Jorgovanka Tabakovi: Confidence remains the cornerstone of
banking
Speech by Dr Jorgovanka Tabakovi, Governor of the National Bank of Serbia, at the
Bloomberg Adria's "Finance Industry Trends 2023" conference, Belgrade, 31 March
2023.
* * *
Ladies and gentlemen,
We live in a changing world. Banks and models of operation change. But what does not
change is the cornerstone of banking - CONFIDENCE. What does not change is the
fact that banks are there for the sake of people - clients, owners and managers.
Whenever some of the players, particularly those who lead and manage banks,
underestimate CONFIDENCE, they arouse FEAR, which is a bad ally to banks and may
wreak havoc in the financial system.
"Can anybody remember when the times were not hard and money not scarce?", is a
well-known question posed by American philosopher Ralph Waldo Emerson. This
question is topical even after almost two centuries. It is relevant today perhaps more
than before as in the past three years we have witnessed circumstances
unprecedented in modern history. What will 2023 bring? It will be plagued by
uncertainty for all market participants and policy makers alike, which is why the
preservation of stability and foundations of sustainable growth is a priority.
This first regional conference organised by Bloomberg Adria, whose central topic are
finance industry trends in 2023, recognises the importance of regional cooperation and
digitisation that connect markets, as well as the importance of a stable business
environment. The countries pursuing sound economic policies before the crisis and
strategically investing in sustainable development responded better to all the
challenges. Many independent institutions have highly positively assessed Serbia in
light of its long track record of good macroeconomic performance and a proven
capability to respond proactively to various shocks from the international environment. I
will therefore touch on three topics:
1. Macroeconomic environment for operation of Serbian banks,
2. Stability and resilience of the domestic banking sector,
3. Easier, faster, more accessible and secure financial services.
Macroeconomic environment for operation of Serbian banks
I will start with the conclusion that owing to our efforts the conditions of doing business
in Serbia have remained stable, despite the pandemic, global effects of the Ukraine
conflict and global energy and food crises.
At the level of last year, the dinar gained 0.2% against the euro. We have
preserved its relative stability in the year so far as well.
At end-February, the country's FX reserves hit their record high of EUR 21.2 bn.
Last year, the National Bank bought EUR 1 bn net in the interbank FX market.
Since the start of this year, we have bought additional EUR 435 mn net.
Confidence in the financial system has also been preserved, as confirmed by the
continued rise in total deposits in banks, which in late 2022 exceeded the 2019
figure by over 40%.
The NPL share in total loans was reduced to a record low of 3% at end-2022.
During the three crisis years - from 2020 to 2022, Serbia was recording real
economic growth of around 9%. This year, real growth is expected to equal
between 2% and 3% and GDP per capita to reach around EUR 10,000 for the first
time.
The unemployment rate is at its lowest, and private sector formal employment at
its highest - close to 10% above the pre-pandemic level. This means that 150,000
more people are employed now than before the pandemic. In December, total
average wage was higher by 36%, while private sector wage exceeded the
precrisis figure by as much as 46%.
We have also ensured conditions to attract a record high level of FDIs, worth EUR
4.4 bn last year, i.e. 7.1% of GDP.
Stability and resilience of the domestic banking sector
Ladies and gentlemen,
I began my address with the macroeconomic environment in which banks in Serbia
operate as trends in the financial industry always depend on real sector developments,
and vice versa.
Good regulations and efficient supervision of financial institutions are also important.
While some countries have a complicated supervision system and a huge problem of
coordination among different supervisors, the banking sector supervisory function in
Serbia is exercised by a single institution - the National Bank of Serbia. The
advantages of such organisation of the supervision system and the quality of
supervision are reflected in a stable financial system. It is confirmed now as well -
during the current developments in the international financial market - that the National
Bank of Serbia is rightly cautious in easing its regulations. We do nothing "on request".
We do not fulfil anyone's wishes as we are guided by financial system security and the
protection of interests of depositors and bank clients. This is our statutory objective and
it is only in such way that we can best contribute to overall stability.
That the NBS's approach is adequate is confirmed by the conclusion in an interesting
speech delivered by Andrea Enria, the Chair of the ECB's Supervisory Board:
"Market turmoil always triggers political debates on regulatory reforms, but I think that
we should rather focus on the effectiveness of supervision. The most convincing
explanation of the rationale of prudential supervision was given in the seminal book by
Dewatripont and Tirole published in 1994:
The supervisors' task is monitoring that banks are safe and sound on behalf of
depositors, as the latter are too small and dispersed to be able to understand the risks a
bank is taking. Effective supervision is the best reassurance for depositors. And in order
to deliver effective supervision we need to have a razor-sharp focus on risks, ask
difficult questions and request fast and satisfactory remediation of the weaknesses the
supervisors identify when performing their job. [...]
Notwithstanding the significant improvements made by European banks to strengthen
their capital and liquidity position and improve their asset quality, the current events
confirm that strong, demanding supervision is needed more than ever".
