| External risks |
- slower decline in global inflation and a delayed start or slower pace of monetary policy easing by leading central banks;
- limited access to funding sources and high costs of the repayment of liabilities by the government, corporates and households, reflecting higher lending rates for an extended period of time;
- intensified geopolitical fragmentation and restrictions on trade flows and capital movement;
- weak global growth prospects, especially in euro area countries, which are our key trading partners;
- heightened uncertainty in the international financial market, increased risk aversion of investors and lower inflow of capital to emerging markets;
- limited access to funding sources of parent banks, reduction of interest income and profitability and potential decrease in solvency;
- impact of new technologies and artificial intelligence on changes in the functioning of the financial system;
- frequent cyber-attacks, which could undermine confidence in the stability of the financial system;
- impact of climate change on mounting risks in the financial sector.
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- assessment of the effects on domestic macroeconomic trends and potential monetary policy adjustment for the sake of ensuring inflation’s stable return within the target band, while preserving economic growth;
- maintaining relative exchange rate stability;
- gradual and moderate fiscal consolidation, with support to vulnerable corporate and household sectors in order to overcome the consequences of a multidimensional global crisis, while coordinating fiscal and monetary policies;
- maintaining a globally diversified economic structure and finding alternative markets for supply, export and sources of funding, while making an effort to maintain production and geographical diversification of FDIs which are mostly export-oriented by implementing active measures of economic policy;
- continued cooperation with international financial institutions and supervisors of parent banking groups;
- ensuring additional liquidity by central banks by concluding swap and repo transactions;
- preserving the banks’ domestic deposit base and continuing to ensure the coverage of loans by local deposits;
- adequate conduct of macroprudential policy, by applying or mitigating relevant tools in order to strengthen financial sector stability;
- continuous improvement of information systems, integration of innovative tools and technologies and strengthening of business processes in the financial market;
- coordination with international organisations, investors, government authorities, financial and corporate sectors to encourage the reduction of harmful gas emissions and transition to renewable energy sources, as well as the improvement of the regulatory framework for mitigating the impact of climate risks on the financial system.
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| Internal risks |
- prolonged duration of inflationary pressures and uncertainty regarding the movement of energy and other primary commodity prices;
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- adjusting the monetary policy restrictiveness, while taking into account the effects of past hikes in the key policy rate and required reserve ratios on inflation in the period ahead;
- maintaining relative exchange rate stability;
- preserving efficiency of the monetary policy transmission mechanism on interest rates in the money, lending and savings markets, as well as on inflation expectations of the financial and corporate sectors by applying appropriate measures and enhanced communication with the public;
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- a high level of euroisation of the domestic financial system;
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- preserving general macroeconomic and financial stability, as well as relative exchange rate stability, to strengthen confidence in the local currency;
- continued implementation of the measures and activities envisaged by the Strategy of Dinarisation of the Serbian Financial System;
- implementation of monetary, microprudential and macroprudential policy regulations and measures to encourage lending in the local currency;
- continuous promotion of higher profitability of dinar compared to FX savings, and financial instruments in the local currency;
- continuous promotion of FX hedging instruments;
- continuous development of the capital market and higher volume of dinar government securities issues in the domestic market, in order to reduce currency risk in public debt management, including further lengthening of the maturity of
issued dinar government securities in order to extend the dinar yield curve;
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- deceleration of lending activity and a potential rise in new NPLs and their impact on banks’ profitability;
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- relaxing the applied macroprudential tools in order to facilitate lending to the corporate and household sectors and boost credit demand;
- adopting new measures to support the most affected sectors in order to prevent a potential rise in new NPLs;
- enhanced monitoring of banks’ asset quality;
- using bank profits to build additional capital reserves, which would enable sustainable lending amid the economic slowdown or mounting uncertainties;
- encouraging banks to additionally improve credit risk management, as the most prevalent risk in Serbia’s banking sector;
- strengthening insolvency framework and practice, and adopting measures for faster debt restructuring;
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- uncertainty regarding residential and commercial real estate price movements;
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- enhanced monitoring and analysis of real estate market trends, along with improved collection and distribution of data from the mortgaged real estate market;
- continuous monitoring of collateral quality in the banking sector through adequate valuation of real estate serving as collateral;
- adequate use of borrower- or capital-based macroprudential tools, aimed at increasing banks’ resilience to risks from the real estate market;
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- impact of climate change on economy and consequently on the financial sector through the materialisation of physical and transition risks.
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- developing and improving the regulatory framework and taxonomy for climate risks in accordance with the best international practice, as well as monitoring and analysing the impact of climate change on financial stability;
- further development of the institutional framework and the Serbian climate database;
- defining measures and tools for mitigating consequences of climate risks on the financial system.
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