NATIONAL BANK OF SERBIA
BANK SUPERVISION DEPARTMENT
BANKING SECTOR IN SERBIA
First Quarter Report 2019
2019
Contents:
1 1 BASIC INFORMATION ON SERBIAN BANKING SECTOR .............. 3
1.1 Selected parameters of the Serbian banking sector ................................ 3 1.2 Concentration and competition .............................................................. 4
2 PROFITABILITY ......................................................................................... 6
2.1 Profitability indicators ........................................................................... 6 2.2 Structure of the results ........................................................................... 7
2.3 Operating income ................................................................................... 8 2.4 Оperating expenses ................................................................................ 9
3 BANKING SECTOR ASSETS .................................................................. 10
3.1 Level and structure ............................................................................... 10 3.2 Classified assets ................................................................................... 11
3.3 Loans .................................................................................................... 13 3.4 Non-performing loans .......................................................................... 15
4 BANKING SECTOR LIABILITIES .......................................................... 22
4.1 Structure of the sources of funding ...................................................... 22 4.2 Deposits ............................................................................................... 23 4.3 Total borrowing of banks ..................................................................... 25
4.4 External liabilities ................................................................................ 26 4.5 Subordinated liabilities ........................................................................ 26
5 OFF-BALANCE SHEET ITEMS............................................................... 27
6 BANK LIQUIDITY .................................................................................... 29
7 CAPITAL ADEQUACY ............................................................................ 30
8 FOREIGN EXCHANGE RISK .................................................................. 33
9 NBS REGULATORY ACTIVITY ............................................................. 33
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
3
1 1 BASIC INFORMATION ON SERBIAN BANKING SECTOR
1.1 Selected parameters of the Serbian banking sector1
At end-March 2019, the Serbian banking sector numbered 27 banks, which is
unchanged relative to end-December 2018. The organisational network consisted of
1,598 business units and employed a total of 22,999 persons.
Q1 2019 saw an increase in the Serbian banking sector employment, with the
number of business units unchanged. At end-Q1 2018, banking sector employment
went up by 169 persons compared to end-December 2018, as a consequence of a
simultaneous increase in employment by a total of 245 in 18 banks and a decrease in
employment by a total of 76 in nine banks. Within the business network, the number of
business units decreased by six in three banks and increased also by six in two banks.
At end-March 2019, total net balance sheet assets of the Serbian banking sector
equalled RSD 3,792.8 bn (rising by 0.5% relative to December 2018) and the total
balance sheet capital RSD 681.9 bn (up by 0.8% relative to December 2018).
1 All data in the Report are based on the reports that banks are required to submit to the NBS. These
reports have not been audited by external auditors or verified by NBS on-site supervisors.
Amount Share Amount ShareNumber of
business units1)Share
Number of
employ eesShare
Banks in domestic
ownership 7 935 24.7% 166 24.4% 546 34.2% 6,598 28.7%
State-owned 5 670 17.7% 98 14.4% 437 27.3% 5,241 22.8%
Priv ately -owned 2 266 7.0% 68 10.0% 109 6.8% 1,357 5.9%
Banks in foreign
ownership 20 2,857 75.3% 516 75.6% 1,052 65.8% 16,401 71.3%
Italy 2 1,003 26.5% 176 25.8% 233 14.6% 4,310 18.7%
Austria 2 501 13.2% 85 12.4% 184 11.5% 2,727 11.9%
France 2 417 11.0% 58 8.5% 179 11.2% 2,275 9.9%
Hungary 2 218 5.7% 44 6.5% 159 9.9% 2,100 9.1%
Other 12 719 19.0% 153 22.5% 297 18.6% 4,989 21.7%
Total banking sector 27 3,793 100.0% 682 100.0% 1,598 100.0% 22,999 100.0%
Table 1.1 Selected parameters of the Serbian banking sector
(RSD bn, %)
Number
of
banks
Source: NBS.
