A favorable economic situation reflected in the banking system

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22/12/2021 / Press release

The economic situation remains very favorable at the end of the year, and this is also reflected in the Slovenian banking system. Banks increased their lending activity: the year-on-year growth of housing loans accelerated in particular, while the growth of corporate loans also accelerated under the influence of mainly one-off factors.
Pre-tax income remains relatively high in the banking system (at 402 million euros over the first ten months of the year), as banks have continued to depreciate and provision. According to the Monthly Banking Performance Report, the long-term sustainability of profitability at these levels is therefore questionable, given the continued decline in net interest income and stagnant income.

Pronounced growth in real estate loans

lend to the non-banking sector started to increase year-on-year in the second quarter of 2021, with the rate reaching 4.5% in October. Become thin household loan reached 3.8% in October and was driven mainly by growth in home loans. The year-on-year growth in housing loans has accelerated sharply in recent months and reached 8.1% in October, while the year-on-year decline in consumer loans has stabilized in recent months (it stood at 6.2% in October).

Annual growth in loans to non-financial corporations firmed to 5.1% in October, reflecting last year’s relatively weak base and large loans to two companies (the rate would have been 1.8% had it not been for of these two factors). The largest contributions to overall growth came from loans for fixed assets and loans for working capital. The fastest growing sectors are information and communication, electricity and water supply, and construction. Loans to the wholesale and retail sector also increased after more than a year of declines, while outstanding loans to the transportation and warehousing sector continued to contract year-on-year.

After improving in the first half of 2021, system-level portfolio quality indicators have remained broadly unchanged in recent months. The share of exposures with increased credit risk is nevertheless increasing again in some sectors, notably in services. Certain segments of the household portfolio also experienced a deterioration in the indicators.

Figure: Loans to the non-bank sector

Source: Banka Slovenia

Household deposits remain high, despite slowing growth

The improving economic situation also led to a slowdown in the growth of deposits from households and deposits from non-financial corporations, most likely due to increased financing of deferred investment and new investment. After a long period of increase, household deposits fell by 132 million euros between August and October, even if their overall increase this year is still significantly higher than that of deposits from non-financial corporations.

The banking system recorded a slight improvement in its income performance in September and October compared to the summer, although the net income of the Slovenian banking system is still stagnating. Net interest income continues to fall, although the year-on-year decline is slowing amid lending recovery, and stood at 3.3% in October. The net interest margin is also down and stands at 1.42% over the last 12 months.

High profits generated by the net reversal of impairments and provisions

Pre-tax income remained high and amounted to 402 million euros over the first ten months of the year, while pre-tax ROE was 9.9%. The fact that 11 of the 16 Slovenian banks recorded a net reversal of impairments and provisions is a major factor in the persistently high profitability. In recent years, Slovenia has often been one of the few countries in the EU where the banking system has experienced a net recovery of write-downs.

Future profitability will largely depend on the stability of the evolution of income from the banking system, whereas in the short term it will depend more on the evolution of net depreciations and provisions. Given the continued year-over-year decline in net interest income and flat revenue, the long-term sustainability of profitability at current levels remains questionable.

Publication in translation.

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