Business conditions remain good for banks

Banks have been doing business in an environment of moderate economic growth this year. The gradual cuts in the ECB’s key interest rates are also being reflected in lending to the non-banking sector. Banks are continuing to lend mostly to the household sector (predominantly consumer loans), while corporate lending remains weak. Deposits by the non-banking sector remain a stable source of funding for Slovenian banks, with a notable inflow of household deposits this year. According to the latest report on bank performance with commentary, which covers data up to October of this year, the banks generated good profits over the first ten months of the year, with the total figure up over a tenth on the same period last year, driven in particular by the spread between interest rates on assets and funding, which remains sizeable.

Deposits by the non-banking sector remain a stable source of bank funding

Deposits by the non-banking sector are continuing to rise, but growth has been moderate this year. Over the first ten months of the year there was a decline in deposits in all segments, with the exception of household deposits, whose increase of EUR 425 million was similar to the same period last year. After slowing in the early part of the year in connection with purchases of the people’s bond, year-on-year growth had recovered to 2.7% by October, but remained below the euro area average. After declining in the first half of the year, deposits by non-financial corporations have been increasing since July, but the stock nevertheless declined by EUR 156 million over the first ten months of the year. The increase in fixed-term deposits has slowed, and sight deposits continue to make up the majority of deposits by households (84.6%) and by non-financial corporations (72.7%).

Consumer loans remain prevalent in lending

The banks saw their stock of loans to the non-banking sector increase by EUR 1.4 billion over the first ten months of this year, compared with a contraction over the same period last year. Year-on-year growth in the stock stood at 4.0% in October, significantly outpacing the rate in the euro area overall (1.3%).

The banks continued to lend actively to households in particular. Year-on-year growth in the stock of household loans stood at 5.7% in October, and continued to outpace the euro area average. Consumer loans remain prevalent in current household lending: their year-on-year rate of growth stood at 14.3% in October, still well above the euro area average. Current lending via housing loans has been slightly higher this year compared with the same period last year. After hitting its lowest rate of recent years in November of last year, year-on-year growth in housing loans had risen to 3.4% by October of this year. Lending to non-financial corporations remained weak, with the stock of loans down 4.4% in year-on-year terms. This year’s largest one-off increase in loan stock consisted of lending to one leasing company, which also sharply increased the stock of loans to other financial institutions (OFIs). The stock of loans to non-residents has also been declining this year.

Profits up over a tenth on the same period last year

The banking system’s pre-tax profit over the first ten months of the year was up 12.1% on the same period last year. This year’s increase in profit was again primarily attributable to a rise in net income. Two-thirds of the rise was driven by net interest income, as banks adjusted their interest rates on the lending side more than on the deposit side. Net impairments and provisions remained low, and accounted for less than 3% of the disposal of gross income. ROE was down only a fraction on the same period last year at just over 20%. The Slovenian banking system’s capital position remains solid, as does its liquidity position.

Publication Report on bank performance with commentary undergoing translation.