The National Bank of Serbia identifies potential risks to financial stability and tries to raise the awareness of economic agents of those risks.

Key risks and mitigating measures

Key risks Mitigating measures
External risks
  • deterioration of global macroeconomic developments and the impact on the increase in credit risk;
  • the diverging monetary policies of the Fed and the ECB and the impact on the change of capital flows towards emerging and developing markets which could result in market instability;
  • price volatility in the global financial and commodity markets;
  • formation of price bubbles due to inadequate risk assessment and its potential spillover to the domestic market;
  • untimely banks’ adjustment to the frequent changes of regulatory standards (e.g. capital requirements) may adversely affect the operations of parent banks and consequently their subsidiaries in the domestic market;
  • reduced parent banks’ liquidity at the EU level and possible liquidity withdrawal by parent banks;
  • slower than expected recovery of the euroarea and Serbia’s other important foreign trade partners;
  • increase in variable interest rates on loans indexed to foreign currency after a period of extremely low interest rates of leading central banks;
  • disruption of financial institutions’ information systems security due to cyber risks.
  • introduction of adequate macroprudential policy instruments aimed at the cyclical dimension of systemic risk;
  • consistent, countercyclical, flexible and prudent macroeconomic policy (monetary, fiscal and macroprudential), which will maintain external balance and increase the economy’s resistance to the shocks from the international environment, preserve internal balance and long-term sustainable economic growth;
  • cooperation with bank groups and European and international financial institutions to provide as much of financial
  • support as possible to the domestic banking sector; active participation in the international fora and working groups;
  • cooperation with home supervisors to timely assess the effects of the measures they intend to implement;
  • strengthening of the local investor base (e.g. pension funds, etc.);
  • development of new financial instruments to strengthen the domestic funding base;
  • interest rate risk simulation of annuity plans for new variable-rate loans, in order to alert clients to the interest rate risk;
  • continued implementation of the Strategy of Dinarisation of the Serbian Financial System and promotion of the use of the local currency;
  • increasing resilience of information systems to this type of risks.
Internal risks
  • high degree of euroisation increases the exposure of the domestic financial system to international market developments;
  • continued implementation of the Dinarisation Strategy by all relevant stakeholders: the NBS, Serbian Government, and banks, assisted by international financial institutions;
  • further application of micro and macro prudential regulatory measures aimed at limiting the risk of euroisation;
  • further promotion of the dinar financial instruments – from dinar savings to securities in the local currency, such as the new savings bond of the Republic of Serbia intended for households;
  • the share of NPLs in total loans, despite a significant decrease in the previous period, may affect banks’ risk aversion and consequently credit growth and profitability of the banking sector;
  • continued implementation of the NPL Resolution Strategy; the NBS fully implemented all the activities envisaged by the Action Plan aimed at increasing banks’ capacity for resolving the issue of NPLs and carried out a number of other measures, too;
  • additional reduction of the NPL ratio owing to the implementation of the NBS Decision on the Accounting Write-Off of Bank Balance Sheet Assets, which stipulates the mandatory write-off for loans covered in full by the allowances for impairment;
  • full application of IFRS 9, implying a switch from the incurred loss concept to the expected loss concept;
  • uneven recovery of credit activity;
  • further NPL reduction and prevention of new NPLs in order to boost credit activity and lower banks’ risk aversion;
  • NBS measures conducive to banks’ credit potential growth, which encourages economic activity and decreases unemployment;
  • inadequate valuation of mortgaged real estate exposes banks to risks in case of collateral activation;
  • implementation of the new Law on Real Estate Valuers and national standards for real estate valuation by licensed valuers;
  • access of licensed valuers to the NBS database on the valuation of mortgaged real estate and loans secured by mortgage enables higher quality real estate valuation, contributing to the reduction of risk of new NPLs;
  • unfavourable maturity structure of domestic savings;
  • educational activities and informing the public on the possibilities and lucrativeness long-term savings;
  • development of long-term domestic financial products;
  • increase of financial system procyclicality;
  • calibration of the countercyclical buffer rate and introduction of other macroprudential instruments aimed at mitigating the cyclical dimension of systemic risk;
  • new information and technological risks arising from innovation and digitalisation of financial services.
  • boosting the information system resilience by introducing the latest safeguard measures and adopting appropriate procedures.