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Serbia’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The banking sector of Serbia comprises 28 banks operating on the market pursuant to the licence of the National Bank of Serbia (NBS), as the banking regulator and supervisor. Seven of these banks are fully or partially state-owned. Most of the banking market capital is foreign (83%), predominantly coming from EU countries (Austria, Italy, Hungary, Greece and France). In recent years the Serbian banking sector followed the global trend of consolidation, resulting in several mergers and acquisitions on the market. These processes are leading towards further consolidation of the banking sector, achievement of better performances of banks and higher yields to shareholders.

At the end of 2017 the balance sheet size of the banking sector amounted to €28,425 million, and total capital of the banking sector, to €5,615 million. Lending activity of banks, after a medium-term period of stagnation and decline, recorded an upward trend in 2017, encouraged by the easing of the monetary policy of the NBS, accompanied by the effects of increased competition among banks, the growth of economic activity, the recovery of the labour market, and the decline in the country’s risk premium and low interest rates in the euro area. Total loan placements at the end of 2017 were nominally higher by 3% compared to the end of the previous year. Consequently, there was growth despite the write-offs of non-performing loans (NPLs), which exceeded those of the previous year.

Broken down by the sector structure, corporate loans (companies and public enterprises) experienced a nominal growth by 2.7%, at the end of 2017. Loans granted to entrepreneurs noted a nominal growth pf 3%, while retail loans were, in nominal terms, 10% higher at the end of 2017 than they were at the end of the previous year, the result of a considerable drop in the interest rates on loans linked to foreign currencies (FX). The gross carrying value of all approved loans granted to public enterprises, companies, entrepreneurs, households and the public sector amounted to €15.3 billion. Corporate loans experienced growth based on the increased lending to companies. Increase in retail lending continued, primarily in the segment of cash and refinancing loans.

The banking sector of Serbia ended 2017 with net profit before taxes to the amount of €580 million, which was 33.7% higher than in 2016. Return on assets in 2017 was 2.2%, which was higher by 1.5 percentage points than in the previous year, while return on equity (RoE) at the end of 2017 amounted to 11.1%, indicating growth by 7.7 percentage points. It should be noted, however, that after excluding the effects of solving NPLs, the RoE amounted to only 4.2%. Nevertheless, the quality indicators of the banking sector’s balance sheet structure at the end of 2017 remained satisfactory: the capital adequacy ratio was 22.6% (far above the regulatory minimum of 8%), the coverage of NPLs by loss provisions was 133.2% and the liquidity ratio was 2.0.

In 2017, inflation remained low and stable, moving within the allowed deviation from the NBS target (3% +/-1.5 percentage points). Bearing in mind that low inflation expectations and relatively stable foreign exchange rates have been present for a longer period, together with other signs of stability, especially fiscal consolidation, these measures will support further incentives to lending and overall economic activity. The FX rate of the dinar against the euro remained stable during 2017, thus confirming the trend of a relatively stable FX rate in the past five years. Such a trend of the FX dinar rate considerably contributed to the maintenance of low and stable inflation.

The NPL ratio at the banking sector’s level, as a percentage of the share of these loans in the portfolio of total approved loans at the end of 2017, amounted to 10%. This indicator experienced a significant drop in comparison to the end of 2016 (down by 7.2 percentage points, chiefly owing to the banks selling NPLs, thereby significantly clearing their portfolios from risk-bearing assets and boosting their liquidity. Broken down by sectors, the highest rate of NPLs was noted in corporate loans (around 11%), the same as in the loans granted to entrepreneurs, followed by public enterprises with 6.4% and households with 5.6%. All of the observed indicators decreased compared to the year before, due to the active measures of the NBS, the Serbian government, and the banks, the end goal being to solve, finally, the problem of NPLs as a limiting factor to the increased lending growth.

Overall, the results of the banking sector’s operations in 2017, together with the prospects of further improvement in 2018, show that the banking sector is highly secure, stable and liquid.

Contributor: Dr Zlata Lukić zlata.lukic@ubs-asb.com

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