Required reserves

Required reserves are the amount of funds that banks are required to keep on deposit in accounts designated for such purpose by the central bank.

Required reserves constitute a monetary policy instrument which a central bank uses to varying degrees depending on the conditions of the financial system.

The degree of monetary policy tightening using this instrument is determined by the required reserve ratio, which may be uniform or differentiated, and by the reserving base to which the ratio is applied. To this effect, reserve requirement may be applied to either total or fraction of deposits, or reservable liabilities may include other categories, such as liabilities in respect of loans and proceeds derived from securities issued.

By changing the reserve ratio, the central bank induces a reduction or expansion of commercial banks’ lending potential, and withdrawal and/or creation of liquidity. In market economies, required reserve ratio is used as an instrument for regulating bank credit potential rather than bank liquidity.

The National Bank of Serbia uses reserve requirements only as a supportive instrument when the effects of all other market-based measures for monetary regulation are exhausted. Decisions on the level of reserve ratios and the reserving base are taken by the National Bank of Serbia’s Executive Board.

Required reserve allocations

In dinars In foreign currency
  • Amount calculated by applying the ratio (5%) to dinar sources of funding with maturity up to two years
  • 38% of the amount calculated by applying the ratio to foreign currency sources of funding with maturity up to two years, in dinar equivalent
  • 30% of the amount calculated by applying the ratio to foreign currency sources of funding with maturity over two years, in dinar equivalent
  • 62% of the amount calculated by applying the ratio to foreign currency sources with maturity up to two years
  • 70% of the amount calculated by applying the ratio to foreign currency sources with maturity over two years

Current required reserve ratios

  Up to 2 years Over 2 years
In dinars 5% 0%
In foreign currency 20% 13%
In foreign currency – foreign currency-indexed liabilities in dinars 100% 100%

 

  • Pursuant to the Decision on Banks’ Required Reserves with the National Bank of Serbia, the base for the calculation of required reserves shall be the daily carrying average of liabilities in the prior calendar month:

    • liabilities in respect of dinar deposits, loans and securities, as well as other dinar liabilities, excluding foreign currency-indexed ones, but including liabilities in respect of a portion of dinar deposits received under transactions performed by the bank on behalf and for the account of third parties that are in excess of the amount of the investment made from such deposits;
    • liabilities in respect of foreign currency deposits, loans, securities and other foreign currency liabilities, as well as liabilities in respect of deposits, loans and other foreign currency funds received from abroad under transactions performed by the bank on behalf and for the account of third parties, and foreign currency clause-indexed dinar liabilities.

    By way of exception, banks do not calculate required reserves against: 

    • liabilities to the National Bank of Serbia;
    • liabilities to banks allocating required reserves with the National Bank of Serbia;
    • subordinated liabilities included in the bank’s Tier 2 capital in accordance with the National Bank of Serbia’s decision governing the capital adequacy of banks;
    • dinar and foreign currency liabilities in respect of funds received by banks from international financial organisations, governments and financial institutions founded by foreign states or international financial organisations, either through the government as the main debtor and/or owner of these funds, or directly, provided that when reinvesting these funds, loan margins are lower than the average margins on loans approved by the bank from other sources of funds.

    For the purpose of preserving and strengthening the financial system of the Republic of Serbia, the Executive Board of the National Bank of Serbia may decide to exempt the bank for a certain period from calculating the required reserves on the bank’s total liabilities or a part of the liabilities, especially in case of bank resolution in accordance with the law governing banks and/or when it assessed that the bank has liquidity issues.

    The daily carrying average of foreign currency liabilities and foreign currency clause-indexed dinar liabilities is expressed in euros, while balances denominated in other currencies, including dinars, are recalculated to euros on a daily basis by applying the official middle exchange rates of the National Bank of Serbia.

    Required reserves are calculated once a month, on the 17th day of the month or on the prior working day, in the event that the 17th day of the month is a non-working day.

     

  • Required reserves are calculated by applying appropriate ratios to the daily average of reservable dinar and foreign currency liabilities in the prior calendar month. It should be noted that all days in the month are taken into account.

