The results of the Survey on the credit activity of banks in Bosnia and Herzegovina, conducted by the Central Bank of BiH (CBBH), show that banks continued to slightly tighten credit standards in the third and fourth quarters of 2022, as well as in the first quarter of this year.
This, as stated by the CBBH, does not mean that the standards are more stringent compared to previous periods, but that more banks reported a tightening, rather than a relaxation of credit standards in the given period (the net percentage does not measure the strength of the change). The tightening of standards was somewhat more pronounced for long-term loans than for short-term loans. The percentage of banks that reported tightening credit standards for long-term loans was higher than the percentage of banks that reported tightening standards for short-term loans.
Factors that in the last three quarters have influenced the tightening of bank credit standards that are applied in the process of approving loans and/or credit lines to companies are risk perception (which is significantly higher than in the first half of 2022), willingness to take risks, competition from other banks and source costs for loans and balance sheet constraints (which has also become an important factor compared to earlier periods).
In parallel with the tightening of standards in the past three quarters, banks also reported a tightening of conditions for approving loans to companies (ie, contractual provisions from credit agreements), and they relate in particular to an increase in the interest margin, and somewhat less to commissions and fees and collateral requirements.
In the third quarter of 2022, in addition to the tightening of the above conditions, a couple of banks reported a reduction in the maximum amount of loans granted to companies.
In the third quarter of 2022 and the first quarter of 2023, banks reported that they increased the share of rejected loan applications, in contrast to the fourth quarter of 2022, when a decrease in the share of rejected applications for loans granted to companies was reported.
In the second half of 2022, there was a decrease in the demand for loans and/or credit lines, and in the first quarter of 2023, according to the banks’ response, the demand would be slightly higher compared to the previous quarter.
Regarding the expectations for the second quarter of 2023, the net result from the collected responses indicates that a slight tightening of the standards for approving short-term as well as long-term loans to companies is expected. Banks expect that the demand of companies for short-term loans and/or credit lines of companies will simultaneously increase in the second quarter of 2023.
According to the results of the survey, the net percentage change in the previous three quarters indicates a slight tightening of credit standards (i.e. internal guidelines or loan approval criteria) for housing as well as for consumer and non-purpose loans, which is particularly pronounced in the third quarter of 2022 for housing loans.
According to the banks’ reports, the increase in risk perception, the cost of sources for loans and balance sheet restrictions (which did not appear as an important factor in earlier quarters), and the willingness to take risks had a particular impact on the tightening of the standards applied in approval loans to the population.
In the last three quarters, the conditions for granting loans to households have been slightly tightened, and they relate to interest margins and collateral requirements. In the third quarter of 2022, the shortening of the maturity and the reduction of the maximum amount of the loan also had a negative impact on the terms of loan approval. In contrast to the previous two quarters, reduced commissions and fees in the first quarter of 2023 had the effect of softening the terms of loan approval.
In the third quarter of 2022, banks indicated a slight net increase in the share of rejected applications for consumer loans, in contrast to the fourth quarter of 2022 and the first quarter of 2023, when there were no changes in the share of rejected consumer loan applications.
In the first quarter of 2023, there was an increase in the population’s net demand for housing as well as for consumer and non-purpose loans, in contrast to the previous two quarters when a decrease in the population’s demand for loans was recorded. The net decline in demand for housing loans was more pronounced than for consumer and non-purpose loans.
Based on the expectations question, banks forecast a moderate easing of retail lending standards in the second quarter of 2023. Banks have an optimistic view regarding the population’s demand for loans in the second quarter of 2023, so in this sense, a slightly greater increase in demand for consumer and non-purpose loans is expected than for housing loans.
The results of the Bank Credit Activity Survey refer to changes in the third and fourth quarters of 2022, as well as the first quarter of 2023 and expectations for the second quarter of 2023. A total of seven banks were surveyed in that round, and the response rate was 100 percent.
The survey questionnaire contains 16 standard questions information about realized and expected changes on the side of supply and demand for loans – four questions refer to future and 12 questions to realized changes.
