In the second quarter, banks tightened the criteria for obtaining loans due to the crisis caused by the coronavirus, but there was no increase in the price of loans, according to the Report on the results of the survey of credit activity of banks of the National Bank of Serbia.
As expected, given that most of the state of emergency was during the second quarter, there was an increase in demand for working capital loans by the economy, while households were less interested in borrowing.
In the period from July to the end of September, bankers expect that the demand for loans from both the economy and citizens will start growing again, while they still expect the tightening of lending conditions, although not as pronounced as in the second quarter.
The strongest blow of the crisis to the economy happened in the period April-June, when the GDP, according to the data of the Statistical Office, was reduced by 6.4 percent compared to the same period last year.
In the conditions when the economy was booming with business, banks also became cautious when approving loans. According to the report, due to the growth of risk aversion in the conditions of increased uncertainty caused by the coronavirus pandemic, the banks have tightened the criteria for granting loans.
The tightening of the criteria did not mean a rise in the price of loans, because competition in the sector and cheaper dinar sources of financing acted in the opposite direction, which is largely the result of lowering the reference interest rate, according to the central bank’s report.
Bankers are said to be the people who will offer you an umbrella when the sun is shining, and look for it back when it starts to rain.
Thus, in the second quarter, lending conditions were tightened the most for those who needed money the most – micro, small and medium enterprises. Of course, they are the least resistant to business downtime and falling demand, so they are the most risky companies, but at the same time companies that need money the most.
The tightening was mostly related to non-price conditions such as the maximum loan amount, maturity, as well as loan security requirements, which is the biggest problem for micro and small companies that do not have too many assets to offer to banks.
When it comes to the price, the interest margin on loans to small and medium enterprises was slightly adjusted downwards in the second quarter, which, according to the NBS, can be related to the approval of loans from the guarantee scheme on favorable terms.
Probably instructed by the experience from the previous crisis, banks have also tightened the criteria for loans to households.
They assessed a significant increase in the risk of job losses and wage cuts and were not fully prepared to take that risk.
Specifically, banks began to ask clients who perceived them as risky, ie who work in companies from the sector affected by the pandemic, to ask for a higher share for housing loans, 30 instead of 20 percent.
In June, the NBS responded with a recommendation to banks that they could reduce the participation for buyers of the first apartment to 10 percent.
Some banks such as the Postal Savings Bank have accepted this recommendation, and some have stuck to their estimates. In the survey, the bankers estimated that the tightening of the criteria will continue in the third quarter, but to a much lesser extent than in the previous three months.
As with the economy, the growth of risk did not affect the growth of prices and this primarily refers to dinar loans. This is a consequence of the reduction of the reference interest rate of the NBS, which affects the dinar interest rates.
In the midst of the crisis, citizens have significantly reduced their interest in loans, and banks expect demand to recover during the third quarter, primarily for dinar cash loans and refinancing loans.
Vlastimir Vukovic, a member of the Executive Board of NLB Bank, points out that housing loans have proven to be resilient to the crisis.
“In the segment of business with individuals, in the period from March to July this year, significant growth was achieved in the activities related to investments in solving the housing issue, so that the production of housing loans reached a growth rate of 28 percent, compared to only nine percent growth of newly approved cash loans. In the segment of work with legal entities and entrepreneurs, a significant impact of state measures to support the economy was felt. In addition to the moratorium, which helped maintain liquidity, the guarantor of the scheme largely encouraged the strong growth of working capital loans, where we recorded a growth of as much as 60 percent. By the end of the year, we expect a gradual recovery of demand in the segment of individuals, and when we talk about the demand of the economy, we believe that there will be growth, but not to the same extent as in previous months,” Vukovic told Danas.
