Monthly report on bank performance, April 2019

The Bank of Slovenia finds that the situation in the banking system remains stable, in the context of a favourable economic environment. Household lending remains strong, consumer loans in particular, while corporate lending remains modest. This is partly being reflected in low growth in the banks’ net interest income. The banks have remained profitable in the early part of this year, while the quality of the credit portfolio has improved again. The Bank of Slovenia’s assessment is that generating stable income remains one of the key challenges facing the banking system over the medium term.

The banking system’s balance sheet total stood at EUR 39 billion in January, up 2.5% in year-on-year terms. Deposits by the non-banking sector are increasing by more than loans to the non-banking sector. Furthermore the Bank of Slovenia finds that maturity mismatch between assets and liabilities in the banking system is still increasing. This is related to the increase in sight deposits by the non-banking sector and the simultaneous increase in loans to the non-banking sector, which are predominantly long-term in nature.

On the funding side, there was again an increase in household deposits, while deposits by non-financial corporations and the banks’ liabilities on wholesale markets declined. The extremely low deposit interest rates mean that sight deposits by the non-banking sector are continuing to increase. On the asset side of the balance sheet, after slowing in December year-on-year growth in loans to the non-banking sector remained unchanged in January at 3.3%. Growth in corporate loans remains low, despite firms’ favourable access to financing at banks and their improved financial position compared with several years ago. The banks have continued to strengthen their household lending activity, most notably in consumer loans. There was another increase in the proportion of fixed-rate lending, to 27% for housing loans and to 52% for consumer loans.

Figure 1: Loans to the non-banking sector, year-on-year growth, %

Source: Bank of Slovenia

The NPE ratio is continuing to decline, reaching 3.9% in January. The stock of NPEs and the NPE ratio are both declining in the household segment. The quality of the SMEs portfolio is improving rapidly, although the NPE ratio remains high (at 9.8%).

The banks were profitable in January, generating a pre-tax profit of EUR 40 million at system level. Here the Bank of Slovenia should highlight that similarly to the last two years there was a net release of impairments and provisions in the banking system, which was a significant factor in the size of the pre-tax profit. Had the disposal of gross income on impairments and provisioning been at the level of its long-term average, pre-tax profit during the aforementioned period would have been just over a third of what it was. Net interest income and net non-interest income continued to record positive growth in January.

The banking system remained well-capitalised in 2018. The total capital ratio at the end of December remained unchanged from September on an individual basis at 19.8%, while on a consolidated basis it declined to 17.9% as a result of an increase in capital requirements, mainly for exposures to corporates and households, and a simultaneous decline in regulatory capital. The banking system’s liquidity position remains good. The liquidity coverage ratio is high, and was well in excess of the regulatory requirement.

Figure 2: Total capital ratio in Slovenia and the euro area, consolidated, %

Source: Bank of Slovenia

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