The share of fixed-term deposits by households and non-financial corporations nevertheless remains small, but could increase in the future.

Stock of loans to the non-banking sector declines over the last year

Loans to the non-banking sector have declined over the last year. The largest factors were a decline in the stock of loans to other financial institutions in the first quarter of this year, and a decline in the stock of loans to the government sector and to non-residents. The stock of loans to non-financial corporations stagnated, as year-on-year growth in loans for working capital slowed sharply.

By contrast, the stock of household loans has continued to increase. Consumer loans accounted for the majority of the increase, while the stock of housing loans increased just slightly.

Bank asset quality indicators remain favourable

The increased debt servicing burden, particularly in the non-financial corporations segment, and the damage caused by August’s floods have not been reflected to date in any deterioration in the quality of the banking system’s portfolio. NPE ratios are being maintained at record low levels.

Profit is well up on last year

The banking system’s pre-tax profit over the first ten months of the year was up fully 115% on the same period last year. The increase in profit was driven by income, namely net interest. Net impairments and provisions were up slightly on last year, particularly in October, but were still very low relative to the income generated. Bank profitability is well in excess of its average over the preceding years.

The Slovenian banking system’s capital position remains solid. The capital ratios in the third quarter were up on the end of 2022, as a result of a decline in risk-weighted assets, and an increase in regulatory capital driven by retained earnings and smaller revaluation losses on debt securities. The banking system’s liquidity also improved.

Publication Report on bank performance with commentary, December 2023 is available here.