Assets Capital Network Employ ment
1) Business units include all business network f orms: headquarters, branches, branch of f ices, teller units and other
business units.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
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In the quarter observed, the market share of banks in majority ownership of
domestic entities (private entities and the Republic of Serbia) increased slightly (from
24.5% to 24.7%), as well as their share in total banking sector capital (24.1% to
24.4%). Consequently, the share of banks in majority ownership of foreign entities
decreased only slightly (from 75.5% to 75.3%) as regards the balance sheet total, i.e.
from 75.9% to 75.6% as regards capital. The nominal fall was recorded in the balance
sheet total of banks in majority ownership of domestic private entities.
Banks from Italy, Austria, France and Hungary (eight banks in total) accounted for
the dominant share in total banking sector balance sheet assets – 56.4%.
1.2 Concentration and competition
The Serbian banking sector features an acceptable level of competition and low
concentration of activities. The Herfindahl Hirschman index2 values indicate the
absence of concentration in all observed categories.
For a long time now, the highest values of the index were observed in deposits
(chiefly household deposits) and income from fees and commissions, while the lowest
figures were noted for total income and interest income, as well as for total balance
sheet assets.
At the same time, if the five biggest banks are observed in terms of balance sheet
assets, gross loans and deposits, it is evident that they account for more than half of the
Serbian banking sector in these segments given their share in the net balance sheet
assets (53.0%), gross loans (52.8%) and deposits (54.1%).
2 The Herfindahl Hirschman Index (HHI) is calculated as the sum of square values of individual bank
shares in the category observed (assets, loans, deposits, etc.). HHI up to 1,000 indicates that there is no
market concentration; 1,000–1800 indicates moderate concentration; above 1,800 indicates high
concentration.
Top 5 banks Top 10 banks HHI1)
Assets 53.0 78.1 775
Lending (total) 52.8 77.4 785
Household loans 53.1 80.1 813
Corporate loans 53.4 81.3 819
Deposits (total) 54.1 79.3 804
Household deposits 58.6 82.0 960
Income (total) 52.4 77.2 752
Interest 51.2 76.8 746
Fees and commissions 58.1 81.1 920
Source: NBS.
Table 1.2.1 Concentration and competition indicators (Share %)
1) Herf indahl Hirschman Index of concentration.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
5
At end-Q1 2019 in terms of the amount of the balance sheet total five largest banks
preserved their position on the list.
In terms of balance sheet assets, Banca Intesa A.D. Beograd remained the leading
bank in Serbia; its market share edged up (by 0.1 pp) from the previous quarter, but
decreased from the same period last year (by 1.3 pp). In addition to Banca Intesa A.D.
Beograd, the following banks had market shares above 10% as at 31 March 2019:
Unicredit Bank Srbija A.D. – Belgrade (11.3%) and Komercijalna banka a.d. –
Belgrade (10.6%).
(RSD bn, %)
Amount Share Ranking Amount Share Ranking Amount Share Ranking
Banca Intesa A.D.- Beograd 559 16.5 1 571 15.1 1 575 15.2 1
Unicredit Bank Srbija A.D.-
Beograd390 11.5 2 437 11.6 2 428 11.3 2
Komercijalna banka A.D.-
Beograd367 10.8 3 401 10.6 3 403 10.6 3
Societe Generale banka Srbija
A.D.- Beograd290 8.6 4 316 8.4 4 312 8.2 4
Raif f eisen Banka A.D.- Beograd 272 8.0 5 292 7.7 5 291 7.7 5
Banka Poštanska štedionica A.D.-
Beograd146 4.3 9 220 5.8 6 229 6.0 6
Erste Bank A.D.- Nov i Sad 161 4.8 8 203 5.4 8 210 5.5 7
Agroindustrijsko komercijalna
banka AIK banka akcionarsko
društv o, Beograd
201 5.9 6 207 5.5 7 209 5.5 8
Eurobank A.D.- Beograd 163 4.8 7 170 4.5 9 172 4.5 9
Vojv ođanska banka A.D.- Nov i Sad 118 3.5 10 134 3.5 10 134 3.5 10
Source: NBS.
