TRENDS IN LENDING Second Quarter Report 2018

Transcription

1 УНУТРАШЊА УПОТРЕБА TRENDS IN LENDING Second Quarter Report 218 Belgrade, September 218

2 УНУТРАШЊА УПОТРЕБА

3 Introductory note Trends in Lending 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... 6 I Corporate sector Corporate loans Cost of corporate borrowing Assessment of loan supply and demand based on the results of bank lending surveys... 1 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

6 Overview Lending activity continues to recover, bolstered by economic growth, labour market recovery and favourable financing conditions. Monetary policy easing and increased interbank competition led to a decline of interest rates on dinar loans, which fell to new minimum levels in, while rates on FX-indexed loans remained low owing to the low country risk premium and low rates on the euro area money market. Yearon-year growth in lending accelerated further, despite significant NPL write-off. Excluding the exchange rate effect 1, domestic loans posted y-o-y growth of 7.6% in June, with lending to corporates accelerating further, to 5.5%, while growth in household lending (11.1%) was still somewhat slower than at end-217. If the effect of NPL writeoff and sale is excluded, 2 the upward trend is even more evident total lending rose 14.1% y-o-y in June, of which 14.5% was growth in lending to corporates and 14.3% to households. Though lending has been stepped-up, the share of loans in GDP is below its long-term trend, 3 which means it poses no risk to financial stability. Corporate lending continues to recover, as confirmed by the fact that corporate loans in rose more than in the corresponding period a year earlier, even though NPL write-off and sale were higher than a year ago. At the same time, the volume of new loans to corporates increased by 14.9% from, with 52% of new loans pertaining to current assets loans and 26% to investment loans, which had a high disbursement rate since the start of the year. Results of the Bank Lending Survey indicate that eased credit standards facilitated the rise of corporate lending, primarily to SMEs. Growth in corporate loan demand exceeded expectations and was largely driven by current assets financing and capital investments, and to a lesser degree by financing acquisitions and debt restructuring. 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. By June 218, banks wrote off RSD 169. bn of NPLs (of which RSD bn were loans to corporates and RSD 35.6 bn to households) and sold RSD 58.2 bn of NPLs that were in their balance sheets at the time. 3 Calculated in line with the methodology for countercyclical capital buffer, including data for 218. Lending activity is accelerating on the back of economic growth (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. Household lending continued up on the back of cash and housing loans. According to the results of the bank lending survey, such developments were facilitated by household demand which continued to rise, coupled with eased standards for approving cash and refinancing loans. The volume of new loans to households was up by.8% in relative to, with dinar cash loans (including refinancing loans) accounting for 61% of new household lending. Housing loans were kept at relatively large amounts, supported by the recovery of the labour and real estate markets. The share of dinar in total corporate and household lending (dinarisation of loans) stood at 32.3% at end-june. At the same time, three-quarters of new household loans in were in dinars, which allowed for the dinarisation of household lending to maintain robust growth and reach 52.8% in June. Dinarisation of corporate loans was reduced to The share of total loans in GDP is still below the long-term trend (in %) Gap Long-term trend of the share of loans in GDP Share of total loans in GDP Sources: NBS and SORS

7 14.6%, partly due to the rise in FX and FX-indexed borrowing and partly to the write-off of dinar receivables. Owing to stepped-up NPL resolution activities and the rise in lending, the share of NPLs in total loans continued to slide and dropped to 7.8% in June, its lowest level since 28 when this portfolio quality indicator was introduced. In slightly less than three years since the adoption of the NPL Resolution Strategy, this share has been lowered by 14.6 pp, while the stock of NPLs dropped by 61%, unambiguously pointing to significant success in solving this issue. The share of NPLs fell below pre-crisis levels with both corporates and households. The results achieved in this area are also underscored by the IMF and rating agencies in their estimates. Further improvement of NPL indicators was also underlined in the EIB s CESEE Bank Lending Survey from June. 4 4 Ten banks from Serbia, whose assets make up somewhat less than a half of total banking sector assets, participated in this survey ( 7

