Jorgovanka Tabakovi: Stability of the banking sector in Serbia
preserved and additionally strengthened
Introductory speech by Dr Jorgovanka Tabakovi, Governor of the National Bank of
Serbia, at the Annual Assembly of the Association of Serbian Banks, Belgrade, 18 June
2024.
* * *
Ladies and gentlemen, dear Marina, esteemed fellow bankers,
It gives me great pleasure to welcome you to the annual session of the Assembly of the
Association of Serbian Banks, a business association that has been contributing to the
development of the banking sector and the modernisation of financial services in Serbia
for more than 100 years.
Through solid partnership and cooperation, the National Bank of Serbia and the
Association of Serbian Banks promote transparency in work and coordination of
activities, all with a view to achieving one and the same goal - preserving the stability of
the banking sector of Serbia and strengthening its resilience to challenges.
The stability of the financial system is a shield against economic disruptions and
changes, as well as a vital link on the path to sustainable economic development. By
strengthening the stability of the financial sector, we lay the groundwork for long-term
economic growth and ensure a better standard for all our citizens. Delivering financial
stability is a continuous process. We build trust, as the key ingredient in this context,
through strategic risk management and a proactive regulatory approach.
For a number of years already, the National Bank of Serbia has succeeded in ensuring
price and financial stability by taking well-timed and appropriate decisions. We used the
period of low and stable inflation to strengthen financial stability by bringing all
parameters to the levels that are well above the regulatory minimums. The stability of
the financial system was also confirmed during the last four years marked by an
unprecedented multidimensional crisis, which shows the importance of a coordinated
monetary and macroprudential policy.
Thanks to the flexibility of our monetary framework, we tightened monetary conditions
gradually and measuredly, without endangering the stability of the financial system at
any point. We managed to return inflation on a downward path and in May, in
accordance with our projections, it returned within the target band, to 4.5%. With this in
mind, the Executive Board assessed that the conditions have been created for the start
of monetary policy easing through the reduction of the key policy rate, which was
trimmed after almost a year by 25 bp, to the level of 6.25%. We expect that inflation will
continue to slow until the end of the year and that it will move around the target
midpoint in the year that follows.
The stability of the exchange rate has become a new normal for Serbia. Before August
2012, stronger volatility was allowed, which led to the strengthening of inflationary
pressures, business uncertainty, high exchange rate differences and the increase in
non-performing loans, whereas from that time on, one of the basic characteristics of the
National Bank of Serbia and the overall financial system is the relative stability of the
exchange rate of the dinar against the euro. Record high FX reserves of over EUR 25
bn at end-May are an important factor of our country's stronger resilience to any
potential shock from the international environment.
Economic activity stepped up to 4.7% y-o-y in Q1. We expect economic growth to reach
3.5% in 2024 overall, and to accelerate to 4-5% from 2025, supported by investments
within the "Leap into the future - Serbia 2027" programme, subsiding global inflationary
pressures and more favourable financial conditions. Owing to the generally good
economic situation in the country, a significant number of banks expect loans to the
corporate and household sectors to grow by over 5% this year and next, as reported in
the latest bank lending survey. The trust we have built is best confirmed by the growth
in savings and their record levels. Namely, dinar savings rose from under RSD 18 bn at
end-2012 to over RSD 159 bn now and FX savings from EUR 8.3 bn to EUR 14.9 bn.
All data show that we managed to preserve and additionally strengthen the stability of
the banking sector despite the numerous challenges and risks which Serbia, as a small
and open economy, was exposed to in the prior period. This was also recognised by
international investors and rating agencies. In April 2024, Standard & Poor's upgraded
Serbia's outlook from stable to positive, placing our country at a half a step away from
investment grade.
The National Bank of Serbia's unwavering commitment and a proactive approach,
along with the constructive cooperation of the banking sector, have created the
regulatory prerequisites for the approval of numerous debt repayment facilities to
businesses and households, facilitated natural persons' access to bank financing and
improved the protection of the interests of financial services consumers. And why do I
always say that our successes are shared - because we would not be able to do it
without commercial banks.
Therefore, as a result of all the activities undertaken, the banking sector in the Republic
of Serbia has remained stable, highly liquid and profitable. All relevant performance
indicators are significantly above the prescribed minimum values.
The Serbian financial system is extremely bank-centric: commercial banks are the
dominant market participants with a share of around 90%. Net assets of the banking
sector are continuously growing and reached RSD 6,050 bn (EUR 51.7 bn), accounting
for 74% of GDP in April 2024. At end-March 2024, the capital adequacy ratio at the
level of the banking sector was almost 22%, with a favourable capital structure. The
liquidity of the banking sector is also at a very high level, and the values of all relevant
indicators are constantly considerably above the prescribed minimum values. I will also
mention that from June 2024, banks in Serbia are obliged to calculate and maintain the
net stable funding ratio (NSFR according to Basel 3 standards). In addition to
harmonising domestic regulations with those of the EU, the goal of introducing this
indicator is to strengthen the structural liquidity of banks.
However, all the while we were thinking about our citizens and the effect of higher
interest rates on their living standards. We adopted the Decision on Temporary
Measures for Banks Relating to Natural Persons' Housing Loans. By adopting this
temporary measure, the National Bank of Serbia once again showed responsibility and
acted preventively in order to maintain the stability of the financial system in the
uncertain circumstances of fluctuating interest rates, instead of waiting for the
materialisation of negative effects and the build-up of non-performing loans, when any
response would be forced and of limited scope. The fact that the share of NPLs in the
segment of housing loans did not increase, but rather decreased since the introduction
of the measure, amounting to 1.6% in April, shows that the measure was more than
effective.
It is important to point out in this context that thanks to the banks' active efforts to
manage NPLs, strategically supported by the Serbian central bank and the government,
we managed to keep the share of NPLs at a historical low.
Also, I would like to use this opportunity to emphasise that the first issue of long-term
MREL bonds was realised, this being the first issue of MREL bonds in the Western
Balkans. The MREL bonds were issued in dinars, which additionally contributes to the
achievement of the objectives set by the Strategy of Dinarisation of the Serbian
Financial System. Furthermore, these bonds will be traded on the Belgrade Stock
Exchange, which will support the development of the domestic capital market.
The National Bank of Serbia keeps a close eye on developments in the local and
international markets, continues to improve the regulatory framework for banks with a
view to creating the most favourable conditions, and stands ready to act preventively to
minimise any risks to financial stability.
Through joint efforts, we have established a regulatory framework for banks equivalent
to that applied in the EU. The National Bank of Serbia, together with banks, has
provided all the necessary conditions for a stable and sound banking sector, which
finances domestic economic activity and provides modern financial services. The
results achieved testify that we are on the right path. We will therefore remain
committed to providing support to the modernisation of banking services, the application
of technological innovations in business operations, the development of financial
infrastructure and financial inclusion, all of which contributing to the growth of our
economy and better living standards.
It goes without saying that we will continue successful and high-quality cooperation with
the Association of Serbian Banks, headed by Marina Papadakis. We are confident that
in cooperation with the National Bank of Serbia, the Association will contribute with its
initiatives and innovative approach to the further development of the banking sector of
the Republic of Serbia, the improvement of financial services for businesses and
citizens, and the application of the most modern risk management methods.
I greet you all cordially and wish you a successful annual Assembly of the Association
of Serbian Banks!