| External risks |
- escalation of the Middle East conflict and its impact on energy supply and prices, and thereby on the intensity of inflationary pressures, which could prolong the period of restrictive monetary policy and elevated interest rates;
- potential further escalation and spread of existing and new geopolitical tensions at the global level;
- growth of fiscal deficits and public debt in key European economies due to increased spending on national security, energy, and population ageing;
- tightening of global financing conditions and increased risk aversion in international capital markets, with a potential reduction in capital flows to emerging economies;
- – slowdown in global economic growth, including a deceleration of economic activity in the euro area, as well as in other Serbia’s key trading partners;
- fragmentation of global supply chains due to rising protectionism, growing trade barriers and geopolitical tensions;
- challenges in the international non-bank financial sector and their transmission to the global banking system through interconnectedness channels, potentially leading to a weakening of financial service consumers’ confidence;
- increasing frequency and sophistication of cyber threats, with the potential to jeopardise business continuity and infrastructure and undermine the stability of the functioning of and confidence in the financial system;
- structural disruptions in the labour market due to accelerated digitalisation and the integration of artificial intelligence, with a potential impact on the stability of household income.
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- liquidity support to the domestic financial system in order to mitigate the effects of external shocks, while maintaining continuous cooperation with international financial institutions;
- strengthening of energy reserves, energy diversification through the construction of additional storage capacities, coupled with accelerated transition to green and renewable energy sources, as well as the implementation of targeted support measures for the most vulnerable corporates and households;
- preservation of macroeconomic stability through the application of fiscal rules, while strengthening structural competitiveness and diversifying channels for access to international sources of financing;
- maintaining a flexible monetary policy stance aimed at price stability and anchoring of inflation expectations, while supporting stable economic growth;
- preservation of the relative stability of the dinar exchange rate against the euro, while simultaneously maintaining FX reserves at a high and adequate level in order to strengthen resilience to potential external shocks;
- adequate implementation of microprudential and macroprudential policy by applying relevant tools with a view to timely identifying systemic risks and preserving financial system stability;
- preservation of banks’ domestic deposit base, while ensuring high coverage of loans with stable domestic sources of funding;
- continuation of active cooperation with international financial institutions and supervisors of parent banking groups, with continuous alignment of the domestic regulatory framework in order to prevent cross-border spillover of risks;
- continuous improvement of the information systems of all participants in the financial market, through the prudent application of innovative tools and technologies in financial institutions and the continuous strengthening of the security and resilience of information systems;
- support for the technology sector by encouraging investment in digital technologies and artificial intelligence to increase the economy’s productivity and the resilience of the domestic labour market.
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| Internal risks |
- dented macroeconomic stability and economic growth, as well as an increase in domestic inflation due to the spillover of global risks and volatility in global commodity and capital markets onto domestic prices through inflation expectations;
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- cautious conduct of monetary policy in order to cushion the impact of external shocks on energy and primary commodity prices, supply chains and capital flows to emerging economies, including the Republic of Serbia;
- strengthening the effectiveness of the interest rate channel of the monetary policy transmission mechanism, and transparent and responsible communication with the public with the aim of keeping inflation expectations of the financial and corporate sector anchored;
- preservation of the relative exchange rate stability and a favourable investment climate;
- application of other measures aimed at preserving investment and consumer confidence, as well as capital flows;
- implementation of targeted fiscal support measures for the most vulnerable corporates and households, without creating any major inflationary pressures;
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- an increase in crude oil and petroleum product prices, with the consequent pressure on operating costs;
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- implementation of temporary regulatory measures to contain the second-round effects of the spillover of cost-push pressures onto other prices, while taking care not to undermine the sustainability of public finances;
- use of strategic reserves of petroleum products to prevent supply disruptions, while replenishing and maintaining an adequate level of those reserves;
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- a high level of euroisation of the domestic financial system;
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- preservation of the 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 regulations and measures in the field of monetary, microprudential and macroprudential policy with the aim of encouraging the use of dinar sources of funding;
- encouraging higher profitability of dinar savings compared to FX savings, and financial instruments in the local currency;
- strengthening the application of FX risk hedging instruments;
- continued development of the capital market and higher volume of dinar government securities issued in the domestic market, while extending their maturities in order to reduce currency risk in public debt management;
- continued issuance of dinar mini-bonds for financing small and medium-sized enterprises as a key segment of the economy, to provide alternative dinar sources of financing and develop the domestic capital market;
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- the impact of the prolonged period of elevated interest rates on access to funding sources, debtors’ ability to meet their credit obligations, asset quality and long-term profitability of banks;
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- adequate implementation of prudential instruments and capital buffers to preserve sustainable lending to corporates and households;
- adoption of timely and adequate support measures for affected corporate and household sectors aimed at preventing a potential rise in NPLs;
- enhanced monitoring of banks’ asset quality;
- using bank profits to build additional capital reserves;
- improvement of the credit risk management system and strengthening of banks’ internal controls with regard to the timely identification of potential deterioration in asset quality;
- further strengthening and enhancement of the regulatory and institutional frameworks for debtor insolvency and debt restructuring;
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- uncertainty regarding residential and commercial real estate price developments and their impact on the value of collateral and the quality of bank loans.
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- enhanced monitoring and analysis of real estate market trends, along with improved collection, distribution and analysis of data on the mortgaged real estate;
- continuous monitoring of collateral quality in the banking sector through adequate real estate valuation;
- adequate application of macroprudential instruments targeted at debtors and credit institutions, which increase resilience to risks arising from the real estate market.
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