Risks to the banking system remain elevated going into 2021; strong impact from government emergency measures
Amid the economic adversity, the risks to financial stability remain profoundly elevated going into 2021, with Banka Slovenije highlighting income risk and credit risk in particular. Here we should reiterate that the situation might have been significantly worse without the fast and comprehensive economic policy response. Alongside the ECB monetary policy measures and additional Banka Slovenije measures, the government emergency measures are also having an impact on bank performance. By the end of January the banks had received 28,082 loan moratorium applications from borrowers. The majority of the moratoria will expire in the coming months of this year, when pressure on credit risk in the banking system is expected to rise. A total of 86 corporate loans in the total amount of EUR 71.9 million have been approved to date under the government guarantee scheme.
As we reported previously, despite the worsening epidemiological situation and the deterioration in the business conditions, the banking system generated relatively high profits over the first eleven months of 2020, although much of this was thanks to a one-off factor, namely the merger of two banks. Pre-tax profit was down less than a fifth on the previous year, but in the absence of the one-off effect would have been down fully 53.9%. The figures for December will be available in the second half of February.
Credit risk remains low, but is gradually increasing in the current situation. In the final quarter of last year non-performing exposures (NPEs) began to rise in the customer segments hit hardest by the epidemiological crisis (accommodation and food service activities, public services).
The government emergency measures are having a profound impact on NPE ratios at banks. The law that allows borrowers to apply for a loan moratorium has been in force since March of last year. The banks have received 28,082 applications from borrowers to date. By far the largest number of applications were received during the first officially declared epidemic last spring (in April and May), while the second epidemic declaration (in November) brought another bout of applications.
The majority of moratorium applications expire in the coming months, and Banka Slovenije is thus expecting most of the increase in credit risk to come during this period.
Table 1: Monthly changes in number of moratorium applications and exposure covered by applications*
Notes: A negative number for a particular month is the result of a revision to the data provided by banks, on the grounds of errors identified in reporting. *Under the Emergency Deferral of Borrowers’ Liabilities Act (ZIUOPOK).
A law facilitating corporate lending backed by a government guarantee was adopted in April. A total of 86 loans backed by a government guarantee in the amount of EUR 71.9 million have been approved to date. It should be emphasised that the banks have approved 983 applications from firms for new Covid-related liquidity loans during this period, with a total exposure of EUR 530.8 million.
Table 2: Number of applications for new Covid-related liquidity loans, and exposure
Notes: A negative number for a particular month is the result of a revision to the data provided by banks, on the grounds of errors identified in reporting. ** Under the Act on Additional Liquidity to the Economy to Mitigate the Effects of the Covid-19 Epidemic (ZDLGPE); data source: SID banka