NATIONAL BANK OF SERBIA TRENDS IN LENDING. Fourth Quarter Report 2018

Transcription

1 NATIONAL BANK OF SERBIA TRENDS IN LENDING Fourth Quarter Report 218 Belgrade, March 219

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3 Introductory note is an in-depth analysis of the latest trends in lending, which aims to ensure better understanding of the conditions prevailing in the domestic lending market. It looks into lending developments, cost of borrowing by households and corporates and lending market conditions, by examining factors behind loan supply and demand. Credit aggregates, as a quantified expression of movements in the lending market, are calculated based on banking sector balance sheet statistics as a source of data on the balance of domestic banks loan receivables. Given the relatively high share of foreign currency-indexed loans in loan portfolios, the increment and growth rates are calculated excluding the effect of changes in the dinar exchange rate against other currencies in the loan portfolio. The report also draws on the results of the bank lending survey conducted by the National Bank of Serbia since early 214. Participation in the survey is voluntary. This survey has greatly improved the understanding of developments in the domestic lending market, allowing insight into bankers perceptions of actual and expected changes with regard to loan supply and private sector loan demand. The report also relies on the results of the survey developed by the European Investment Bank in the context of the Vienna Initiative 2 to monitor deleveraging by cross-border banking groups and the resultant constraints on lending activity. This survey, conducted since October 212 on a semi-annual basis, monitors subsidiaries of international banking groups in Central and South-Eastern Europe, focusing on their strategies, market conditions and expectations. The purpose of the survey is to observe the effects of movement in supply and demand on lending activity, and to gauge the impact of domestic and international factors on supply and demand conditions. Ten Serbian banks participate in this survey, their assets making up around 5% of total assets of the Serbian banking sector. iii

4 ABBREVIATIONS GDP gross domestic product rhs right-hand scale lhs left-hand scale mn million bn billion y-o-y year-on-year NPL non-performing loan pp percentage point H half-year Q quarter Other generally accepted abbreviations are not cited. iv

5 Сontents Overview... 7 I. Corporate sector Corporate loans Cost of corporate borrowing Assessment of loan supply and demand based on the results of bank lending surveys II. Household sector Household loans Cost of household borrowing Assessment of loan supply and demand based on the results of bank lending surveys... Methodological notes v

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7 Overview Past monetary policy easing, low country risk premium and subdued interest rates in the euro area help sustain favourable terms of private sector financing which, hand in hand with economic growth and positive labour market trends, led to a further acceleration in lending growth, to 9.9% y-o-y in December, excluding the exchange rate effect 1. In the last quarter of 218, lending growth was driven primarily by corporate lending which stepped up to 8.1% y-o-y in December, while household lending increased by 12.5%. Excluding the effects of NPL write-off and sale 2, lending growth in 218 is even stronger, measuring 12.2% y-o-y in December, of which 11.6% relating to corporates and 13.6% to households. Though lending has stepped up, the share of loans in GDP remains below its long-term trend, 3 meaning that it poses no risk to financial stability. Corporate loan growth was broadly dispersed across sectors, driven mainly by lending to companies in transport and communications, manufacturing and real estate. In, the stock of new loans to corporates increased by 35.5% from the quarter before, with more than half (51.2%) approved to micro, small and medium-sized enterprises, consistent with banks views from January Lending Survey that loan demand was primarily boosted by this corporate segment. In terms of purpose, 51.9% of new loans were current assets loans, while investment loans share reached 28.6%. New investment loans posted a marked annual growth as well (14.%), confirming that bank loans were a significant source of financing vibrant investments in 218, while the disbursement rate of current assets loans was similar as in 217. Household lending continued up in, driven, as before, by cash and housing loans. Still, the disbursement of cash loans was lower than in the previous two months which, coupled with slightly higher NPL write-offs late in the year, resulted in somewhat slower household lending growth compared to the prior part of the year. Higher 1 Calculated at the dinar exchange rate against the euro, Swiss franc and US dollar as at 3 September 214 (the so-called programme exchange rate used for monitoring the performance under the arrangement with the IMF), taking into account the currency structure of loan receivables. 2 Excluding the NPL write-off and sale effect since the beginning of 216. As at end-december 218, banks wrote off RSD bn and sold RSD 88.8 bn-worth of NPLs that were in their balance sheets at the time. 3 Calculated in line with the methodology for countercyclical capital buffer rate, concluding with data for 218. Lending growth further accelerated in late 218 (y -o-y growth rates, in %) Real GDP Total domestic loans* Total domestic loans*/** Sources: NBS and SORS. * Excluding the exchange rate effect. ** Excluding the effect of NPL write-off and sale since early 216. The share of total loans in GDP is still below the long-term trend (in %) disbursement of housing loans was supported by the recovery of the labour market and real estate market, so that housing loan growth in 218 exceeded the one from the previous two years taken together. The share of dinar receivables in total corporate and household receivables (dinarisation of receivables) аt end-december stood at 33.%, up by.2 pp from September. The dinarisation of household receivables reached a new high 53.6%, while the dinarisation of corporate receivables edged up by.8 pp in, coming at.4% at year-end. The NPL Resolution Strategy that was adopted in 2 yielded excellent results, given that in almost three and a half years since its adoption, the stock of NPLs was reduced by nearly 7%. Apart from NPL resolution efforts, lending growth also contributes to a further decline of the NPL share in total loans, which dropped by 16.7 pp from the start of Strategy implementation (4.1 pp of which in Gap Long-term trend of the share of loans in GDP Share of total loans in GDP Sources: NBS and SORS. * Concluding with * 7

