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Serbia’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

Higher-than-expected GDP growth of over 4% was recorded in Serbia in 2018, due to robust investment activity, exports and labour market recovery. The growth was led by both public and private investment. In 2019, GDP is expected to grow by 3.5%, while in the medium term, at the rate of around 4%.

Serbia’s risk premium remains among the lowest in the region, primarily as a result of domestic factors, such as multi-year narrowing in internal and external imbalances. The fiscal surplus in 2018 was 0.6% of GDP, while public debt declined (in the beginning of 2019 at 50.4% of GDP).

The inflation rate was low and stable at 2.0% and the dinar (RSD) foreign exchange rate remained stable in 2018 at EUR/RSD=117). The policy rate was cut in March and April 2018, each time by 25 basis points, to 3.0%. Since the beginning of monetary policy relaxation cycle (May 2013), dinar lending interest rates fell sharply. In February 2019, dinar interest rate for the corporate sector was 4.3% (down by 12.1 percentage points since May 2013), and for households at 10.3% (down by 10.3 percentage points). In 2018, a sharp fall in the country risk premium and monetary easing by the ECB contributed to the fall in EUR indexed lending rates.

The unemployment rate in Q4 2018 was 12.9%, a decline of 1.8 percentage points year-on-year, and the employment rate 47.4% (up 1.1 percentage points). The participation rate was higher by 0.7 percentage points at 68.1%. Favourable trends in the labour market come mainly from the manufacturing, private sector services and construction.

In 2018, the banking sector of Serbia comprised 28 banks, among which eight were domestically owned and 20 had majority foreign capital. Domestically owned banks 2018 held 23.7% of total assets and 24.5% of total capital. Five domestic, stated-owned banks held 16.5% of assets and 13.8% of capital. The three domestic privately owned banks held of 7.2% of assets and 10.7% of capital. The 20 banks with foreign stakes held 76.3% of assets and 75.5% of capital.

During 2018, the National Bank of Serbia introduced and enabled the system of instant payments. Banks operating in Serbia already manage online banking services, mobile payments and other digital transformation initiatives.

There were 1,610 bank business units in 2018, of which domestic banks had 554 (state-owned 430 and privately owned 124), and foreign-owned banks had 1,056. The banks had 23,067 employees in 2018, among which 29.3% were employed in banks in domestic ownership and 70.7% in banks in foreign ownership.

Total deposits with banks stood at RSD 2,501.9 billion at Q3 2018. The share of foreign currency (FX) and FX-indexed deposits in total deposits was 68.5%. The euro was the dominant currency, making up 91.1% of total FX and FX-indexed deposits. The rest of FX and FX-indexed deposits were mainly in US dollars (5.1%) and Swiss francs (2.8%).

In terms of initial (agreed) maturity, demand deposits dominate (62.1% of the value of deposits), followed by deposits maturing in up to one year (25.5%), while 12.4% of all deposits were agreed for over one-year term.

At Q3 2018, FX savings accounted for 93.3% of household deposits and dinar savings for 6.7%. Total household deposits in foreign currency amounted to RSD 1,109.5 billion.

In Q3 2018, gross loans of the Serbian banking sector reached RSD 2,178.2 billion, RSD 124.5 billion or 6.1% more than at the end of 2017.  Dinar cash loans increased by 15.0% for the first nine months of 2018. As for loans to corporates, growth is most evident in liquidity and current assets loans with an FX clause. The corporate and household sectors accounted for 45.0% and 40.6%, respectively, of total gross loans. The currency structure of the Serbian banking sector’s loan portfolio is still dominated by foreign currency. At end-Q3 2018, FX and FX-indexed loans accounted for 68.8%. The prevalent currency of loan indexation in Serbia was the euro, with euro-denominated loans making up 65.0% in total loans (94.5% of total gross FX and FX-indexed loans).

At Q3 2018, dinar loans made up 31.2% of total gross loans. Observed by sector, households accounted for the bulk of dinar loans (55.6%), public non-financial sector accounted for 7.8% and foreign entities for 0.4%. By loan category, dinar loans accounted for the major portion of cash and consumer loans (99.1% and 64.2% respectively). The share of cash loans in total loans increased to 18.3% at the end of September 2018.

The quality of banking sector assets continued to improve in 2018. Implementation of non-performing loan (NPL) resolution measures together with the growth of credit activity led to a significant improvement in the banks’ portfolio quality. The NPL ratio decreased to 5.7%, the lowest level since 2008, when the definition and reporting requirements were introduced. Banks maintained relatively high coverage through IFRS provisions and regulatory reserves.

The banking sector’s net profit, before tax, in the first nine months of 2018 was RSD 53.9 billion, up by 0.8% year-on-year. Some 24 banks reported combined profits of RSD 55.5 billion, while four banks reported combined losses of RSD 1.6 billion. Five accounted for 68% of the total sector’s profit. At the end of September 2018, the sector’s return on assets (ROA) was 2.07% (down from 2.18% at end-September 2017) and the return on equity (ROE) was 10.66% (11.01% at end-September 2017).

Profitability was influenced by a decrease in other operating incomes (by RSD 6.5 billion), which was primarily a consequence of the banking sector’s consolidation process.

The banking sector of Serbia also achieved the following indicators of performance: sector liquidity indicator 2.0%, standard non-performing loan (NPL) ratio 5.7% and capital adequacy ratio 22.3%.

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