Business conditions remain good for banks this year

This year has seen a continuation of conditions conducive to good performance by the banks. The moderate economic activity, which is expected to strengthen over the following quarters, and the high level of ECB interest rates are the major factors in the banks’ continuing high profitability. Deposits by the non-banking sector remain the main source of bank funding, and the stock remains at high levels, despite the banks opting overall not to raise deposit interest rates. The stock of loans to the non-banking sector is recording modest growth, with household loans increasing in particular. The new Report on bank performance with commentary, which includes data to April of this year, finds that the quality of the credit portfolio remains good, with record low NPE ratios.

Fixing of household savings increasing only slowly

Similarly to the same period last year, the stock of deposits by the non-banking sector declined slightly over the first four months of this year, but remains at an exceptionally high level and is a stable source of funding for Slovenian banks. A number of investors opted for Slovenian government bonds when the people’s bond was issued in February, which brought a moderate decline in household deposits. The stock of deposits by non-financial corporations also declined slightly over the first four months of this year, similarly to the same period of the two previous years. Despite the broadly unchanged interest rates on deposits, and even a slight fall at certain banks, savers continued to opt in favour of fixing their savings. The share of fixed-term deposits thus increased slightly further, but sight deposits continue to make up the majority of deposits: in April they accounted for 82.4% of all household deposits, and 72.3% of all deposits by non-financial corporations.

Consumer loans drive increase in lending

The banks saw a slight increase in their stock of loans to the non-banking sector, households in particular, over the first four months of the year. Current lending was relatively weak, but year-on-year growth in loans to the non-banking sector stood at 0.7%, slightly outpacing the rate of 0.5% in the euro area overall. The largest increase over the first four months of the year was in the stock of household loans, the majority of which was driven by consumer loans, alongside a slight increase in housing loans. There was also a slight increase in loans to non-financial corporations and other financial institutions, while loans to non-residents and the government sector declined.

Banks profits up on same period last year

Pre-tax profit over the first four months of the year was up more than a half (54.1%) on the same period last year. The increase in profit was primarily attributable to an increase in net income, net interest in particular, while net impairments and provisions remain small, accounting for just 2% of the disposal of gross income. Bank profitability is only down slightly on last year’s record level, and remains well above its average level.

The Slovenian banking system’s capital position remains solid. The total capital ratio strengthened further to end the first quarter up on its value at the end of last year. The banking system’s good liquidity also improved slightly further.

Publication Report on bank performance with commentary undergoing translation.