8 I Corporate sector 1. Corporate loans Y-o-y increase in corporate loans continued to accelerate in, amounting to 5.5% in June, excluding the exchange rate effect. The increase occurred amid banks continued efforts to resolve NPLs, which confirms that lending is on a fast track to recovery. Excluding the effect of NPL write-off and sale since the beginning of 216, the y-o-y rise in corporate loans stood at 14.5% in June. 5 That corporate lending continues to recover is confirmed by the fact that growth in corporate loans in was higher than in the same period a year earlier, with the amount of NPL write-off and sale also higher than one year ago. Excluding the exchange rate effect, corporate loans rose 1.2% or RSD 12.4 bn in (compared to RSD 7.8 bn or.8% in 217). Growth was recorded with companies, while borrowing by public enterprises continued to subside. In nominal terms, corporate loans went up by RSD 1.7 bn to RSD 1,73.1 bn in, while their share in estimated annual GDP 6 equalled 23.4% in June. Total new corporate loans in (RSD 21.2 bn) were 14.9% higher than in. Relative to the same period last year, the volume of new corporate loans contracted by 3.4%. Excluding the effect of loans refinanced with the same bank, these loans posted a rise of 7.9%. Investment loans were still approved in high amounts (RSD 53.9 bn in or 11.5% more than in 217), while the volume of new import loans (RSD 7.3 bn) almost doubled y-o-y. As before, the bulk of new corporate loans in were current assets loans (52.4%), followed by investment loans (25.7%). In H1, banks approved RSD.2 bn of new investment loans, which is.3% higher than in the same period a year earlier. The composition of new loans reflects on the composition of the stock of loan receivables from corporates. Thus, the bulk of bank receivables from corporates in June were current assets loans (48.8%), while investment and import loans accounted for 31.5% and 3.7% respectively. By activity, the rise in loans in was driven primarily by lending to the manufacturing industry, and to a smaller extent by Grow th in corporate lending accelerated despite high NPL write-off (y -o-y growth rates at programme exchange rate, in %) Corporates Tot al domestic loans Corporates* Tot al domestic loans* * Excluding the effect of NPL write-off and sale since early 216. Growth in corporate lending in 218 exceeded that from and from a year ago (increment, in RSD bn) I III I III I III I III I III I III FX and FX-indexed loans* Dinar loans Tot al * Excluding the exchange rate effect. I III 217 Financing investments by bank loans was increased (new loans, in RSD bn) I 218 I III I III I III I III I III I III I III I Current assets Other Export Investment Import 5 From the beginning of 216 until June 218, banks wrote off RSD bn of corporate NPLs and sold RSD 56.2 bn of NPLs that were in their balance sheets at the time. 6 GDP in the past four quarters. 8

9 lending to construction and agriculture, as well as to the energy sector. On the other hand, corporate loan receivables in transport and trade were reduced. That the recovery of corporate lending is broadly dispersed is confirmed by the fact that relative to end-217, loans to all sectors, with the exception of transport, recorded a rise in June. The share of dinar receivables to corporates contracted in to 14.6% in June due to a step-up in FX and FX-indexed borrowing and, to an extent, the write-off of dinar receivables of companies in bankruptcy. 7 Euro-indexed and eurodenominated loans still made up the bulk of corporate loans (84.1%), while the share of US dollar- and Swiss franc-denominated loans continues to decline in June, these loans accounted for 1.% and.3% respectively. Thanks to the successful implementation of the NPL Resolution Strategy, 8 which was further supported by the implementation of the Decision on the Accounting Write-off of Bank Balance Sheet Assets as of September 217, as well as owing to the rise in lending, the share of NPLs in total loans continued to decline. saw a decline in the share of NPLs in total corporate loans by 1.6 pp to 8.1% in June, and by 1.8 pp to 8.4% for business companies, whereby their shares were trimmed by 2.3 pp and 2.5 pp respectively, in H1. The share of NPLs contracted for all sectors and currently stands at a multiyear minimum, while it is most pronounced in the construction, real estate and trade sectors. Improvement of NPL indicators was also underlined in the EIB s CESEE Bank Lending Survey from June. According to this Survey, the downward-sloping trend of NPLs 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 high level of NPLs did not jeopardise financial sector stability. Allowances for impairment of total loans to gross NPLs stood at 74.8%, and regulatory provisions for balance sheet exposure continued to fully cover gross NPLs, at 144.2% in June. Also, after the introduction of Basel III standards 9, the capital adequacy ratio rose further, reaching 22.9% in June, which indicates the high capitalisation of the domestic banking sector. 7 On 3 September 217 the Decision on the Accounting Write-off of Bank Balance Sheet Assets started to apply. According to this Decision, banks are required to write off all loans whose allowances for impairment equal 1% of their gross book value. 8 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 Basel III regulatory framework is applied as of 3 June 217 when application of the Decision on Capital Adequacy of Banks (RS Official Gazette, No 13/216) started, introducing this standard in the domestic legislation. Lending to manufacturing and trade sectors accounts for the bulk of corporate receivables (stocks, in RSD bn) 1, 4 1, 2 1, I III I III I III I III I III I III I III I Transport and telecommunications Real estate; scient. and serv. act.; arts, enter. and recr. Trade Construction Mining, manufacturing, water management Agricult ure, forest ry, fishing Other NPL w rite-off contributes to the decline in dinar receivables (currency structure, in %) Share of NPLs in all sectors is at multiyear minimums (gross principle, in %) I III I III I III I III I III I III I III I NPL share in total corporate loans Manufacturing, mining Wholesale and retail trade Construction Real estate business Transport, informat ion, communications Agriculture, forestry and fishing I III I III I III I III I III I III I III I RSD EUR USD CHF Other 9