8 218), to 5.7% in December, its new lowest level since this indicator of banks assets quality was introduced. 8

9 I. Corporate sector 1. Corporate loans High disbursement rate in led to a y-o-y acceleration in corporate lending, to 8.1% in December, excluding the exchange rate effect. It is worth noting that growth was recorded amid continued NPL resolution efforts of banks which saw additional improvement in their business indicators. Excluding the NPL write-off and sale effect since the beginning of 216, y-o-y corporate lending growth measured 11.6% in December. 4 Excluding the exchange rate effect, corporate loans increased by RSD 58.7 bn or 5.4% in. Lending to companies accounted for over 6% of this growth, while lending to public enterprises also expanded in. In nominal terms, corporate loans increased by RSD 56.7 bn in, reaching RSD 1,143.5 bn in December, while their share in estimated annual GDP 5 rose to 22.6%. In terms of activity, corporate loan growth was recorded across almost all sectors in 218, driven mainly by lending to companies in transport and communications, manufacturing and real estate. At the level of 218, the key driver of growth was lending to manufacturing industry. However, lending to all other sectors also expanded that year, indicating a broad-based recovery of corporate lending. In terms of purpose, in 218 investment loans increased on a par with current assets loans. Liquidity and current assets loans continued to make up the major portion of corporate loans (48.8%), followed by investment loans, whose share, thanks to prominent growth, increased by 1.2 pp, to 32.7% in 218. The volume of new corporate loans in (RSD bn) rose 35.5% q-o-q and 27.7% y-o-y. Current assets loans were the dominant category among new corporate loans in (51.9%), with over 5% of these loans being placed in the micro, small and medium-sized enterprise market segment. Thanks to twice higher disbursement compared to, the share of investment loans in new corporate loans rose to 28.6% in, with micro and small enterprises being the major clients. Observed at the annual level, RSD bn-worth of investment loans were disbursed, or 14.% more than in 217, which 4 From the beginning of 216 until December 218, banks wrote off RSD bn of corporate NPLs and sold RSD 86.7 bn of NPLs that were in their balance sheets at the time. 5 GDP in the past four quarters. Lending growth in was led primarily by increased lending to corporates (y -o-y growth rates at the programme exchange rate, in %) Corporates Corporates* Total domestic loans Total domestic loans* * Excluding the effect of NPL write-off and sale since early 216. saw the highest quarterly growth of corporate loans in the last two years (increase, in RSD bn) FX and FX-indexed loans* Dinar loans Total * Excluding the exchange rate effect. Lending to manufacturing and trade sectors accounts for the bulk of corporate receivables (stock, in RSD bn) 1,4 1,2 1, Transport and telecommunications Real estate; scient. and serv. act.; arts, enter. and recr. Trade Construction Mining, manufacturing, water management Agriculture, forestry, fishing Other 9