    Required reserves on the dinar sources of funding are calculated by applying: 

    • 5% - to the portion of the dinar base composed of liabilities with maturity up to two years;
    • 0% - to the portion of the dinar base composed of liabilities with maturity over two years.

    By applying the above ratios, banks arrive at the calculated required reserves in dinars.

    Required reserves on the foreign currency sources of funding are calculated by applying: 

    • 20% - to the portion of the foreign currency base composed of liabilities with maturity up to two years, and exceptionally, 100%, to the portion of the foreign currency base composed of foreign-currency clause indexed dinar liabilities with maturity up to 2 years;
    • 13% - to the portion of the foreign currency base composed of liabilities with maturity over two years, and exceptionally, 100%, to the portion of the foreign currency base composed of foreign-currency clause indexed dinar liabilities with maturity over 2 years.

    By applying the above ratios, banks arrive at the calculated required reserves in euros.

    Changes in required reserve ratios since January 2005

  • The calculated dinar required reserves are a broader category than the calculated required reserves in dinars, and represent the sum of: 

    • calculated required reserves in dinars
    • 38% of the dinar equivalent of required reserves in euros calculated on the portion of the foreign currency base composed of liabilities maturing within two years;
    • 30% of the dinar equivalent of required reserves in euros calculated on the portion of the foreign currency base composed of liabilities maturing in over two years.

    The calculated dinar required reserves are allocated in dinars.

    The calculated foreign currency required reserves are a narrower category than the calculated required reserves in euros, and comprise:

    • 62% of required reserves in euros calculated on the portion of the foreign currency base composed of liabilities maturing within two years;
    • 70% of required reserves in euros calculated on the portion of the foreign currency base composed of liabilities maturing in over two years.

    The calculated foreign currency required reserves are allocated in euros. However, if the allocation of foreign currency required reserves in euros causes the bank’s foreign exchange risk ratio to exceed the level stipulated by the National Bank of Serbia’s decision on the capital adequacy of banks, the bank may allocate such reserves in US dollars.

  • The maintenance period lasts from the 18th of the current month to the 17th day of the following month.

    During the maintenance period banks must maintain the average daily balance of allocated dinar and/or foreign currency required reserves in the amount of the calculated dinar and/or foreign currency required reserves. The daily balance of allocated dinar and/or foreign currency required reserves may be lower or higher than the calculated required reserves. All days of the maintenance period are taken into account when calculating the average daily balance of allocated dinar and/or foreign currency required reserves.

    Until May 2008, the maintenance period lasted from the 11th day of the current month until the 10th day of the following month. Since the end of the maintenance period coincided with the VAT collection dates, as of May 2008 another interval was chosen for required reserve allocation.

  • The National Bank of Serbia pays interest to banks on the average daily balance of dinar required reserves allocated in the maintenance period, in the amount not exceeding the calculated dinar required reserves. The interest is calculated and paid at interest rate of 0.10% p.a, on the second business day following the expiry of the maintenance period.

    Exceptionally, for the purposes of mitigating the economic consequences of the COVID-19 pandemic and subject to meeting conditions prescribed by the decision on interest rates applied by the National Bank of Serbia in the implementation of monetary policy, the NBS pays to banks interest on a portion of these balances equivalent to 0.60% p.a. (0.10%+0.50 pp).

    The National Bank of Serbia charges interest to banks by applying interest equal to: 

    • key policy rate plus 5 percentage points – on the difference between the calculated and actual average daily balance of allocated dinar required reserves and on the difference between the prescribed and calculated amount of dinar required reserves; 
    • three-month EURIBOR, valid on the day of interest calculation, plus 5 percentage points – on the difference between the calculated and actual average daily balance of allocated foreign currency required reserves and on the difference between the prescribed and calculated amount of foreign currency required reserves; 
    • three-month EURIBOR, valid on the day of interest calculation, plus 5 percentage points – on the positive difference between the actual average daily balance of allocated foreign currency required reserves and calculated amount of foreign currency required reserves.

    The National Bank of Serbia calculates interest until the end of the month for the previous maintenance period and collects it by the 8th day of the following month.

    Interest is calculated and paid and/or collected in the currency in which required reserves are allocated, i.e. in dinars and euros.