The Slovenian banking system has continued to perform well this year, despite numerous uncertainties. No major changes are evident in the performance of the banking system: deposits by the non-banking sector are continuing to increase sharply, most notably household deposits, but deposits by non-financial corporations also strengthened amid the prevailing uncertainty. The banks are continuing to lend to households in particular, the stocks of housing loans and consumer loans both having increased, but recent months have also seen lending to non-financial corporations in certain sectors strengthen. Although profit is down slightly on last year, it remains above its long-term average. The assessment of the general risk level remains unchanged, while resilience to risks remains high and stable.
Household deposits have strengthened
The latest issue of Banka Slovenije’s Report on Bank Performance with Commentary finds deposits by the non-banking sector to have strengthened sharply, reaching EUR 43.5 billion by October. The increase of EUR 1.2 billion in household deposits over the first ten months of this year was almost three times the size of that in the same period last year. Alongside annual leave payments and dividends paid by certain firms, the increase was also driven over the spring by wage growth and weaker consumption. Our expectation is for household deposits to have increased further by the end of the year, thanks to corporate performance bonuses, winter leave payments, and the winter bonus for pensioners. Amid the ongoing fall in interest rates on deposits, savers continue to have little appetite for fixing their savings, which drove the share of total deposits by the non-banking sector accounted for by sight deposits higher again to 81%.
In contrast to household deposits, deposits by non-financial corporations declined over the first half of the year, before the monthly inflows strengthened between July and October. Banka Slovenije’s assessment is that this is attributable to firms remaining more cautious when deciding on new investment, in light of the uncertain geopolitical and economic situation.
Household lending continues to increase
Growth in loans to the non-banking sector over the first ten months of this year was higher than in the same period last year: the year-on-year rate stood at 7.0% (European average: 2.7%). The most important segment remains household lending, where the monthly volumes of new housing loans and new consumer loans both increased over the first ten months of the year. In addition to the relatively favourable economic situation with high employment and real wage growth, household lending was also significantly correlated with the level and dynamics of interest rates.
Loans to non-financial corporations are up slightly in year-on-year terms in recent months, the loan stock in this segment having stagnated in the first half of the year. The main increases in lending in recent months have been seen in the sectors of water supply, sewerage, waste management and remediation activities, and financial and insurance activities.
The quality of bank assets remains stable. The rise in the NPE ratio in the total portfolio at banks from 1.0% to 1.2% was driven almost exclusively by a few firms engaged in the manufacture of basic metals and the manufacture of motor vehicles, trailers and semi-trailers. The NPE ratios in other segments of the non-financial corporations portfolio and in the household portfolio remained stable.
Bank profit remains above its long-term average
Pre-tax profit over the first ten months of the year was down on the same period last year, but remains above its average level. This year’s decline in profit is attributable to a decline in net income as a result of lower net interest income, and an increase in net impairments and provisions. These have increased in the second half of the year, but still account for a relatively small 5% share of the disposal of gross income. The solvency and liquidity of the banking system also remain sound.
Publication Report on the bank performance with commentary undergoing translation.