10 confirms that, same as in the previous three years, loans remained a significant source of investment financing. In, 19.6% of new corporate loans were in dinars, with the highest degree of loan dinarisation recorded in large enterprises and the lowest in micro enterprises. Thanks to higher new lending in dinars, dinarisation of corporate receivables edged up by.8 pp in, reaching.4% in December. On the other hand, the share of euro-indexed and euro-denominated receivables contracted to 83.8%, and dollar receivables to.6%, while those in Swiss francs flatlined from September (.2%). Owing to the successful implementation of the NPL Resolution Strategy 6, the Decision on the Accounting Write-off of Bank Balance Sheet Assets, applied as of September 217, as well as owing to the rise in lending, the share of NPLs in total loans continued to decline. In, the share of NPLs decreased by.6 pp to 5.1% in the corporate sector and by.5 pp to 5.2% in the company segment. In 218, these shares contracted by 5.3 pp and 5.6 pp, respectively. NPL ratios dropped to new historical lows in H2 in almost all sectors and the sharpest decreases relative to the start of Strategy implementation were recorded in construction, real estate and trade. A significant contraction of corporate NPLs, which was more pronounced than the regional average, is also highlighted in the November EIB s CESEE Bank Lending Survey for H2 218 and the trend of NPL contraction is expected to continue in the coming period. Falling NPLs reduce the systemic risk, although from the aspect of financial stability it must be underlined that even the earlier higher level of NPLs did not jeopardise financial sector stability, having in mind the fact that they were fully covered by regulatory provisions and allowances for impairment. Allowances for impairment of total loans to gross NPLs stood at 78.7%, and regulatory provisions for balance sheet exposure continued to fully cover gross NPLs, at 162.2% in December. High capitalisation of the domestic banking sector is confirmed by the capital adequacy ratio which according to the latest available data as at end- September equalled 22.8%. This is considerably above the prescribed minimum (8%). After the introduction 6 Activities envisaged in the NBS s Action Plan ( aimed at boosting banks capacity for NPL resolution and providing a contribution to the development of the NPL market, were implemented in full, some of them even before the deadline. Their implementation was one of the important factors that led to the sharp fall in NPLs in 216, 217 and New investment loans recorded the sharpest growth in 218 (new loans, in RSD bn) Current assets Other Export Investment Import Lending to micro, small and medium enterprises accounted for almost three-fifths of new corporate loans in 218 (in RSD bn) II III IV I 218 II III IV Large Medium Small Micro Dinarisation of corporate receivables increased in (currency structure, in %) RSD EUR USD CHF Other Share of NPLs in all sectors is at multiyear minimums (gross principle, in %) NPL share in total corporate loans Manufacturing, mining Wholesale and retail trade Construction Real estate business Transport, information, communications Agriculture, forestry and fishing

11 of Basel III 7 standard into the domestic regulatory framework, the value of this indicator increased even further. 2. Cost of corporate borrowing Owing to a decline in interest rates in the previous period, interest expenses of corporates were reduced significantly, even though borrowing has increased, which was also conducive to the rise in profitability of the Serbian economy. Relative to May 213, when the NBS embarked on monetary easing, interest rates on dinar corporate loans were trimmed by.8 pp to 5.6% in December 218, which confirms that the fall was induced by the NBS s monetary policy measures. Interest rates on euroindexed loans to corporates averaged 2.75% in December, down by 4.5 pp compared to May 213. This was facilitated by lower interest rates in the euro area money market, and even more so by the lower country risk premium relative to previous years, primarily owing to stronger macroeconomic indicators at home and prospects going forward. Increased interbank competition in the lending market also worked towards a fall in interest rates on both dinar and euro-indexed loans. The price of dinar corporate loans remained favourable in, with the weighted average interest rate on dinar loans moving close to September level in October and November, while edging up to 5.6% in December, due to a rise in the rates on current assets and investment loans. In terms of enterprise size, loans to large and micro enterprises were approved at an average rate of 6.5%, while small and medium-sized enterprises benefited from lower rates compared to September 4.4% and 4.8%, respectively in December. The weighted average interest rate on new euro and euro-indexed loans to corporates was adjusted slightly upward in, to 2.75% in December. saw an increase in the cost of borrowing for micro and large enterprises, to 4.2% and 2.3%, respectively. At the same time, the cost of borrowing of small enterprises dropped to 2.9%, while the interest rate on loans to medium-sized enterprises remained unchanged relative to September (2.4%). Interest rates on dinar loans hovered around the minimum in * (weighted av erage v alues, per annum, in %) New dinar corporate loans Key policy rate, period-average BELIBOR 3M, period-average New dinar corporate deposits * Excluding revolving loans, current account overdrafts and credit card debt. The cost of FX loans to corporates remained favourable in as w ell* (weighted average values, per annum, in %) New FX corporate loans** New FX corporate deposits EURIBOR 3M Sources: NBS and European Banking Federation. * Excluding revolving loans, current account overdrafts and credit card debt. ** Euro and euro-indexed. Interest rates on all types of corporate loans multiple times lower than five years ago (weighted average values, per annum, in %) Import* Current assets* Current assets** * Euro and euro-indexed. ** Dinar. Investment* Other* Other** 7 The regulatory Basel III framework is applied as of 3 June 217, i.e. the beginning of application of the Decision on Capital Adequacy of Banks (RS Official Gazette Nos 3/216 and 3/218), introducing this standard in the domestic legislation. 11