In Serbia we have nine systemically important banks, of total 21 banks that constitute
our banking sector. There is not a single bank that we treat as too small or insignificant
in our supervision. We carry out regular and extraordinary supervisions of banks'
operation, on-site and off-site. We analyse all aspects of operation of each bank,
including risk management, with an eye on the system as a whole.
The data and in-depth analyses confirm that Serbia's banking sector, which operates in
line with domestic regulations, is highly capitalised and highly liquid, which is a
guarantee of security and availability of deposits at any moment.
In late 2022, banking sector assets were by 33.7% higher compared to 2019, reflecting
primarily boosted financing of the corporate and household sectors, i.e. rising lending
activity. This helped realise the full potential of the two-way link between the financial
and real sectors.
Let me conclude the second topic. The domestic banking sector is highly liquid and
solvent. All relevant banking indicators are multiple times above the National Bank's
regulatory requirements. The sector showed strong resilience during the pandemic, as
well as during the past several crises, owing to good regulations, good supervision, and
good risk management. Furthermore, the National Bank of Serbia has demonstrated its
readiness and capacity to respond promptly in order to protect financial stability and
depositors' interests amid heightened uncertainties in the international market.
Easier, faster, more accessible and secure financial services
I am moving on to the third topic - easier, faster, more accessible and secure financial
services. Banks in the Republic of Serbia are an important link in the digitisation
process as well, especially in the part of services they offer to users. There are certainly
two important reasons for that:
1. the necessity of adapting to the needs of users, as well as
2. a stimulating and modern legal framework for the provision of financial services in
the Republic of Serbia.
What do the data tell us, are improved financial services being used?
The fact that in 2022, compared to 2021,
the number of transactions via m-banking increased by 26%, and
the number of card and e-money transactions for the purpose of online purchase
of goods and services increased by over 34% says that bank clients are quickly
embracing innovations in the field of financial services.
Innovations are particularly present in payment services, where Serbia is forging its own
path, as in many other areas. I will remind you that the National Bank of Serbia was one
of the first in Europe, four and a half years ago, to establish a system for instant
payments, which executes around 150,000 transactions daily on average.
With the system for instant payments, the National Bank has provided banks with
infrastructure through which they can upgrade their mobile applications with new
services. An example of this is the Transfer service - where just by selecting a name
from the contact list in your phone or by entering a mobile phone number, you can
easily and simply transfer funds to whomever you want. There are many other features
of the National Bank's instant payment system, such as the possibility of paying
monthly bills by simply scanning the NBS IPS QR code or paying bills at
brick-andmortar and online points of sale. These new features that we have provided save time,
which is an extremely important resource.
Our system for instant payments is not only a modern but also a cost-effective
infrastructure for cashless payments, which has numerous advantages over card
payments at points of sale, such as:
simple implementation on the acceptance side,
possibilities of using different acceptance solutions, not only POS terminals, or
lower fees for merchants compared to card payments with foreign card brands.
Recently, the first newsstands in the country made it possible to accept instant
payments, and we invite all interested legal persons and entrepreneurs, especially
small merchants, to consider introducing instant payments in their business and thus
use numerous advantages that this method of payment provides.
Of course, this time as well I want to emphasize the importance of our national payment
card - our Dina, which is the first choice among payment card users, as well as the
most preferred card among merchants, as it is the most cost-effective choice for all
participants in the domestic market of payment services. With Dina, you can enjoy
many benefits such as deferred or instalment payments, cash withdrawal services or
paying for services without commission. With Dina, we do not depend on unilateral
decisions of international card systems, where the processing and netting of card
transactions is carried out outside the Republic of Serbia. With Dina, services are
adapted to local needs, and the fees charged for services are not only significantly
lower compared to foreign payment cards but remain in the country and contribute to
domestic economic growth.
Dear friends,
Digitisation has been talked about lately in a fatalistic manner. Of course, like everyone
else, I know that digitisation has brought and will continue to bring us numerous
advantages. I am progressive and I like modern technology, but not in a way that it
enslaves people, rather in a way that serves them. We need digitisation, but we also
need sustainable agriculture and a clear vision of where our development chances lie.
We need to create opportunities for people to work, and they will know how to
recognise and use these opportunities. In the conditions of globalisation and intertwined
chances and risks, there is no alternative to regional cooperation either. However, we
must be aware that new technologies give us countless new opportunities, but also
bring us new challenges and risks. We have to be mindful of them as well.
On this path, the task of the National Bank of Serbia is clear. It is up to us to remain
committed to innovations that make everyone's life easier and save time, as well as to
preserve the justified trust of the public and their expectations of a stable and safe
financial system that all of us invested a lot of time and effort to establish and maintain.
Stability is often taken for granted, but without it, we would hardly be talking about
positive financial trends in 2023 and the necessity of digitisation. "Anyone can hold the
helm when the sea is calm", said Publilius Syrus, a Latin writer.
The National Bank of Serbia will continue to ensure certainty by creating conditions for
the sustainable development of financial services so that they are in the best interest of
our citizens and economy, not individuals in the market.
I wish you a successful first regional conference on finance industry trends in 2023.