Table 1.2.2 Top ten banks according to the total assets criterion
31. 03. 2018 31. 12. 2018 31. 03. 2019
Δ Г Δ Т
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
6
2 PROFITABILITY
2.1 Profitability indicators
The banking sector’s net profit before tax in Q1 2019 equalled RSD 16.6 bn, down
by 5.9% from last year.
The structure of the net profit is as follows: twenty-two banks operated with a total
profit of RSD 16.8 bn, while five banks accounting for 1.9% of the market share
posted a negative financial result totalling RSD 0.2 bn. The profit generating items of
the banking sector were somewhat more concentrated than the balance sheet total: six
banks with the highest net profit together made up 77.4% of the total sector’s profit.
Preserved profitability of the banking sector at end-March 2019 resulted in the
following profitability indicators: ROA equalled 1.75% (2.08% at end-March 2018),
and ROE 9.72% (10.50% at end-March 2018).
14.33
18.13 17.5816.55
-5
0
5
10
15
20
31. 3. 2016 31. 3. 2017 31. 3. 2018 31. 3. 2019
Profit Loss Net result
Source: NBS.
Chart 2.1.1 Pre tax result(in RSD bln)
1.88 2.25 2.081.75
9.18
11.4110.50
9.72
0.0
2.0
4.0
6.0
8.0
10.0
12.0
31. 3. 2016 31. 3. 2017 31. 3. 2018 31. 3. 2019
ROA ROE
Source: NBS.
Chart 2.1.2 Banking sector profitability indicators(in %)
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
7
2.2 Structure of the results3
In an environment of lending expansion in 2018 (supported by economic growth
and positive labour market trends despite the decreasing average interest rate trend),
including the customary reliance of domestic banks on traditional credit-deposit
business models, the main driver behind the rising net profit was net interest and fee
income.
Net interest income at end-Q1 2019 stood at RSD 32.1 bn, up by 3.8% from the
same period in 2018. This increase stems from higher interest income (by RSD 1.9 bn)
and, at the same time, the rise in interest expenses (by RSD 0.7 bn). At end-March
2019, the structure of interest income at banking sector level was as follows: 78.4% of
interest income came from loans, 17.0% from securities and 2.0% from deposits. On
the expense side, deposit interest expenses had the highest share (72.4%), followed by
those associated with loans (15.9%) and securities (6.9%).
Net fee and commission income stood at RSD 9.7 bn, increasing by 5.5% from 31
March 2018 due to the RSD 0.5 bn rise in the fee and commission income, while
expenses on this account declined slightly (0.5%). The most significant types of fee
and commission income are those in respect of payment transactions (a 32.0% share in
total fee and commission income), payment cards (20.7%) and deposits (15.0%),
whereas on the expense side, payment card expenses had the highest share (47.2%),
followed by payment transaction expenses (13.0%).
The net result of the impairment of financial assets not carried at fair value through
income statement was negative at end-Q1 2019 at RSD 1.3 bn, compared to RSD 0.7
bn of net loan losses in the same period of 2018. Banks recorded net expenses under
indirect write-off of financial assets measured at amortised cost in the amount of RSD
2.7 bn (RSD 1.2 bn net income on this account in the same period of 2018). The write-
off of uncollectible receivables generated net revenues of RSD 1.2 bn, while in 2018
minimum net expenses were recorded on this account.
3 Note: data for 31 March 2018 are changed compared to the previous report because one bank re-
submitted its reports.
(in RSD mn)
Result Net interest Net f ees Net Credit losses Exchange rate ef f ect
31. 03. 2019 16,555 32,053 9,675 -1,255 1,644
31. 03. 2018 17,585 30,885 9,168 -701 1,427
-6% 4% 6% 79% 15%
Source: NBS.
* In regards with prev iously submitted report, data as at end of March 2018 were changed due to reports repetition by one bank.
Table 2.2 Changes in key elements of bank profitability
Change:
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
8
At end-Q1 2019, net gains from securities declined negligibly from the year
before, reaching RSD 1.3 bn.
