The concept of non-performing loan (NPL) is a claim of the bank on the basis of a loan where the collection from the debtor is delayed in relation to the agreed term or the value of the collateral is reduced or completely canceled due to economic factors.
The IMF itself provides a more precise analysis of the concept of NPLs and defines them as all claims based on loans for which payment is the client's obligation, including interest and principal debt, in arrears of 90 days or more or less than 90 days in arrears, but there are other reasons that make it doubtful that the bank will collect the loan in full.
First of all, such loans also include those for which the bank has assessed that the borrower's ability to repay has been reduced, thereby calling into question the fate of the loan agreement. In the banking system, not all countries use the same definition of the term for calculating the indicator of non-performing loans, but there is a tendency towards an indicator that is calculated as the ratio between the sum of loans with a delay of 90 days or more and total claims based on approved loans in the entire banking sector. Non-performing loans are indicators of the quality and stability of the financial system, and to some extent the credit risk of the entire economy, and the same affects the credit rating.
In Serbia today the number of non-performing loans in the economy in 2023 began to grow slightly, albeit by 0.2 percent compared to the first quarter and amounted to 2.2 percent of all loans, but due to high interest rates, the interest of businessmen has declined for bank loans. In contrast to the previous quarter, companies took fewer loans for liquidity and working capital, while investment and import loans recorded growth. Lending to construction companies and real estate companies increased the most, while the increase in NPLs is not unexpected.
It was the European Investment Bank in its latest report on bank lending in Central, Eastern and Southeastern Europe that stated that banks in Serbia have recorded a deterioration in credit quality in recent months. Further deterioration is expected in the coming period, with an increase in non-performing loans, they indicated. The growth of NPLs, although at low levels, can largely be explained by the slowdown in economic activity in Serbia and internationally, as well as by the tightening of monetary policy. Economists note that in previous months the demand for loans was high, primarily short-term for liquidity, but they predict a slowdown and a decline in the demand for this type of loans.
According to the report of the National Bank of Serbia (NBS), loans to the economy were reduced by 1.1 percent, which is explained by slower lending activities, maturity of loans from guarantee schemes, as well as higher interest rates on loans due to its restrictive monetary policy, as well as the same such policy European Central Banks.
Sandra Popović, Senior Associate at IVVK in cooperation with LexQuire
E-mail: sandra.popovic@ivvk.rs
22/12/2023
