Macroprudential Commentary - December 2022

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Lending trends are becoming less expansionary

There are growing signs that the financial cycle’s hitherto strong expansionary trend is gradually changing. This stems from rising uncertainty among households and firms, high inflation, and surging interest rates. Although still in double digits, annual growth in loans to households has been slowing in recent months. Not only is loan origination growing more slowly, so is demand for refinancing. Corporate credit growth is also in double digits, largely on the back of firms’ strong financing needs for working capital amid rising prices of inputs. By contrast, growth in loans for fixed investment is moderating. However, the situation varies across sectors. A shift can also be seen in the residential real estate market. Compared with June 2022, housing prices have not risen on average and, at the same time, the supply of properties on the market has increased.

Financial cycle intensity has eased, but some loans are riskier

With credit growth decelerating, risks are building up more slowly than they were in the previous period. Most notable has been a sharp increase in the share of mortgages with riskier attributes (e.g. a higher debt servicing burden in combination with a long maturity), which are more widely granted to people with lower income and education. This, however, is contributing to the build-up of risks.

Banks should be able to cope with a potential shock

Despite uncertain times, banks are reporting sound profitability and are maintaining the capital strength that should see them through potential shocks in the period ahead. On the other hand, they face a new challenge in the form of adverse trends in regard to stable sources of financing.

No change in the countercyclical capital buffer rate

The financial cycle change is not by itself a reason to release the countercyclical capital buffer (CCyB). The moderation of expansionary trends implies that risks associated with the financial cyclical are still mounting, albeit at a slower pace. There would be impetus to reduce the CCyB rate if credit losses rose above their normal level.

In the event of risks materialising and having an adverse impact on the financial sector, Národná banka Slovenska stands ready to reduce the CCyB rate to the extent necessary.

Also in this edition

• Why we consider some of today’s loans to be riskier (page 3)
• How the property market situation is changing (page 3)

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