10 2. Cost of corporate borrowing Owing to a decline in interest rates in the previous period, interest rate 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, interest rates on dinar corporate loans were trimmed by 11.4 pp to 5.1% in June 218, which confirms that the fall was induced by the NBS s monetary policy easing. Interest rates on euro-indexed loans to corporates averaged 2.8% in June, down by 4.5 pp from May 213. This was facilitated by lower interest rates in the euro area money market, and even more so by the fall in the country risk premium, primarily owing to stronger macroeconomic fundamentals at home. Increased interbank competition in the lending market also worked towards a fall in interest rates on both dinar and euroindexed loans. Interest rates on all types of dinar loans to corporates remained favourable throughout, with the average weighted interest rate on dinar loans falling to a new minimum in May (4.6%). In June, the average weighted interest rate on new dinar loans to corporates equalled 5.1%, which is.2 pp above its March level. This increase was induced by the rise in rates on current assets loans (.5 pp to 4.9%), while rates on investment loans edged down 1. pp to 5.9% and on other purpose loans by.1 pp to 5.1%. The average weighted interest rate on new eurodenominated and euro-indexed loans to corporates was trimmed to 2.8% in June, from 2.9% in March. At the same time, interest rates on euroindexed current assets loans edged down.2 pp to 2.6% in June. Rates on import loans dipped.1 pp to 2.1%, while rates on investment (3.5%) and export loans (2.%) were largely unchanged relative to March. Interest rates on loans used for other purposes edged down.2 pp to 2.7%. 3. Assessment of loan supply and demand based on the results of bank lending surveys The results of the NBS July bank lending survey indicate that credit standards for corporates were eased in. According to the criterion of company size, standards were mostly relaxed for SMEs, largely under the impact of higher risk propensity of banks, competition in the banking sector and positive assessment of the overall economic situation. Standards on dinar loans were relaxed to a somewhat greater extent. In aggregate terms, standards will most likely remain unchanged in Q3, however the impact of declining NPLs is particularly emphasised as one of Interest rates on dinar loans touched a new low in May* (weighted av erage v alues, per annum, in %) New dinar corporate loans New dinar corporate deposits BELIBOR 3M, period-average Key policy rate, period-average * Excluding revolving loans, current account overdrafts and credit card debt. The cost of FX loans to corporates remained favourable in as w ell* (weighted av erage v alues, 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 av erage v alues, per annum, in %) Import * Current assets* Current assets** * Euro and euro-indexed. ** Dinar. Investment* Other* Other** 1

11 the factors that will work towards the easing of standards. According to banks estimate, terms of borrowing for enterprises were more favourable on account of lower interest rate margins, extended maturities, collateral requirements and increase in the maximum loan amount. Collateral requirements were eased for SMEs owing to greater bank participation in projects in which international financial institutions provide a portion of guarantee support. As expected, corporate loan demand continued up in as well. It was primarily driven by the need to finance current assets and capital investment, as well as activities associated with acquisitions/mergers. The same factors are likely to remain the key drivers of demand in Q3 as well. Credit standards for corporates were eased in (in net percentage) Total * Costs of funding** Competition from other banks** Ris k on the c ol later al demanded** Expectations regarding general economic activity** Ris k pr opens ity** Uncollectibility of receivables** Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Achieved Expected * Positive values indicate tightening of conditions and negative easing, relative to the previous quarter. ** Positive values indicate thecontribution of individual factors to tightening, and negative values indicate the contribution to easing of lending standards. Almost all conditions for approving loans to corporates were more favourable during (in net percentage) Dinar FX According to the EIB s CESEE Bank Lending Survey published in June, corporate loan demand in Serbia rose faster than the region s average and was led by the higher demand of SMEs. The surveyed banks estimated that the quality of loan applications, particularly of SMEs, improved significantly in the previous period. 1% % -1% -2% -3% -4% -5% -6% Interest margin Fees and commissions Maximum loan amount Collateral requirement s Maturity Interest margin Fees and commissions Maximum loan amount Collateral requirement s Maturity Achieved Expected * Positive value indicates tightening of conditions and negative easing. Grow th in loan demand is expected in Q3 as w ell, for all client categories, most notably SM Es (in net percentage) 9% 8% 7% 6% 5% 4% 3% 2% 1% % -1% To tal Dinar shortterm Dinar long-term FX shortterm FX longterm SMEs Large enterprises Fa rmers Achieved Expected * Positive value indicates an increase in demand, and negative value indicates a decrease. 11

