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Coronavirus crisis starting to affect banking sector

Ljubljana, 13 May (STA) - The coronavirus crisis has started to affect the banking sector, as Slovenian banks reported only EUR 69.6 million in profit before tax in the first quarter of the year, less than half of last year's figure for the same period, according to the central bank's monthly publication.

Banka Slovenije said on Wednesday that the data show the first effects of the coronavirus crisis, which will heighten a variety of risks and undermine overall bank performance.

"Although banks entered the crisis with high capital adequacy, good liquidity and other indicators, and even though their stability has been boosted by the European Central Bank (ECB) and Banka Slovenije, we can expect that the serious situation in domestic and international business environments will have an increasingly pronounced impact on bank operations."

The decrease in profits was affected by less favourable trends in revenue as well as cost, the central bank said. Net revenue from interest was just barely higher than in the same period last year, while other revenue was far lower.

Net impairments and reservations reached EUR 12.5 million, which at this point represents a very low share of the banks' gross revenue. However, this ratio is about to start turning around.

The banks' assets increased significantly in March, by EUR 665 million or 6.7% year-on-year. In terms of sources, there was an above-average increase in deposits by businesses and households.

In terms of investments, the biggest increase was seen in central bank's capital and loans to businesses.

Loans to the non-banking sector grew by 6.2% year-on-year, driven by an increase in loans to companies, which went up by EUR 480 million, EUR 197 million in March alone. Short-term loans amounted to nearly half the total figure.

Central banks' analysts expected an increased demand for borrowing from businesses, while banks' credit activity will depend on the establishment of approval processes for state guarantees for loans.

The growth of loans to households meanwhile saw a significant drop, going from 6.7% in December to 4.4% in March. In nominal terms, total loans to households dropped by EUR 37 million, dragged down by consumer and other non-housing loans.

By the end of March, the growth in consumer loans dropped to 4.3% year-on-year, which the central bank attributes to the uncertain situation in the labour market in the face of the coronavirus crisis.

The growth in housing loans dropped to 5.3% year-on-year by the end of March and was close to last year's average. Net growth of housing loans remained in the black in the first quarter of the year, the central bank said.

The average quality of loan portfolios in March does not yet show the effects of corporate performance. The share of non-performing loans remained at 2.2% in the first three months of the year, while its volume decreased slightly.

A slight increase was detected in some segments of the portfolio, specifically those that are expected to be hit the worst: the hospitality sector, transport, and professional and business services.

The share of non-performing loans in the household portfolio grew by 0.2 percentage points to 2.7%, while all other segments continued to show improvement in portfolio quality.

Deposits by the non-banking sector increased to 7.8% in March and exceeded asset growth by more than a percentage point.

The growth of household deposits reached 7.8% year-on-year in March, with their total volume increasing by EUR 272 million in the first quarter of the year. Moreover, deposits by businesses increased significantly, reaching 7.5% year-on-year in March.

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