Broken Negative Trend – Increased Loans to Companies

Total loans to companies for working capital and investments exceeded 65 billion kuna at the end of May, representing growth both on a monthly and annual basis, according to HNB data. Compared to April, total loans were nominally higher by 274.1 million kuna or 0.4%. On an annual basis, total loans for investments and working capital were higher by 386.5 million kuna or 0.6%, thus breaking a multi-year negative trend that has almost continuously lasted since May 2012, except for September of last year, analysts from RBA stated in their daily report.

The annual growth is primarily supported by the increase in the amount of foreign currency loans to companies, which include loans with a currency clause, and account for 65.8% of total loans. Namely, the total amount of foreign currency loans to companies at the end of May, with monthly and annual growth of 0.4% and 3.9%, amounted to 42.8 billion kuna. This marks the eleventh consecutive month of annual growth. On the other hand, kuna loans to non-financial companies continue to experience annual declines that have persisted since April 2017. Their amount at the end of May was 22.2 billion kuna, representing an annual decrease of 1.2 billion kuna or 5.3% (monthly +0.5%).

>>>RBA: Break in the trend of corporate deleveraging, loans increased by 620 million kuna

When viewed by types of loans, investment loans, with monthly and annual growth (0.5% and 1.4%), amounted to 31.4 billion kuna at the end of May. On the other hand, loans for working capital continue to show negative annual growth rates for the sixth consecutive month (-0.2%), although the rate of decline has slowed (in April, the annual decline was 3.5%). Specifically, with a monthly increase of 0.4% and a continued annual decline, loans for working capital amounted to 33.7 billion kuna at the end of May.

According to data on total placements to non-financial companies based on transactions – which exclude the impact of exchange rates, price adjustments of securities, reclassifications, and write-offs of placements – in May, a slowdown in growth was recorded compared to the previous month, from 1.2% to 0.5%, while the annual growth rate accelerated to 3.1%. On the other hand, the amount of placements to companies based on the state in May recorded a monthly increase of 0.3%, while on an annual basis it continued with negative growth rates (-1.3%), which is mostly due to the sale of non-collectible placements but also the strengthening of the kuna against the euro (+0.5%).

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Given the expected continuation of favorable economic trends and the recovery of investments, we also expect a recovery in demand for loans from non-financial companies. In this context, the high level of liquidity in the system affects the decline in interest rates on newly approved loans, which could certainly contribute to an increase in credit activity in the observed sector, conclude RBA analysts.