12 3. Assessment of loan supply and demand based on the results of bank lending surveys The results of the January NBS Bank Lending Survey show that in corporate credit standards remained unchanged for the second consecutive quarter. In banks view, interbank competition worked towards easing, and the costs of funding towards tightening, while other factors had no bearing on credit standards. Banks expect a mild loosening of credit standards in Q1 219 for almost all corporate loan categories, due to the influence of competition and positive expectations regarding the general economic situation. The survey findings show that in 218 banks continued to reduce the price of corporate loans and increase their maximum maturity and amount, while further lowering collateral requirements for FX loans. Standards easing referred to small, medium-sized and large enterprises alike. Consistent with the expectations, corporate loan demand continued up in, with the small and medium-sized enterprise segment giving a greater impetus, according to banks view. The growth in demand was primarily driven by the need to finance current assets and capital investment, and to a lesser degree activities associated with company acquisitions/mergers. The same factors should be the key drivers of demand growth in Q1 219 as well. Credit standards for corporates remained unchanged for the second consecutive quarter, аnd their easing is expected in Q1 219 (in net percentage) Total* Costs of funding** Competition from other banks** Risk on the collateral demanded** Expectations regarding general economic activity** Risk propensity** Uncollectibility of receivables** Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Achieved Expected * Positi ve values indicate tightening of conditi ons and negati ve easing, relative to the previous quarter. ** Positi ve values indicate the contribution of indi vidual factors to tightening, and negative values indicate the contribution to easing of lending standards. Corporate loan conditions were more favourable during (in net percentage) % % -% -2% -3% -4% Interest margin Fe es an d commissions Dinar Maxim um loan amount Collateral re quirements Maturity '18 '18 '18 '18 '18 '18 '18 '18 '18 '18 Interest margin Fe es an d commissions FX Maxim um loan amount Collateral re quirements Maturity Achieved Expected * Positive value indicates tightening of conditions and negative easing. Grow th in loan demand of small and medium enterprises in exceeded the expectations (in net percentage) 5% To tal Dinar shortterm Dinar long-term FX shortterm FX longterm SMEs Large enterprises Fa rmers 4% 3% 2% % % -% '18 '18 '18 '18 '18 '18 '18 '18 Achieved Expected * Positive value indicates an increase in demand, and negative value indicates a decrease. 12

13 II. Household sector Y-o-y growth in household loans slightly accelerated in (y -o-y growth rates at the programme exchange rate, in %) 2 1. Household loans The y-o-y growth of household loans equalled 12.5% in December, excluding the exchange rate effect. The last months of 218 recorded a somewhat lower growth in household loans than in due to weaker disbursement of cash loans and higher NPL write-offs. Excluding the NPL write-off and sale effect, y-o-y household lending growth decelerated slightly, reaching 13.6% in December. 8 The stock of household loans equalled RSD 1,11.9 bn in December, accounting for around 46% of bank loan receivables from the non-monetary sector. Their share in estimated annual GDP 9 equalled 2.% in December, up by.1 pp from September. In the course of, excluding the exchange rate effect, household loans rose by 2.2% or RSD 21.3 bn. Cash loans (including refinancing loans) and housing loans remained dominant, rising in by RSD 12. bn and RSD 6.3 bn, respectively. As before, investment lending to entrepreneurs was supportive of the growth in household loans. During, credit card borrowing edged up mildly, while current account overdrafts decreased. At year level, the rise in cash loans in 218 (RSD 63.7 bn) was somewhat lower than in 217 (RSD 67. bn). On the other hand, the recovery of housing loans accelerated, whereby these loans increased in 218 (RSD 27. bn) more than in the entire past two years. This contributed to the recovery of the real estate market. By purpose, cash and housing loans were the dominant category of household loans at 4.5% and 37.9% respectively, in December. Since the start of the year, the share of consumer loans also edged up, and in December they accounted for 2.5% of household loans. They were mostly made up of dinar loans for the purchase of mobile phones and household appliances, as well as FX-indexed loans for car purchases. The growth in household loans and accelerated GDP growth were also supported by the higher lending to entrepreneurs, notably disbursement of investment and current assets loans, whose share in total household lending rose to 6.4% and 3.7% respectively in December. The volume of new household loans in (RSD bn) was by 1.4% lower than in and by 8 Excluding the NPL write-off and sale effect since the beginning of 216. By December 218,banks wrote off RSD 41.8 bn worth of NPLs from households and sold RSD 1.5 bn worth of receivables from entrepreneurs. 9 GDP in the past four quarters Households Total domestic loans Households* Total domestic loans* * Excluding the effect of NPL write-off and sale since early 216. Grow th in household loans continued to be driven by dinar loans (increase, in RSD bn) FX and FX-indexed loans* Dinar loans Total * Excluding the exchange rate effect. Cash and housing loans accounted for the bulk of new lending (new loans, in RSD bn) Housing Consumer Cash loans Other* Source. NBS. * Until 214, the 'other loans' category implied cash and other loans together. Dinarisation of household receivables reached new maximum levels in (currency structure, in %) RSD EUR CHF

