country, such as serbia, should have so many “ professors ” and “ experts ” on monetary policy who are a disgrace to their own profession and the very subject matter that they have been teaching their students for decades. as with the banking sector reform, i never expected to get much support, but neither did i expect to get so little of it. fortunately, we enjoy tremendous support from our citizens and that is most important to us. let me now turn to the banking sector and speak of how i see its further development. though the largest and the most spectacular part of the banking sector restructuring has already been completed, its fine tuning is a challenge that should on no account be underestimated, and there are quite a few details to tackle not only in 2007, but until the end of the decade. 1. ownership structure as an indispensable, albeit insufficient, prerequisite for banking sector reform, transformation of the ownership structure paved the way for a modern and stable banking sector. nearly 80 % of the serbian banking sector has, so to say, already joined the european union, as it is in majority ownership of strategic investors from the eu member countries. some challenges still remain, such as : • the republic of serbia has to define its further strategy clearly in terms of both majority and minority interest in banks ; • the national bank of serbia has set a deadline until 30 june this year to all qualified holders of more than 5 % interest, as specified by the recently adopted banking law ( 15 % before ), for submission of necessary documents for the purpose of assessing their financial standing, reputation and investment strategy. • the frequency and method of capital increases, as well as the capital adequacy ratio of some banks confirm that some bank owners are interested only in fast price gains from their stock of shares and hope to re - sell them and make a quick buck. it remains yet to be seen whether such banks will be able to find strategic partners or fight increasingly stronger competition. at this stage of the banking sector development, strategic investors show interest in both purchasing existing banks and setting up new institutions based on greenfield licenses. surely, this will not only boost the level of competitiveness of the serbian banking sector, which is one of the key nbs goals, but also ensure a wider range and better quality of banking services and products for serbian citizens. the national bank does not expect a significant drop in the number of banks in the forthcoming period as there are equal chances of local banks being acquired

rates on new dinar loans ( weighted average values, p. a., in % ) government securities and eurobonds ( p. a., in % ) dinar securities, 5y dinar securities, 7y dinar securities, 10y eurobonds, usd, 5y eurobonds, usd, 7y eurobonds, usd, 10y eurobonds, eur, 10y household loans * corporate loans * key policy rate source : ministry of finance. source : nbs. * excluding revolving loans, current account overdrafts and credit card debt. strong credit growth at favourable conditions gives significant support to economic growth. favourable financial conditions in the domestic market are also evidenced by the lending interest rates, which in the dinar market fully mirrored the nbs ’ s monetary policy easing. as for the euroindexed loans, favourable terms of financing were supported by the lower interest rates in the european money market and, to a greater extent, also by the decline in serbia ’ s risk premium. what i want to emphasize particularly is that serbia ’ s risk premium is now among the lowest in the region and that its sharp fall was largely driven by domestic factors. in the past months, the risk premium dropped several times, to even below 50 basis points, while on 12 november it touched its lowest value of 34 basis points. i would further like to point out that serbia is only a step away from investment grade, characteristic of economies offering high security of investment, which not only confirms the economic progress and the results achieved, but also contributes to further improvement of financing and investment conditions in serbia. a decrease in interest rates, coupled with economic growth and positive trends in the labour market, gives rise to lending. the structure of lending is favourable in terms of support to sustainable economic growth, as evidenced by a significant rise in corporate investment loans and a rebound in household housing loans, with a mild deceleration in the growth of loans intended for consumption. while lending has recorded two - digit y - o - y growth rates, loans have a stable share in gdp, posing no risk to either price or financial stability. the reduction in the share of npls in total loans to 4. 7 % has created room for further credit growth and at the same time reinforced financial stability. chart 11 lending activity and gdp ( y - o - y rates, in % ) chart 12 npl share in total loans, gross principle ( in rsd bn ) (