31.12.2021.
In 2021, NBS continues to meet its objectives in the interest of citizens and corporates
We have done a lot during 2021 as well, a year that will be remembered by the pandemic.
“As early as the beginning of this year, much sooner than many other countries in the region and Europe, Serbia overshot the pre-crisis level of economic activity, and in the remainder of the year it embarked on a path of robust and sustainable economic growth, despite the many challenges from the international environment. With its timely and efficient measures and activities, which were fully coordinated with Government measures, the NBS helped to successfully overcome those challenges. When looking at numerous uncertainties and challenges arising from the international environment, which we faced during the second pandemic year, and which required us to be constantly alert, cautious as well as pro-active, and taking into account what we have achieved and preserved in such circumstances, we can be more than pleased”, said Governor Jorgovanka Tabaković, speaking about the results of the NBS’s work in 2021.
Despite the many challenges that came with the pandemic, the NBS did not let macroeconomic stability be questioned at any point. After an extremely low level in 2020, inflation in 2021 temporarily went up in Serbia and in almost all other countries in the world. The basis for inflation movements in 2021 were temporary factors, notably a strong increase in the global prices of energy and food, as well as cost-push pressures due to halts in global supply chains.
“With the cessation of factors from the international environment that drove inflation in 2021, i.e. once the global energy and food prices stabilise with the gradual resolution of halts in global value chains and the arrival of a new agricultural season, as of the second quarter of 2022 we expect inflation to slow down and return within the bounds of the target tolerance band by mid-year”, stressed Governor Tabaković.
This is supported by low and stable core inflation that moves around the target midpoint of 3%, indicating that there are no major inflationary pressures on the demand side. An important anchor maintaining core inflation low is the preserved relative stability of the exchange rate. Inflation expectations also speak in favour of this, as they continued to move within the bounds of the NBS target tolerance band (3±1.5%), which indicates that market participants also perceive the currently higher inflation as temporary. Another thing underlying this is medium-term expectations for two and three years ahead, which are at the NBS midpoint (3.0%) with the financial sector and in the 2.5–3.0% range with corporates.
Low core inflation and preserved confidence – anchored inflation expectations
In 2021, the NBS again preserved the relative stability of the EUR/RSD exchange rate by diligently monitoring factors from the domestic and international environment that can affect movements in the FX market at home in order to respond in a timely, well-balanced, cautious and also impartial manner on the sides of both FX purchase and sale.
With its activities in the FX market, the NBS contributed to the certainty of business and planning, preservation of confidence in the local currency and maintaining the country’s financial and overall macroeconomic stability. In periods of heightened pressures towards the strengthening of the local currency, which prevailed during the major part of the year, we bought foreign currency and thus contributed to the increase in FX reserves by fortifying our own potential to respond to any stepped-up uncertainty at home and abroad. Whenever needed, and notably in the last quarter, when the seasonal effect of increased energy import materialised, as well as the effect of the rise in energy prices in global markets, we relied on the previously built-up reserves, and with our activities in the FX market, we helped increase the reserves further this year.
Stable EUR/RSD exchange rate as an important anchor of overall macroeconomic stability
As at November, we increased gross FX reserves by around EUR 3.0 bn (22% growth) to EUR 16.5 bn.
A third of this growth resulted from the activities which the NBS carried out in the FX market, i.e. the effect of increase through FX purchase interventions (which is the healthiest way to increase reserves, as it does not imply borrowing or other future liabilities).
This year we again increased our gold reserves (by 1.7 tonnes, to the record level of 37.2 tonnes), and all gold from abroad has been successfully returned to the NBS’s vaults. A total of 13 tonnes of gold has been brought back, as an additional guarantee of financial stability.
During 2021, the NBS secured extremely favourable financing conditions for corporates and households, thus giving an important contribution to robust growth in economic activity and employment.
By cautiously lowering the degree of monetary policy expansiveness in conditions when inflation movements are driven by external factors on the supply side, we ensured that financing conditions remain extremely favourable – interest rates on new dinar loans to corporates and households were slightly lower than at end-2020, and in November stood at 3.0% for corporates and 8.3% for households.
Interest rates on new dinar loans are lower than in 2020 and lending remained a significant factor of financing investment and consumption
By ensuring favourable terms of financing, the NBS enabled for credit activity to continue and remain an important source of investment and consumption financing, as evidenced by the corporate and household lending growth rate of 9% y-o-y in November.
Favourable terms of financing and rise in lending contributed to robust growth in economic activity, which outperformed the expectations as of the beginning of the year. “Our economy recovered in a relatively short period, reaching the pre-pandemic level already in Q1 2021. Also, thanks to the country’s favourable macroeconomic outlook, high FDI inflow and effects of past investment, Serbia’s growth projections for 2021 were constantly revised upward, both by the NBS and the relevant international institutions”, Governor Tabaković pointed out.
