banks and other financial services providers seek to tap what is soon to become an enlarged market of almost 500 million people, either directly by setting up shop in these countries or indirectly through the cross - border provision of financial services. the advantages for financial stability of a diversified financial structure are well - documented. suffice it to recall that because different financial market segments react differently to economic shocks, the presence of different types of intermediaries and markets functioning alongside each other should strengthen the financial system ’ s capacity to absorb liquidity shocks emanating from specific institutions or market segments. for accession countries, the scope for diversification presented by eu membership is significant, not only because the financial sector tends to be small relative to their economic size, but more so because intermediation in these countries is dominated by the banks. in fact, a recent ecb report concludes that the financial sectors of accession countries could assimilate a fifteen - fold increase in absolute terms. financial integration in the euro area, moreover, may also promote financial stability in the accession countries through the advantages inherent in a single currency area. for a start, the disruption arising from currency risk is eliminated, domestic economies become immune to currency misalignment episodes that disturb trade and currency risk premiums disappear from interest rates. a large currency area, furthermore, means deeper and more liquid financial markets, which allow participants to diversify their risks and, in the absence of currency risk, to focus more on credit risk. another contribution which eu membership should make to financial stability in accession countries stems from the increased competition which will result from the entry of foreign service providers, particularly if this induces indigenous institutions to find innovative ways to hedge risks and diversify asset portfolios, and to adopt international best practices generally. while cross - country studies on this aspect remain sparse, a recent world bank study reveals instances where foreign bank entry did lead to improved operations and to greater access to foreign capital. drawing on data for 80 countries, this study also shows that foreign bank entry does tend to reduce domestic bank profitability, non - interest income and, to some extent, overall expenses. coupled with the finding that the presence of foreign banks contributes to a higher level of loan - loss provisioning, this leads the authors to conclude that, through its effects on competition, foreign bank entry improves the efficiency and functioning of indigenous banks. while there is nothing automatic about the realisation of such benefits, one might reasonably expect that in the long run the completion of the

in % ) 21. 4 21. 5 21. 6 19. 0 18. 6 16. 9 17. 0 15. 7 11. 3 9. 9 total domestic loans * 5. 7 4. 7 - 5 total domestic loans * * - 10 sources : nbs. * excluding the exchange rate effect. * * excluding the effect of npl w rite - off and sale since early 2016. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 * other sectors household sector corporate sector source : nbs. npl share in total loans ( rhs ) * september 2019. ladies and gentlemen, dear colleagues, allow me to round off this part of the conference by concluding that the results achieved have been enabled by the full coordination of monetary and fiscal policy measures, which has strengthened the credibility of economic policy. this credibility is confirmed by the already mentioned credit rating upgrade, low risk premium, more favourable position of serbia in the international financial market, as well as by the high fdi inflow. such approach to the conduct of economic policy has ensured an adequate response to the challenges from the international environment which the country faced in the past and will surely face going forward. in the period ahead, you can count on our full commitment to the safeguarding of the achieved stability which, along with further implementation of structural reforms, will boost the competitiveness of our economy, as well as employment and the living standard of our citizens. i will now hand over to my colleagues from the economic research and statistics department to give you a detailed account of our latest macroeconomic projections.