14 2.7% higher than in the same period last year. In citizens continued to use predominantly cash loans and refinancing loans, which made up around 6% of new household loans, with over 99% of these loans being in dinars. The volume of new housing loans (RSD 2.4 bn) was by 4.7% higher than in and by 1.5% lower than in the same period last year. However, if we exclude loans refinanced with the same bank, housing loans rose 6.7% relative to the corresponding period the year before. In 218, 73.1% of new household loans were in domestic currency, whereas in 217 this share was 71% on average. Owing to this, dinarisation of household receivables reached its new maximum of 53.6% in December, up by 1.8 pp from end-217. At the same time, the share of euro-indexed and eurodenominated loans declined to 4.3% and of Swiss franc-denominated ones to 6.1%. The share of NPLs in total household loans declined further in, dropping to the lowest level on record. This was due not only to increased lending, but also to NPL write-off. The share of NPLs in household loans came at 4.4% in December, down by.4 pp from September and by 1.3 pp from end The NPL share is decreasing in all loan categories. In 218, the share of NPLs in cash loans went down by.5 pp to 3.8%, in housing loans by 1.6 pp to 4.6%, and in consumer loans by 1. pp to 3.4%. 2. Cost of household borrowing The cost of household borrowing reached new lows in June 218 and continued to be favourable in the following months. At the same time, the cost of repayment of existing loans also decreased, reflecting positively on the disposable income of households. After reaching its June minimum in October (.1%), the weighted average interest rate on dinar household loans continued to hover around that level and stood at.3% in December. Relative to May 213, when the cycle of monetary policy easing by the NBS began, it was halved (fall of.3 pp). A slight increase of the average rate in (.2 pp) was induced by the rise in rates on cash loans (by.2 pp to.8% in December) and other uncategorised loans (by.8 pp to 9.3%). On the other hand, rates on housing loans were lowered (by 1.1 pp to 4.6%), as well as on consumer loans (by 1.2 pp to 7.%). The average rate on euro-denominated and euroindexed dinar loans to households went down in by.1 pp, to 3.9% in December, down by 4.2 pp With entrepreneurs and private households included, the share equalled 4.4% in December, down by.4 pp from September and by 1.5 pp from end-217. NPL share in total household loans is at a minimum (gross principle, in %) NPL share in total household loans Cash Credit cards Housing Current account overdraft Consumer Relative to 213, interest rates on dinar loans to households have halved* (weighted av erage values, per annum, in %) Key policy rate, period average BELIBOR 3m, period average New dinar household loans New dinar household deposits * Excluding revolving loans, current account overdrafts and credit card debt. Relative to 213, the cost of FX borrowing has halved as well* (weighted average values, per annum, in %) New FX household loans** New FX household deposits EURIBOR 3m Sources: NBS and European Banking Federation. * Excluding revolving loans, current account overdrafts and credit card debt. ** Euro and euro-indexed Interest rates on new household loans w ere close to the minimum in as w ell (weighted av erage values, per annum, in %) Consumer** Consumer* Housing** Housing* Cash** Cash* Other** Other* * Euro and euro-indexed. ** Dinar. 14