According to the latest data, FDI inflow reached around EUR 3.6 bn, coming close to the record year 2019. Same as in the past years, FDI inflow remained generally dispersed to export-oriented sectors. Such high levels of FDI which for the seventh year in a row ensure full coverage of the current account deficit, also significantly contribute to the sustainability of the country’s external position.
Preserved status of Serbia as an investment destination
A positive perception of Serbia as an investment destination is also evidenced by the Standard & Poor’s upgraded rating outlook on Serbia, which brought us to half a step away from investment grade. Among important factors behind this decision which brought us closer to investment grade is a credible monetary policy framework and preserved financial stability.
Half a step away from the goal – investment grade increases the value of each individual company
“In every possible segment, the NBS remained a reliable and equitable partner to the Serbian Government. Successful cooperation and full coordination are the right words for our relationship in Serbia, and a precondition for responsible conduct of economic policy and thus also for the preservation of macroeconomic stability and favourable macroeconomic outlook of the country”, concluded Governor Tabaković.
Dinar savings extended their vibrant rise into 2021, increasing by 12%, to a new record level of around RSD 104 bn. The share of dinar in total savings also went up, which is yet another confirmation that citizens’ trust in the dinar and the domestic banking system was preserved even during the pandemic. Dinar savings are today six times higher than at end-2012.
Dinar savings are at a record high, six times higher than in 2012
Greater financial stability is also underpinned by the increasing use of the dinar in the financial system – i.e. dinarisation, which in 2021 posted record high levels or hovered around them.
The most significant progress in 2021 was seen in the dinarisation of corporate and household receivables, which moved around 39%. The rise in this indicator has been pronounced in the past two years (by over 15 percentage points), largely thanks to the ensured favourable dinar lending to corporates under the Guarantee Schemes – a part of the aid package by the Government and the NBS for mitigating the consequences of the coronavirus pandemic.
Dinarisation of deposits of corporates and households also moved around record highs in 2021 – averaging 39%, which is the highest level since 2008 when data monitoring began. Deposit dinarisation rose particularly sharply in the household segment, which is partly associated with a very dynamic growth in dinar savings.
The use of the dinar in the financial system in 2021 close to or at record high
This year is also significant owing to the implementation of a series of activities resulting in JP Morgan’s decision to include, at end-June 2021, Serbia’s dinar government bonds in its reputed indices, such as GBI-EM Global Diversified. While this decision testifies to the improvements the domestic market underwent in the past years, it also made Serbia more visible to a wider circle of international investors, which will contribute to more favourable terms of financing of the government and the corporate sector.
| MEASURE | OBJECTIVE |
|---|---|
| The NBS continued in 2021 (until end-September) to ensure additional dinar liquidity for a 3-month term via repo purchase auctions of dinar securities. In 2021, RSD 86 bn was made available to banks (2020: RSD 41.6 bn). The transactions were discontinued in October, which is one in a series of measures toward a careful reduction of monetary accommodation. | Ensuring additional dinar liquidity to the banking sector at favourable terms (at the deposit facility rate – the lowest rate in the NBS interest rate corridor). This measure supported the domestic financial system with a view to ensuring efficient functioning of the banking system and preserving favourable terms of dinar financing for corporates and households. |
| The NBS and European Central Bank (ECB) agreed on the extension of a preventive repo line (for another nine months) through which the ECB could ensure additional euro liquidity, in case of need, which the NBS could further channel to the domestic financial system (set to last until March 2022). | This is another form of security and guarantee in conditions of extreme uncertainty in the international financial market. The repo line was set up in July 2020, and was initially planned to last until end-June 2021, while with the nine-month extension it will last until March 2022. |
The eighth-series CHF banknotes, which the Swiss National Bank withdrew from circulation on 30 April 2021, were successfully replaced. The NBS was the only bank in the region which allowed for an additional time period in which commercial banks replaced the recalled banknotes under very favourable terms for our citizens who failed to replace them in due time.
Despite different challenges, in 2021 the NBS remained consistent in safeguarding the stability of the financial system, whose most important segment is the banking sector.
As a result of all the above measures and the effects of all policies which jointly supported economic activity and employment, the quality of the banking sector loan portfolio was not only preserved, but also additionally improved. This is evidenced by the share of NPLs which dropped to 3.4% at end-November 2021, the lowest level on record.
The lowest level of the NPL ratio
The year 2021 also saw banking sector consolidation, and all the changes were driven by initiatives of bank owners. Thanks to the prior detailed assessment of the NBS, these changes had no negative impact on the preservation of the financial system stability and in the future period they will boost banking sector efficiency and further strengthen its stability and competitiveness.