12 II Household Sector 1. Household loans The y-o-y growth of household loans slightly decelerated since the beginning of 218 and, excluding the exchange rate effect, it equalled 11.1% in June. Excluding the NPL write-off and sale effect, which continued into 218, household lending recorded a 14.3% y-o-y increase in June. 1 The stock of household loans equalled RSD 956. bn in June, accounting for around 46% of bank loan receivables from the non-monetary sector. Their share in estimated annual GDP equalled 2.8% in June. In the course of, excluding the exchange rate effect, household loans rose by 4.2% or RSD 38.6 bn. Cash loans (including refinancing loans) and housing loans were still dominant and in they rose by RSD 22.1 bn and RSD 7.1 bn, respectively. Growth in housing loans in H1 measured RSD. bn, which is almost equal to the total growth in the period. Current account overdrafts decreased slightly relative to, while credit card borrowing of citizens edged up mildly. The volume of new household loans in (RSD bn) increased by.8% relative to and by 12.2% relative to same period last year. Dinar cash loans and refinancing loans were still the dominant categories for households, and accounted for 61.2% of new household loans in the observed period. Almost three quarters of those were approved for a period longer than five years. The volume of new housing loans in (RSD 19.1 bn) remained almost unchanged from and slightly lower than in the same period last year. However, if we exclude loans refinanced with the same bank, housing loans rose 2.1% relative to the corresponding period a year before. By purpose, cash and housing loans were the dominant category of household loans at 39.6% and 38.4% respectively, in June. The share of consumer loans continued slightly up, and in June they accounted for 2.6% 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 purchase. Higher lending to entrepreneurs was also conducive to growth in household loans through disbursement of investment and current assets loans, whose share in total Though slightly accelerated in, y-o-y growth in household lending is still slower than at end-217 (y -o-y growth rates at programme exchange rate, in%) Households Tot al domestic loans Households* Tot al domestic loans* * Excluding the effect of NPL write-off and sale since early 216. Growth in household lending is still driven by dinar loans (increment, in RSD bn) I III I III I III I III I III I III I III I FX and FX-indexed loans* Dinar loans Total * Excluding the exchange rate effect. Cash and household loans account for the bulk of new lending (new loans, in RSD bn) I III I III I III I III I III I III Housing Cash loans Consumer Other* I III 217 Source. NBS. * Until 214, the 'other loans' category implied cash and other loans together. I Excluding the NPL write-off and sale effect since the beginning of 216. By June218, banks wrote off RSD 35.6 bn worth of NPLs from households. 12