15 from May 213. At the same time, the rate on housing loans remained at its minimum (2.8%) and throughout the rate on cash loans (3.4%) was unchanged relative to September. The average rate decrease was supported by the cut in rates on consumer loans (by.2 pp to 4.75%) and other uncategorised loans (by.7 pp to 5.7%). 3. Assessment of loan supply and demand based on the results of bank lending surveys According to the results of the January NBS Bank Lending Survey, household credit standards were eased throughout, primarily for dinar cash loans and refinancing loans, as well as for FX housing loans. Interbank competition, lower costs of sources of funding and higher risk propensity are the main factors that contributed to the easing of credit standards. Banks expect further tightening of credit standards for households in Q1 219, under the influence of other factors, while competition and cost of sources of funding will continue to work towards the easing of standards. Banks assessed that price conditions at which dinar household loans were approved were eased throughout, with relaxed collateral requirements. According to banks estimates in Q1 219, interest margins, fees and commission, as well as collateral requirements will be lowered, whereas loan maturities are expected to be tightened for dinar and FX loans. This may be linked to new regulations from December 218, when the National Bank of Serbia adopted various regulatory measures aimed at fending off NPLs in the banking system and avoiding negative consequences for the financial stability and citizens. These measures are targeting cash, consumer and other household loans (with the exception of housing loans and current account overdrafts) with the repayment term of eight years or longer. As expected, loan demand continued to grow in. Banks estimated that household loan demand expanded for dinar cash and consumer loans, and for FX housing loans. The demand was driven by the need to refinance and purchase real estate, which was additionally supported by the positive situation in the real estate market and, to a lesser extent, by the procurement of durable consumer goods. The majority of these factors, according to banks estimates, will continue to work towards growing demand in Q1 219, while demand for dinar cash and consumer loans is expected to decrease, under the impact of other factors. Household credit standards are expected to tighten in Q1 219 under the impact of "other factors" (in net percentage) Total* Costs of funding** Competition from other banks** Expectations regarding general economic activity** Risk propensity** Uncollectibility of receivables** Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Q1 218 Q1 219 Achieved Expected * Positi ve values indicate tightening of conditi ons and negative easing, relative to the previous quarter. ** Positi ve values indicate the contributi on of indi vidual factors to tightening, and negati ve values indic ate the contribution to easi ng of lending standards. The expected tightening of maturity requirements in Q1 219 is associated with NBS's regulations (in net percentage) 6% 5% 4% 3% 2% % % -% -2% -3% -4% Interest margin Fees and commissions Dinar Collateral requirements Maturity Interest margin Fees and commissions FX Collateral requirements Maturity '18 '18 '18 '18 '18 '18 '18 '18 Achieved Expected * Positive value indicates tightening of conditions and negative easing. Banks expect demand for housing loans to rise further and demand for dinar cash loans to decline in Q1 219 (in net percentage) 8% 7% 6% 5% 4% 3% 2% % % -% -2% -3% -4% -5% -6% Total Dinar Housing Consumer Cash Refinancing Housing Consumer Cash Refinancing '18 '18 '18 '18 '18 '18 '18 '18 '18 Achieved Expected * Positive value indicates an increase in demand, and negative value indicates a decrease. FX

16 Methodological notes Loans imply bank receivables under the loan principal. Receivables imply receivables under loans, interests and charges, paid deposits, securities and shares of companies. All types of receivables are expressed according to the gross principle, i.e. not reduced by allowances for impairment. Dinar receivables are receivables extended in dinars without an FX-clause. The FX clause implies a currency clause that defines hedging against changes in the dinar exchange rate. When excluding the exchange rate effect, the calculation is based on the original currency composition and the exchange rate of the dinar against the euro, the US dollar and the Swiss franc as at 3 September 214. New business includes all financial arrangements (credits and deposits) the terms of which are agreed for the first time during the reporting month, as well as all existing contracts the terms of which were re-agreed (through annexes), with the active participation of the client. The sectoral classification of monetary statistics is used. The corporate sector includes public enterprises, companies and the non-financial sector in bankruptcy, while the household sector includes citizens, entrepreneurs, private households with employed persons and registered farmers. By way of exception: with newly-approved loans, the household sector includes non-profit institutions serving households (in accordance with the ECB methodology); with non-performing loans, the sectors are presented separately, but are aggregated for the sake of comparison with the monetary statistics data. The term non-performing loans implies the stock of the total outstanding debt under individual loans (including the amount of arrears): where the payment of principal or interest is past due (within the meaning of the decision on classification of balance sheet assets and off-balance sheet items) over 9 days, where 9 days of interest payments have been attributed to the loan balance, capitalized, refinanced or delayed, where payments are less than 9 days overdue, but the bank assessed that the borrower s repayment ability has deteriorated and doubts that the payments will be made in full. 16