In 2021 the NBS continued to develop instant payment services and to support, through projects, digitisation in Serbia.
The application of the Law on Digital Assets began in June 2021. The Law regulates in a comprehensive way, for the first time in our country, the operation with virtual currencies and digital tokens and their issuance, fully in line with international anti-money laundering and counter-terrorism financing standards.
In mid-2021, the first applications were filed for virtual currency service provider licences. Until end-2021, not a single such licence was issued. The NBS also undertook measures to prevent unauthorised provision of services in this field, and against entities ascertained to have rendered services without a licence.
The NBS undertook all preparatory activities and analyses to digitise bills of exchange. It began to develop all necessary IT solutions to kick-start the Central E-Bills of Exchange Register in H1 2022.
The new Capital Market Law was adopted in December 2021. The NBS actively participated in its drafting. The Law comprehensively improves financial instrument operations, simplifies access to capital sources (notably for SMEs), facilitates foreign investors’ access to the domestic market, and enables more transparent and efficient functioning of the capital market.
In 2021 the NBS continued to undertake a number of activities concerning individual and collective protection of rights and interests of financial service consumers.
In terms of individual protection, 1,254 complaints (24% were founded) were resolved in the first three quarters alone. Most disputable issues with banks are resolved just after the consumer files a complaint. Given the rigorous and strict application of regulations by the NBS in complaint procedures, banks tend to eliminate irregularities immediately and the NBS need not intervene. Of almost 22,000 complaints they considered in the first three quarters, banks acknowledged and eliminated irregularities in more than 29% of cases.
Its supervisory exercises enable the NBS to be highly effective in protecting banking service consumers. Namely, it is through bank supervisory procedures that measures are undertaken to positively affect a large number of bank clients.
The Instruction on Loan Refinancing with Another Bank significantly improved the loan users’ experience. By visiting only once a bank where a refinancing loan is taken (or by doing this online in banks offering this possibility), a client can close all his obligations in another bank, including his current account.
In the field of insurance, the NBS adopted new decisions regulating in-depth the procedure of the protection of insurance service consumers’ rights and interests.
Successful completion of first review of Serbia’s economic programme – robust growth supported by responsible economic policy, good policies expected to continue (20/12/2021)
The IMF Executive Board made the decision on the successful completion of the first review of Serbia’s economic programme, supported by the Policy Coordination Instrument (PCI). Vigorous economic recovery is underway in Serbia, supported by a large-scale and timely policy response of policy makers and strong pre-crisis growth momentum. In its report, the IMF highlights the importance of preserving the stability of the dinar exchange rate against the euro even during the pandemic – for the maintenance of overall consumer and investment confidence.
Yet another stage of cooperation with EU in 2021 (20/12/2021)
Together with partners from the ESCB and the region, the NBS successfully completed yet another IPA-funded “Programme for Strengthening the Central Bank Capacities in the Western Balkans with a view to the Integration to the European System of Central Banks”. By taking part in the project, the NBS once again demonstrated its strong commitment to the European values and central banking standards applied in the EU. The project has reinforced the NBS’s negotiating capacity within the eleven chapters where it plays an important role.
Projects of this type are a two-way street, with participants learning from one another by discussing issues of common interest, all with a view to attaining EU standards and joining the EU.
Standard & Poor’s revises up Serbia’s investment-grade outlook – we are half a step away from achieving the goal (10/12/2021)
Standard & Poor’s (S&P) revised up Serbia’s investment-grade outlook. We are only half a step away from achieving this important goal. The country’s investment rating increases the value of each company. S&P particularly points out the importance of the credible monetary policy framework underlying Serbia’s more favourable credit rating outlook. Thanks to the stable domestic currency, core inflation has remained at around the target midpoint, in contrast with regional peers, where core inflation also rose considerably. Low core inflation was also supported by anchored inflation expectations, on the back of central bank’s efforts to keep inflation low and stable over the last seven years.
Number of users making online DinaCard payments continues up (9/12/ 2021)
The local DinaCard is currently accepted at more than 1,350 online stores in Serbia, where it is possible to buy: books, technical goods, airplane and bus tickets, tickets to various events, toys, clothes, footwear, and different services such as those offered by hotels, tourist agencies, special hospitals – spas, flower shops, etc. It is also possible to do daily shopping in leading retail chains in Serbia.
The full list of points of sale where the domestic payment card can be used for online payments is available here.
Transfer – a new service in the NBS IPS system (22/9/2021)
As part of the implementation of the instant payment system - the NBS IPS system, the National Bank of Serbia has enabled banks to offer their customers a new service – Transfer service that allows citizens to make instant money transfers easily and promptly, every day of the year, at any time of the day, by knowing only the mobile phone number that the payee has registered for this service. From now on, customers will transfer funds to the account of the payee who is registered for Transfer service, without having to write down or remember the payee’s account number but will only enter his mobile phone number or retrieve that number from the contact list on mobile phone.