13 household lending rose to 6.3% and 3.8% respectively. Dinar borrowing of citizens continued to increase in three quarters of new household loans were in dinars, whereas in 217 this share was 71% on average. Owing to this, dinarisation of household receivables equalled 52.8% in June, up by 1. pp from end-217. At the same time, the share of euro-indexed and euro-denominated loans declined to 4.4% and of Swiss franc-denominated ones to 6.9%. As with corporates, the share of NPLs in total loans to households declined further in, dropping to the lowest level on record. This was due not only to increased household lending, but also stepped-up NPL write-off. The share of NPLs in household loans came at 4.9% in June, down by.3 pp from March and by.7 pp from end The NPL share is decreasing in all loan categories. In H1 the share of NPLs in cash loans went down by.5 pp to 3.8%, in housing loans by.4 pp to 5.7%, and in consumer loans by 1.1 pp to 3.3%. 2. Cost of household borrowing Owing to significant monetary policy easing by the NBS, fall in the country risk premium, low rates in the international money market and increased interbank competition in the lending market, the cost of household borrowing reached new lows in June. At the same time, the costs of the repayment of existing loans were also reduced, which reflects positively on the households disposable income. The average weighted interest rate on dinar loans in was trimmed by.5 pp and in June reached 1.1%, its new minimum, while relative to May 213, when the cycle of monetary policy easing by the NBS began, it was more than halved (fall of 1.5 pp). During, rates on dinar cash loans fell by.5 pp to 1.4% in June. On the other hand, interest rates on consumer loans were increased (by.2 pp to 8.5%). The fall in interest rates on other dinar loans, which were trimmed by 1. pp to 8.8%, was also conducive to the decline in the weighted average rate. The average rate on euro-denominated and euroindexed dinar loans to households also touched a new low in June 3.8%, down by.2 pp from March and by 4.3 pp from May 213. The fall in can be attributed to the decline in interest rates on consumer loans, which decreased by.4 pp relative to March and equalled 4.7% in June, while interest rates on housing loans were kept at their March minimum (2.8%). In contrast to that, rates on euro-indexed cash 11 With entrepreneurs and private households included, the share equalled 5.1% in June, down by.4 pp from March and by.8 pp from end-217. Dinarisation of receivables from households is still on the rise (currency structure, in %) I III I III I III I III I III I III I III I NPL share in total household loans is at a minimum (gross principle, in %) I III I III I III I III I III I III I III I NPL share in total household loans Cash Credit cards Housing Current account overdraft Consumer Relative to 213, interest rates on dinar loans to households are lower by 1.5 pp* (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* (weighted average values, per annum, in %) RSD EUR CHF 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

14 loans, which hold a slight share, were increased (by.3 pp to 3.3%). Rates on other loans fell by.4 pp to 5.5% in June. 3. Assessment of loan supply and demand based on the results of bank lending surveys According to the NBS July bank lending survey, credit standards for households remained unchanged for almost all loan categories, except dinar cash and refinancing loans, where the standards were eased. Interbank competition and less costly sources of financing dinar loans worked largely towards the easing of credit standards and, to a lesser degree, so did risk propensity and favourable prospects in the real estate market. Banks expect standards to be eased in Q3, primarily on dinar loans, driven mainly by interbank competition and higher risk propensity. Banks assessed that borrowing conditions for citizens were more favourable in in terms of lower interest rate margins and other associated costs for both dinar and FX-indexed loans. In addition, longer payment terms were offered on dinar loans. Expectations for Q3 include further relaxation of price conditions for loans, as well as extended maturity and lower collateral requirements. As expected, loan demand continued to grow in. Banks estimated that there was a rise in the demand for dinar cash loans and refinancing loans, as well as for FX-indexed housing loans and consumer loans. The rising 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 somewhat lesser extent, by the procurement of durable consumer goods. The survey suggests that banks expect the same factors to retain the dominant influence on the rise in demand in Q3, with additional positive impact of employment growth. Costs of household borrowing decreased in and loan maturities were extended (in net percentage) 1% 5% % -5% -1% -% -2% -25% -3% -35% Interest rates on new dinar cash loans were down to new lows in (weighted av erage values, per annum, in %) Credit standards for households were unchanged in, and easing is expected in Q3 (in net percentage) Interest margi n Total * Consumer** Consumer* Housing** Housing* Cash** Cash* Other** Other* * Euro and euro-indexed. ** Dinar. Costs of funding** Dinar Competition from other banks** Fees and Collateral commissions requirements Maturi ty Expectations regar di ng general economic activity** Interest margi n Risk propensity** FX Uncollectibility of receivables** Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Q3 217 Q3 218 Achieved Expected * Positi ve values indicat e tight ening of conditi ons and negati ve easing, relative to the previous quarter. ** Positi ve values indic ate the contribution of indi vidual f act ors to tightening, and negative values indicate the contribution to easing of lending standards. Fees and Collateral commissions requirements Maturi ty Achieved Expected * Positive value indicates tightening of conditions and negative easing. Total household demand for loans in was in line with expectations (in net percentage) Dinar FX Total Housing Consumer Cash Refinancing Housing Consumer Cash Refinancing 8% 7% 6% 5% 4% 3% 2% 1% % -1% -2% -3% -4% -5% Achieved Expected * Positive value indicates an increase in demand, and negative value indicates a decrease. 14

15 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 loans are loans 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.