Banks are Optimistic about the Prospects for Retail and Corporate Lending – Lending Survey
Banks are optimistic about the growth prospects for retail and corporate lending in Q2 and also over the coming 12 months. In addition, for the third consecutive quarter, financial institutions expect deposits to continue to increase. These are the key findings of the most recent Lending Survey.
Banks expect growth in deposits and corporate loans in the next 12 months
Some 76% of survey respondents expect the corporate loan portfolio to grow over the next 12 months, while 74% of respondents expect growth in the retail portfolio.
Banks have been optimistic about growth in household deposits for four consecutive years. In the last three quarters, those expectations have reached their highest level. Some 66% of respondents expect deposits to increase. This is the highest indicator since the NBU launched the survey. Meanwhile, 72% of respondents expect an increase in corporate deposits.
Only 26% of respondents expect the quality of corporate and household credit portfolios to improve over the next 12 months. Large banks are mostly optimistic, while most respondents see no changes coming.
Banks expect loan demand from households and small enterprises to grow in April-June
Banks are expecting demand for corporate and retail loans to grow in Q2.
According to the survey, demand in the corporate segment will grow for short-term loans, loans to SMEs (small and medium-sized enterprises), and loans in hryvnia. Stronger demand for mortgages is mostly expected by large banks.
In Q2, banks have no plans to change lending standards for businesses, although they expect to continue easing lending standards in the consumer segment.
Banks reported an increase in demand for corporate and retail loans in Q1
Demand for corporate loans recovered in Q1 2019, an observation mentioned by 40% of those surveyed. This was especially true in loans to SMEs and loans to large companies. According to financial institutions, long-term loans and loans to large enterprises enjoyed the highest growth in demand. Banks reported working capital needs and investment funds as the major drivers of demand.
Lending standards for corporate borrowers remained unchanged at the majority of respondents. However, loan standards for SME borrowers were eased from the previous quarter as a result of higher competition among banks and optimism surrounding growth at individual enterprises and industries and for the economy overall.
In contrast to the situation among large borrowers, the number of approved loan applications increased in the SME segment. At the same time, for the fifth consecutive quarter, banks reported stickier price conditions for lending, particularly stemming from higher interest rates.
In Q1, banks continued to lend actively to the retail segment. The approval rate for consumer loan applications has continued to grow, extending the trend that began in Q3 2015. A total 37% of respondents reported higher demand for consumer loans, a response particularly common among banks with large portfolios of loans to households.
Improved consumer sentiment and higher spending on durable goods were cited as the main drivers of the demand for consumer loans.
Banks expect credit and currency risks to decrease
According to large banks, the overall risk level decreased in Q1, especially liquidity risk. Operating, currency, and interest rate risks decreased for the second consecutive quarter. Survey respondents expect credit risk and currency risk to fall further in Q2, and they expect other risks to remain unchanged.
For more details on the survey and to access questionnaire data, click here.
The next Lending Survey on banks’ lending expectations for Q3 2019 will be published in July 2019.
Note. Credit managers from 50 banks that jointly account for 98% of total assets in Ukraine’s banking system participated in the survey from 19 March through 10 April 2019. The results of the survey reflect the views of the respondents and do not necessarily reflect the NBU’s views, estimates, or forecasts.
For reference: The NBU publishes the Lending Survey quarterly. The survey aims to promote better understanding of lending market conditions and trends by the NBU and other banking sector stakeholders. It provides general estimates and forecasts of changes in lending standards and conditions for the corporate sector and households, as well as fluctuations in demand for borrowing funds, etc.