Ljubljana - Banks in Slovenia generated a pre-tax profit of EUR 372.5 million in the first nine months of 2021, down 10.5% compared to the same period last year, when re-tax profit benefited from a merger of two banks. Profit was relatively high, but mainly due to the net released impairments and provisions, the central bank said on Tuesday.

If impairments and provisions were close to the long-term average, the profit would be only a third of what it is now.

"The sustainability of profit generated by banks thus remains uncertain in the future," Banka Slovenije said in its latest report on banks' performance.

The net released impairments and provisions totalled EUR 48 million, compared to EUR 109 million in the same period last year.

Taking the long-term average of net impairments and provisions in total assets into account, the pre-tax return on equity would be only about a third of what it is.

With net interest falling and banks' earnings stagnating, it should be noted that achieving relatively high profit is not sustainable, as it will be difficult to maintain them at this level, the central bank warned.

In September, total assets of the Slovenian banking system decreased by EUR 316 million to EUR 47.5 billion. But it was up 9% year-on-year.

The annual growth in loans to the non-bank sector remained at 2.8% in September. The increase was driven mainly by loans to households. Since turning positive at the end of the first quarter, growth in these loans has been gradually picking up, to 3.2% year-on-year in September.

The central bank attributes this mainly to an increase in housing loans, which were up by 8.1% year-on-year in September to EUR 63.7 million.

The decline in consumer loans continued in September, when their volume was down 6.2% compared to than last year.

The number of new consumer loans deals this year is similar to last year's but the drop is mainly due to repayment flow from the past, when this type of lending was significantly above the average.

Lending to businesses remained weak, although lending to non-financial corporations in September slightly exceeded last year's figures. Loans to non-financial corporations grew by 0.6% year-on-year, with a net increase of EUR 29.8 million in September.

The rise in the share of non-performing loans continued in September in the same areas as in previous months, while the total exposure remained at the August level of 1.3%.

In the hospitality sector, the share reached 12.6%, while in consumer loans it remained at 3.7%.

Among the sources of funding for the banking system, deposits from the non-banking sector increased by EUR 50 million in September, while their year-on-year growth declined to 9.3%.

The year-on-year growth in deposits of non-financial corporations stood at 10.5% and of households at 9.3% and was still well above the pre-epidemic growth.

Net interest revenue continued to decline, but it is approaching last year's figures. The net interest margin is declining. In September, it stood at 1.43% for the last year.

Net non-interest revenue was about 33% lower than in the same period last year, mainly due to the merger of two banks last year. Without the merger, it would have been slightly above last year's figures.

Net income from fees and commissions maintained its relatively high growth of 14.7%, similar as in previous months.

The banking system remains solid in terms of capital and liquidity. The capital adequacy ratio on a consolidated basis stood at 18.5% at the end of the second quarter, below the euro area average, while the CET1 ratio exceeded it at 17%. Liquidity ratios also remained high, despite a slight drop in September.