Lowest rate of financing and first green instrument (16/9/2021)
In September, Serbia issued a green eurobond worth EUR 1.0 bn, with the maturity of seven years, becoming the only non-EU European state that issued a green instrument. The Serbian bond was issued at 1.00%, this being the lowest coupon rate ever, while investor demand in the auction exceeded EUR 3 bn. The green bond fully complies with the Green Bond Principles of the International Capital Market Association (ICMA), which represent the world standard in this field. The funds raised will be used in accordance with the Framework Document for Green Bond Issuance, through investments in the areas of renewable energy, energy efficiency, transport, sustainable water management and pollution prevention and control.
Fitch maintains Serbia’s rating at BB+, outlook stable (3/9/2021)
According to Fitch Ratings, Serbia’s rating is supported by a credible macroeconomic policy framework, relatively low inflation and higher foreign exchange reserves. Fitch also emphasises stronger governance, human development and GDP per capita compared with ‘BB’ medians. Economic resilience to the pandemic shock, a limited increase in public debt, and the agency’s confidence in Serbia’s fiscal consolidation prospects are also supportive of the rating and the stable outlook. Economic resilience to the pandemic shock, a limited increase in public debt, and the agency’s confidence in Serbia’s fiscal consolidation prospects are also supportive of the rating and the stable outlook.
Best students from the Republic of Srpska doing internship at the NBS (21/7/2021)
Traditional summer internship at the NBS was attended by students from Republic of Srpska faculties for the first time.
“The NBS has become synonymous with stability and trust. It is the stronghold of economic stability and sustainable economic growth. We therefore wish to transfer the knowledge, experience and skills that we have acquired through years-long successful work to our young colleagues, and to listen, with an open mind, to the ideas that the new generations bring, and thus face the challenges posed by the future. I am particularly happy that in addition to the best students from Serbia, who traditionally work at the NBS and who consider us the most desirable employer, the best students from the Republic of Srpska will for the first time do their internship in Serbia – at the NBS”, said NBS Governor Jorgovanka Tabaković.
EU commends adequacy of NBS monetary policy even amid pandemic (12/7/2021)
At the regular annual meeting of EU member states, Western Balkan states and Turkey, Serbia was commended for its capacity to minimise the economic fallout from the pandemic. The ECB and the EC assessed that in a timely and forceful response to the pandemic, the NBS provided a significant support to fast economic recovery in Serbia. Owing to the solid position pre-pandemic, as well as to the well-timed and adequate economic policy support, the domestic banking sector stayed resilient to risks.
Longstanding goal achieved – Serbia’s dinar bonds included in renowned J.P. Morgan index family (30/6/2021)
Serbia’s dinar bonds with the original maturity of 7, 10 and 12.5 years have been included in the J.P. Morgan renowned indices, such as the GBI-EM Global Diversified index, which is one of the most frequently watched indices by international investors, i.e. one of the benchmark indices of bonds issued in local currencies of emerging economies. The inclusion comes as a result of the strengthening of the domestic macroeconomic environment in Serbia and years-long efforts to develop the local financial market.
It is estimated that around USD 250 bn are invested in J.P. Morgan GBI-EM indices.
“This is a success that we worked long and hard to achieve, a success that shows what kind of confidence Serbia has built in the international arena. We are proud of the fact that Serbia has reached the level of economic and market development and reputation in the international investment community allowing it to join the group of countries known to almost all top-notch world investors. This also confirms the confidence foreign investors have in the sustainability of Serbia’s economic indicators, as well as in the sustainability of the implementation of responsible economic policies”, said Governor Tabaković.
Moody’s upgrades Serbia’s credit rating (12/3/2021)
Moody’s has upgraded Serbia’s credit rating, assessing that the Serbian economy has shown resilience to the pandemic shock and has solid medium-term growth prospects. The key factors of resilience and favourable economic prospects include low and stable inflation, a relatively stable exchange rate, reduced external imbalances and a current account deficit fully covered by FDIs. The improved profile also includes adequate foreign exchange reserves, increased economic diversification and lower fiscal risks. Political stability and successful reform implementation, as well as a stable banking system, are among important factors bringing Serbia closer to investment grade rating.
“We shall always be doing everything to mitigate the negative effects from the international environment, no matter how global and large they are. Our task is to continue to pursue a responsible, adequate and effective economic policy, and to create conditions for sustainable growth and development, where man and his wellbeing in the 21st century take centre stage. Because nothing starts without people and nothing ends without institutions”, underscored Governor Tabaković.
Governor’s Office
