19/05/2020
The National Bank of Serbia (NBS) continued to pursue appropriate monetary policy in 2019 – this was concluded today at the regular annual meeting within the Economic Policy Dialogue of countries of the European Union, Western Balkans and Turkey, as well as the European Central Bank (ECB) and the European Commission. Serbia was represented this year by NBS Governor Jorgovanka Tabaković and Minister of Finance Siniša Mali.
The ECB and the European Commission stated that “in 2019, the National Bank of Serbia pursued its monetary policy in accordance with the inflation targeting regime”, as recommended to all countries during the previous dialogues. This recommendation, which is also the main legal objective of the NBS, has been fully implemented by Serbia, with inflation that hovered around the lower bound of the target tolerance band in 2019.
The ECB and the European Commission assessed the Serbian banking sector as well-capitalised and liquid. In particular, they welcomed the significant results Serbia achieved in terms of lowering the share of NPLs, along with the continued dynamic growth of both corporate and household lending. They positively assessed the NBS measures adopted at end-2018, pertaining to unsecured non-purpose lending to households at unreasonably long maturities. The measures undertaken to support higher dinarisation are yielding good results. Progress is mostly visible with the dinarisation of deposits, which is indeed critical for faster progress in the process of loan dinarisation. To this end, they welcomed the adoption of the NBS regulatory measures which encourage dinar lending to micro, small and medium-sized enterprises, entrepreneurs and farmers.
The ECB and the European Commission’s assessment of the tasks within the NBS’s competence is deemed realistic by Governor Tabaković. “The fact that inflation in Serbia has been low for seven years in a row is a firm proof that Serbia’s monetary policy is appropriate. It is also a fact that we have slashed our NPLs owing to the implementation of the NPL Resolution Strategy, as well as to the much more favourable business conditions in Serbia”, the Governor said, noting that healthy growth in lending is also evident. “Corporate loans have been rising at two-digit rates for the last several years already, with two-thirds approved to micro, small and medium-sized enterprises. Standing at around EUR 5 bn, investment loans account for 45% of total lending to the corporate sector”, emphasized the Governor.
Dinarisation remains one of our priorities, particularly dinarisation of loans to enterprises. “Dinar lending to enterprises has never been more favourable. As a result of our measures, the spread between interest rates on dinar and FX corporate loans narrowed from 9.1 pp in May 2013 to 1.1 pp”, recalled Governor Tabaković.
As also highlighted by the ECB and the European Commission, Serbia recorded dynamic economic growth last year. “After 6.2% growth in Q4 2019, we entered 2020 with excellent trends and 5% growth in Q1. Such performance is great, especially having in mind the pandemic’s fallout on our economy in March. We responded with a robust package of measures to preserve people, jobs, salaries and liquidity, and to help businesses that were practically shut down by the pandemic“, stressed the Governor.
The NBS reacted by cutting the key policy rate, by giving a financial respite of three months in loan repayment, by implementing operations at low rates so as to have them translated onto households and corporates. The Government reacted by adopting a robust package of measures worth around 11% of GDP, which includes government-guaranteed liquidity loans intended for micro, small and medium-sized enterprises and entrepreneurs who bore the brunt of the crisis.
The pandemic will have a strong short-term impact on all economies, but Serbia’s outlook essentially remains the same. “Our projection of economic growth of minimum 6% in 2021 suggests that, owing to the measures implemented, we expect Serbia to fully recover from the effects of the pandemic already next year, as also forecast by all institutions which carefully monitor our country. What is also important for Serbia is the speed of the recovery of the EU, and it can be said that our joint success will be measured by the degree of the success of each of us individually”, underlined the Governor.
“I firmly believe that this global crisis has only briefly hindered our dynamic growth. In the past eight years we have stabilised our economy, delivered low inflation, ensured sound public finances, widened our investor base, switched to investment-driven growth, and raised our FX reserves to the level twice higher than the optimum level stipulated by international criteria. All this clearly shows that the expectations we have from ourselves are higher than those others have from us”, concluded Governor Tabaković.
Governor’s Office
