they do not fully understand, for which at a later time they would have to pay a “ tax on naivete. ” that is why we introduced the effective interest rate, so that citizens should know how much each borrowing costs and so that they should be able to estimate whether they are able to meet the obligations they have assumed. the fact that our people have accumulated high credit appetite over the past decade or so, and that, when they borrow, they do not respond adequately to the level of interest rates, does not relieve banks from the responsibility to be real partners and financial advisors to their clients – from being responsible not only for what they do, but also for what they tell their clients. the nbs and i, as its governor, are being reproached for warning citizens of the risks of foreign currency clause indexation or borrowing in swiss francs because serbia will one day enter the eu, but certainly not a monetary union with switzerland. we are also being reproached for advocating full transparency in banks ’ operations, and for requiring observance of the ethical code which would obligate bankers to fair competition. the nbs will intensify its efforts on educating citizens as users of financial and banking services, and i hope that in this it will be joined by an increasing number of banks. the immediate task that the nbs has set itself is to restore public trust in the dinar not only as a transaction currency, but also as a savings instrument. although dinar savings have grown significantly over the past two years despite high inflation, their present level of around csd 4. 7 billion is still not satisfactory, even though all calculations show that dinar savings are much more profitable than foreign currency ones. this is due primarily to negative past experiences citizens have had with dinar savings, which, as opposed to foreign currency savings, completely lost their value in the years of hyper - inflation. however, with low inflation rate and higher exchange rate fluctuations, citizens will be increasingly interested in saving in dinars, especially when they realize that this is not a short - term trend, as it most certainly is not (! ), while the increase in interest rates in the euro area will provide banks with an additional motive for a more active approach to collecting and increasing dinar savings. the nbs has offered citizens its savings bills, whereas banks are expected to diversify their offer of dinar products, both deposit and credit ones. at this point, when external borrowing is the

radovan jelasic : dinar products and declining interest rates in serbia speech by mr radovan jelasic, governor of the national bank of serbia, at the promotion of “ pure ” dinar credit of hvb bank, belgrade, 18 october 2006. * * * dear ladies and gentlemen, my participation in this conference is motivated by two reasons : dinar products and decline in interest rates! i am happy to say that today we are all able to conclude that the national bank of serbia was right when it announced that interest rates will subside and that banks will expand their credit offer so as for it to include “ pure ” dinar credits. hvb bank has recently cut its effective interest rates on foreign currency credits and has now launched a new product – an authentic dinar cash credit, with no revaluation. some other banks have also announced their intention to reduce interest rates on credits in euros. present developments only go to confirm what the nbs has claimed, in response to criticisms purporting that the restrictive measures of the national bank are entirely to blame for the high cost of credits in serbia : inflation needs to decline first, and only then can we count on a gradual decline in interest rates. and also, a drop in inflation is an essential precondition to increasing trust in the domestic currency and its use. serbia is on the right track to achieving both these objectives! it is precisely the restrictive monetary policy of the nbs that gave a decisive contribution to a decline in inflation, and to the fact that, now that the policy interest rate on two - week repo operations amounts to 18 percent, with annual inflation dropping to 11. 6 % in september, banks are starting to reduce their interest rates on credits, even though the much criticized measure of the central bank – increase in the reserve requirement on short - term external borrowing of banks – introduced as far back as may this year, is still in force. at the same time, the share of reserve requirement on external credits with maturity of up to two years, the ratio on which was raised from 40 to 60 percent, in total calculated reserve requirement is only 17. 5 %. when this measure was first introduced, this share was 30. 3 percent. in the first eight months this year, the sum of total credits increased by over csd 100 billion, which plainly shows that measures that the nbs enacted with the aim of bringing down inflation did not have a negative effect on either lending activity