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Banking Sector in Serbia – Fourth Quarter Report 2017

At end-2017, the Serbian banking sector remained highly capitalised, as evidenced by the capital adequacy ratio of 22.6%, significantly above the regulatory minimum (8%). The above-average values of the sector's liquidity ratios persisting for quite a while now prove that its liquid assets are more than sufficient for smooth operation. Even though the banking sector faced numerous challenges from the international environment, the stability of the financial system as a whole has been ensured and in many segments additionally reinforced, which is a continuation of the successful attainment of one of the key objectives of the National Bank of Serbia.

A remarkable progress has been achieved in the resolution of non-performing loans (NPLs), which in the previous years negatively affected the profitability and credit activity of banks. In the context of NPL resolution, significant steps were taken as part of the implementation of the NPL Resolution Strategy and Action Plans of the Republic of Serbia and the National Bank of Serbia in 2015, and thereafter, the implementation of the Decision on the Accounting Write-Off of Bank Balance Sheet Assets as of 30 September 2017.  As a result of two and a half years of systemic NPL resolution efforts, gross NPL ratio for the banking sector measured 9.8% at end-2017. The one-digit NPL ratio is at the same time the lowest figure recorded since the introduction of the uniform definition of a non-performing loan and mandatory reporting thereon in 2008. 

In 2017 additional efforts were invested in further strengthening of banking sector stability through regulatory changes and introduction of Basel III standards and accompanying ratios (leverage ratio and liquidity coverage ratio) which are highly satisfactory for the time being. Apart from responding to regulatory challenges, commercial banks in Serbia continued to operate with a profit, so that the financial result of the Serbian banking sector rose by RSD 47 bn compared to 2016. An increase in profitability of Serbian banks can be attributed primarily to one-off events arising from the optimisation of banks’ credit portfolios, i.e. the reduction in credit losses generated by bad loans (by RSD 33 bn) and the consolidation process, i.e. mergers and mergers by acquisition due to the change in the ownership structure (a RSD 12.5 bn contribution to the net result).  Conversely, interest income in 2017 dropped by RSD 8.7 bn from the year before, due to monetary policy easing and the consequent decline in interest rates in the interbank market and the market of dinar loans and securities. This drop was partly offset by a decline in interest expenses of RSD 5.8 bn.

Bearing in mind the defined mandate and responsibilities of the National Bank of Serbia in preserving financial system stability, in the coming period too the central bank will maintain its focus on safeguarding financial stability, while remaining fully committed to the protection of interests of financial service consumers and all relevant market participants.

Bank Supervision Department