| External risks |
- weaker global growth prospects and potential further growth slowdown in the euro area and in Serbia’s key trading partners;
- changes in tariff regimes, and fragmentation of trade and global supply chains;
- global increase in investors’ risk aversion and, as a result, lower FDI inflows and reduced export capacity;
- extended duration or intensification of inflationary pressures and higher volatility of global energy and food prices, as well as slower than expected easing of monetary policies of leading central banks;
- access to and rising costs of funding of parent banks, potential slowing of lending activity and their impact on the reduction of interest income and profitability, as well as on the quality of assets;
- change in the global demographic structure due to changes in countries’ migration policies;
- accelerated implementation of high-tech solutions and frequent cyber-attacks which could undermine confidence in financial system stability;
- impact of new technologies and artificial intelligence on the global labour market;
- continuation of the global climate transition and a more comprehensive international implementation of ESG standards.
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- strengthening regional cooperation and infrastructure connectivity in order to diversify supply sources, and adjusting tariff policies to changes in international trade;
- diversification of export markets and production, and supporting export sectors to reinforce export capacities;
- cautious monetary policy conduct to ensure stable movement of inflation within the target band, while preserving economic growth;
- maintenance of the relative stability of the exchange rate;
- coordination of fiscal and monetary policies, with support to vulnerable corporate and household sectors;
- adequate pursuit of microprudential and macroprudential policy, with the application of relevant tools to maintain financial sector stability;
- continuous monitoring of international financial flows and maintaining an adequate level of FX reserves to defend against potential external shocks;
- preservation of banks’ domestic deposit base and continuing to ensure the coverage of loans by local deposits;
- continued cooperation with international financial institutions and supervisors of parent banking groups;
- development of a comprehensive migrations policy and capacity for integration;
- careful implementation of innovative tools and technologies and upgrading of business processes in financial institutions;
- development of information capacities and cybersecurity strategies, and investment in employee training and strengthening information system protection;
- development and application of green transition strategies and energy reforms and aligning legislation with the EU taxonomy and ESG standards, as well as the upgrade of the regulatory framework for moderating the impact of climate risks on the financial system.
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| Internal risks |
- prolonged duration of inflationary pressures due to marked uncertainty in the global commodity and financial markets, and rising protectionism, as well as due to adverse climate factors or higher prices of energy and other primary commodities;
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- cautious pursuit of a responsible monetary policy by the NBS;
- preservation of the 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;
- maintenance of the relative exchange rate stability;
- support to the domestic agricultural and energy production;
- application of targeted fiscal measures for the most vulnerable groups and sectors, without stimulating demand;
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- slowdown of economic activity and investment;
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- stimulation of investment through favourable loans, tax incentives and support to SMEs;
- continued implementation of government-financed capital and infrastructure projects;
- strengthening the institutional framework for support to innovation and digital transformation;
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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 monetary, microprudential and macroprudential policy regulations and measures to promote greater use of dinar sources of funding;
- continuous promotion of higher profitability of dinar compared to FX savings, and financial instruments in the local currency;
- continuous promotion of FX hedging instruments;
- continued development of the capital market and higher volume of dinar government securities issued 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;
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- more difficult access to sources of funding, lending activity slowdown and the potential impact on NPLs and banks’ profitability;
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- adequate implementation of prudential instruments and capital buffers to facilitate lending to corporates and households and boost loan demand;
- taking appropriate measures to support the affected sectors aimed at preventing a potential rise in NPLs;
- enhanced monitoring of banks’ asset quality;
- using bank profits to build additional capital reserves, which would enable sustainable lending amid economic slowdown or mounting uncertainties;
- encouraging banks to further upgrade their risk management processes, given the new types of risks faced by the banking sector;
- strengthening the framework for borrower insolvency and debt restructuring;
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- uncertainty regarding residential and commercial real estate price developments;
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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 the financial sector of the Republic of Serbia through the materialisation of physical and transition risks.
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- integration and monitoring of climate risks in financial institutions;
- encouraging financial institutions to finance ecologically sustainable projects;
- development and improvement of 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.
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