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Serbia’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

Serbia’s GDP rose 4.2% in 2019, largely driven by a strong increase in fixed investments, notably in transport and energy infrastructure, as well as investments in machines and equipment. Preserved macroeconomic stability was conducive to a further rise in investor confidence and their appetite for longer-term investments in Serbia, as attested by the record-high inflow of foreign direct investment, the country risk premium falling to the lowest level on record, and a credit rating upgrade to a notch away from the investment grade. The country’s external position has been strengthened, and for five consecutive years the current account deficit has been fully covered by foreign direct investment, which measured €3.6 billion in 2019, up by 13.5% from 2018. The achieved price and financial stability, as well as ordered public finances, were confirmed by Moody’s improving Serbia’s credit rating outlook from “stable” to “positive”, and Fitch and Standard &Poor’s improving the rating from BB to BB+.

For seven years in a row inflation remained low and stable, and in December 2019, it measured 1.9% year-on-year. During 2019 the National Bank continued to pursue a cautious monetary policy, and trimmed its key policy rate three times, in July, August and November, each time by 0.25 percentage points, to 2.25%.

In 2019, responsible fiscal policy was fully coordinated with monetary policy. Consistent monetary policy and full coordination with the fiscal policy brought significant contribution to the achievement of good economic results, thus strengthening the foundations for future sustainable growth. In 2019, the IMF Executive Board adopted a decision on the successful second and third review of Serbia’s economic performance, supported by the Policy Coordination Instrument, which is advisory and does not envisage the use of funds. Central government debt in GDP equalled 52.0% at end-2019, down by 1.7 percentage points from end-2018.

Serbia’s banking sector, making up over 90% of financial sector assets, was stable in 2019 owing to adequate capitalisation, high liquidity and profitability. Throughout the year, banking sector adequacy and liquidity ratios were significantly above the prescribed thresholds. At year-end, banking sector profitability resulted in the ROA of 1.8% (2.12% at end-2018) and ROE of 9.8% (11.27% at end-2018). The banking sector’s net profit, before tax, in 2019 equalled RSD 67.7 billion, down by 10.6% compared to the result achieved at the end of 2018.

At end-2019, the share of NPLs in total banking sector loans stood at 4.1%, the then lowest level on record. The NPL share dropped by 18.3 percentage points compared to July 2015, i.e. the period before the adoption of the NPL Resolution Strategy.

The fall in gross NPLs by 9.7% in Q4-2019, along with a rise in total loans by 3.0%, pushed the share of NPLs in total gross loans further down by 0.58 percentage points quarter-on-quarter, to 4.09%, which is their new historic low since the introduction of the uniform definition of a non-performing loan and mandatory reporting in 2008. At end-Q4 2019, gross corporate NPLs equalled RSD 37.1 billion, down by RSD 4.4 billion or 10.6% quarter-on-quarter, mainly due to: collection (RSD 3.4 billion), write-offs (RSD 1.1 billion), and assignment (RSD 1.1 billion). By sector, the biggest share in total corporate NPLs continued to be held by manufacturing (40.6%, with a 4.4% gross NPL ratio), followed by trade (17.4%, with a 1.9% gross NPL ratio), construction (12.0%, with a 3.8% gross NPL ratio) and real estate business (16.6%, with a 5.4% gross NPL ratio). The highest gross NPL ratio in the natural persons’ segment at end-December 2019 (7.8%) was recorded in the category of current account overdrafts (which accounted for 2.0% of total loans to natural persons and 3.9% of total NPLs of natural persons). The next were credit cards, with the ratio of 5.5% (making up 3.0% of total loans to natural persons and 4.2% of NPLs of natural persons), consumer loans with 4.7%, cash loans with 4.2% and housing loans with 3.1%.

Serbia’s banking sector has been characterised by considerable excess liquidity for a long time now. At end-Q4 2019, the average monthly liquidity ratio was 2.18, twice higher than the regulatory floor of 1.0. The narrow liquidity ratio at banking sector level measured 1.84 (regulatory floor – 0.7). The share of liquid assets in the total banking sector’s balance sheet assets is stable, reaching 37.3% at end-Q4 2019.

To strengthen the resilience of the banking sector further, the liquidity coverage ratio was introduced. As of 1 January 2018, banks are required to maintain this ratio at a level not lower than 100% (prescribed floors are the same as in the European Union). As of 31 December 2019, the liquidity coverage ratio at the banking sector level measured 199.3%.

Contributor: Dr Sladjana Sredojevic sladjana.sredojevic@ubs-asb.com