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Serbia’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

In the conditions of pandemic-induced global uncertainty, Serbia’s economic activity decreased by only 1.0%. Thanks to the successfully implemented fiscal consolidation, initiated structural reforms and upgrade of the investment environment in prior years, grounds were laid for accelerated economic growth over the medium-term. In addition, sound macroeconomic fundamentals and robust monetary and fiscal policy measures enabled Serbia to weather the Covid-19 crisis more easily.

The robust package of economic measures taken by the Government to alleviate the negative effects of the pandemic temporarily pushed up public debt, but it still remained among the lowest in Europe. The share of central government public debt in GDP rose from 52.0% at end-2019 to 57.4% of GDP at end-2020. The share of external debt in GDP also increased to 66.3% of GDP (61.5% at end-2019).

Inflation remained low and stable for the seventh year in a row, averaging 1.6% in 2020. The National Bank of Serbia (NBS) continued to pursue a cautious monetary policy stance, deciding to trim the key policy rate four times in 2020 to 1.0%, its new lowest level in the inflation targeting regime.

The Serbian banking sector has remained resilient to the assumed shocks, including the pandemic in 2020.

At end of 2020, net assets of the banking sector amounted to RSD 4,601 bn (over 84% of GDP). In terms of the ownership structure of the banking sector, the largest share was held by foreign-owned banks (86%), while state-owned banks and domestic private banks accounted for 7% each.

Credit portfolio was worth RSD 2,650 billion, at the end of 2020, and the portfolio related to corporate loans (49.6%) and household loans (44.9%). Total net household loans amounted to RSD 1,189 bn, of which RSD 525 billion (44%) were cash loans and RSD 442 billlion (37%) housing loans. Household loans in foreign currency accounted for 45.0% of total household loans and almost all of them were in euros.

Loan supply was boosted by the continued NBS monetary policy easing, approval of loans under the Guarantee Scheme, as well as low interest rates in the international money market. On the other hand, loan demand went up amid increased needs for liquidity, debt restructuring and real estate purchase. At the end of 2020, excluding the exchange rate effect, total domestic loans grew by 9.9% in year-on-year terms.

Serbian banking sector was adequately capitalized in 2020. At the enf of 2020, CAR stood at 22.4%, which is considerably above the prescribed regulatory minimum. The regulatory capital adequacy ratio of the banking sector would remain above the regulatory minimum even in the worst-case scenario.

The NPL ratio is a significant measure of asset quality, as loans account for the dominant share of total balance sheet assets of the domestic banking sector. At the end of the year the Serbian banking sector NPL ratio measured 3.7%. The systemic approach to NPL resolution adopted in 2015, continued to be used in 2020, yielding very positive results. With a view to preventing the emergence of new NPLs, in December 2018 the Serbian Government adopted the NPL Resolution Programme for the Period 2018–2020.

The National Bank of Serbia (NBS) acted proactively and took numerous measures to mitigate the effects of the coronavirus pandemic on the financial system and to support lending and economic activity. In 2020 the NBS prescribed two moratoria on loans to enable debtors affected by the coronavirus pandemic to settle their liabilities to banks, and thus prevent new NPLs. The first moratorium was introduced in March, with 90 days’ duration – NBS adopted the Decision on Temporary Measures for Preserving Financial System Stability and Decision on Temporary Measures for Lessors Aimed at Preserving Financial System Stability, providing debtors with a three-month moratorium at the moment when it was needed the most, in view of the uncertainty caused by the pandemic. The moratorium envisaged the postponed settlement of loan liabilities to banks, including other liabilities to banks or lessors for all debtors who opted for this possibility (natural persons, farmers, entrepreneurs and companies). During the state of emergency, banks did not calculate the default rate on due, unsettled receivables and did not initiate enforcement or enforced collection procedures. There was a great interest of both citizens and companies in the moratorium.

In July 2020, households and corporates were given access to another moratorium which envisaged an additional postponement of the settlement of liabilities due on 1st August until 30th September 2020 and the moratorium on liabilities that were due in July of the same year and had not been settled yet. There was a slightly lower interest of both citizens and companies in the second moratorium.  However, the measures of both moratorium contributed also in terms of preventing new NPLs.

In order to prevent the potential future difficulties in the settlement of liabilities for debtors affected by the coronavirus pandemic, in December 2020, the NBS prescribed the obligation for banks and lessors to approve settlement facilities for debtors (natural persons, farmers, entrepreneurs and companies) who were not able to settle their liabilities due to the circumstances caused by the coronavirus pandemic, i.e., may have difficulties settling them, at their request.

To support the domestic financial system and overall economic flows amid the Covid-19 pandemic, the NBS provided additional dinar liquidity to banks by organizing repo auctions of dinar securities purchases and additional FX swap purchase auctions, as well as through bilateral purchases of dinar government and corporate bonds from banks in the secondary market.

Liquidity of the Serbian banking sector remained exceptionally high in 2020, sustaining no adverse impact of the coronavirus pandemic and hence, posing no threat to financial stability. At the end of 2020, the average monthly liquidity ratio stood at 2.2, well above the regulatory minimum (1.0). The average monthly narrow liquidity ratio of 1.9 was also significantly above the regulatory minimum (0.7). At 211.8%, the liquidity coverage ratio was also considerably above the limit set by the regulator (100%).

Banks operating in the Republic of Serbia rely mostly on domestic, stable sources of funding. The LtD ratio at end-2020 equalled 80.4%. In 2020, the amount of deposits was sufficient to cover the amount of loans. At end-2020, deposits accounted for 74.1% and balance sheet capital for 15.6% of the total banking sector liabilities.

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