The data for the first four months of this year shows the Slovenian banking system to be performing well amid numerous uncertainties in the international environment and weaker economic indicators. No major changes can be discerned in the performance of the banking system: household deposits are continuing to increase, and banks are continuing to lend mainly to households, while lending to non-financial corporations remains virtually unchanged in year-on-year terms. The banking system’s pre-tax profit is down a quarter on last year’s record highs. This is primarily attributable to a decline in net interest income, driven by the fall in the ECB’s key interest rates, while net non-interest income is recording moderate growth. Given the uncertainty in the international environment, the assessment of the general level of risk to the banking system is being gradually raised, but the banking system’s resilience remains high.
Household deposits remain the main source of funding for the banks.
Banka Slovenije’s latest issue of the Report on bank performance with commentary finds that deposits by the non-banking sector increased over the first four months of this year, driven primarily by the inflow of household deposits. The increase in household deposits was larger than in the same period last year. Some savers however decided to direct their savings into purchases of government bonds aimed at the public, which was reflected in the stock of deposits. In the wake of a further fall in interest rates on deposits, savers have significantly less motivation to fix their savings, which meant that there was no significant change in the average maturity of deposits, and sight deposits continue to account for the vast majority.
Deposits by non-financial corporations declined over the first four months of this year, which is normal for this time of year. Firms are paying dividends to their owners, some are repaying loans, while labour costs also rise in the spring on account of payments of leave allowance to employees for their annual leave.
Household lending is strengthening
Lending to the non-banking sector over the first four months of this year increased by more than in the same period last year, and was up 7.4% in year-on-year terms in April. Lower interest rates are seeing household lending strengthen: in April it was up 6.5% in year-on-year terms (1.7% in the euro area overall), with housing loans and consumer loans alike increasing. With employment high and wages growing in real terms, household lending was also significantly correlated with the level and dynamics of the fixed interest rates that prevail in this segment. According to surveys, banks are expecting demand for loans of both types to increase further over the next three months compared with the previous three-month period.
The uncertain situation and the reliance of non-financial corporations on other sources of financing are being reflected in modest growth in bank lending to non-financial corporations. Loans to non-financial corporations increased slightly over the first four months of this year, but remained virtually unchanged in year-on-year terms, with growth below the euro area average. According to surveys, banks are expecting demand for loans or credit lines over the next three months to increase relative to the previous three months.
Bank asset quality remains stable
The quality of bank assets remains stable, with minor deteriorations in specific parts of the portfolio. The NPE ratio remained at 1.0% in the total portfolio in April, but stood at 2.0% in the non-financial corporations portfolio, up from 1.8% in December. The stock of non-performing consumer loans increased, but the NPE ratio remained stable as the total stock of consumer loans expanded rapidly, while the NPE ratio in the housing loans portfolio declined.
Banks are seeing a decline in net interest income on account of lower interest rates, while net non-interest income is recording moderate growth. The anticipated decline in gross and net income this year has also been reflected in a decline in pre-tax profit, which over the first four months of the year was down almost a fifth on the same period last year.
Publication Report on bank performance with commentary undergoing translation.