The net effect of the dinar exchange rate fluctuations on the Serbian banking
sector’s result at end-Q1 2019 was positive, producing net exchange rate gains and
gains from the agreed currency clause of RSD 1.6 bn. Net exchange rate gains on FX
receivables and liabilities equalled RSD 3.5 bn, while net exchange rate losses
associated with the agreed FX currency clause came at RSD 1.9 bn.
2.3 Operating income
At end-Q1 2019, the banking sector’s total operating income stood at RSD 45.5 bn,
up by 4.8% compared to the total operating income from the same period in 2018.
The y-o-y increase in operating income is attributable primarily to interest income.
0
2
4
6
8
10
12
14
16
18
20
22
Net result Маrch
2018
Net
interest
Net fees Net
securities
FX effect Other
operating
income
Net credit
losses
Other
income
Operating
expenses
Net result
March
2019
Source: NBS.
Chart 2.2 The structure of result(in RSD bn)
71.1% 70.4%
21.1%21.2%
3.3%3.6%
0
5
10
15
20
25
30
35
40
45
50
31. 3. 2018 31. 3. 2019
Net interest Net fees Income from securities FX effect Other income
Chart 2.3 Operating income structure(in RSD bn, in %)
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
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2.4 Оperating expenses
At end-Q1 2019, operating expenses of the Serbian banking sector equalled RSD
28.9 bn, rising by 9.9% у-o-y. Operating expenses were recorded in all categories,
mostly in depreciation expenses (by 63.9%) which account for 10.1% of operating
expenses. This increase is the result of the implementation of IFRS 16 – Leases. “Other
expenses” were higher by 8.9% compared to expenses in 2018 (52.8% of operating
expenses). Expenses relating to salaries, compensations and other personal expenses
increased by 1.9% (making up 37.1% of total operating expenses).
Salaries, salaries
compensations
and other
personal expenses; 10,7
bn; 37%
Depreciation costs; 2,9 bn;
10%
Other expenses; 15,3
bn; 53%
Source: NBS.
Chart 2.4 Structure of operating expenses31 March 2019
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
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3 BANKING SECTOR ASSETS
3.1 Level and structure
Total net balance sheet assets of the Serbian banking sector at end-March 2019
equalled RSD 3,792.8 bn, indicating an increase of RSD 18.7 bn or 0.5% relative to
December 2018.
Loans and receivables (to banks and other clients) held a dominant share of 62.1% in
banking sector net assets (as a result of banks’ orientation towards traditional banking
activities), dropping by 0.7 pp q-o-q. Also, item Securities held a significant share (17.4%),
as did the item Cash and balances with the central bank (15.7%). Banks’ investments in
securities were mostly those in government securities issued by the Republic of Serbia,
which made this segment of banking sector investment highly secure.
3,0
43
3,2
08
3,3
87 3
,79
3
3,2
42
3,3
69 3
,77
4
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2016 2017 2018 2019
September December
Source: NBS.
Chart 3.1.1 Total banking sector assets(in RSD bn)
Cash and balances with the central bank;
596,7 bn; 16%
Loans and receivables from banks and OFO;
175,9 bn; 5%
Loans and receivables from customers; 2181,4 bn; 58%
Receivables under derivatives and
securities; 662.7 bln; 17%
Property, plant and equipment; 71,5 bn;
2%
Investment property; 13,6 bn; 0%
Other; 91, bn; 2%
Chart 3.1.2 Banking sector assets structure
31 March 2019
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
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3.2 Classified assets
At end-March 2019, total classified assets (on- and off-balance sheet) equalled
RSD 3,453.7 bn, up by RSD 33.0 bn (1.0%) q-o-q. Balance sheet assets subject to
classification rose by RSD 10.2 bn and off-balance sheet items subject to classification
by RSD 22.8 bn. Within balance sheet assets subject to classification, the most
significant changes were recorded for long-term loans and deposits with banks, which
rose by RSD 21.8 bn and went down by RSD 17.8 bn, respectively. When it comes to
off-balance sheet items, the largest absolute increase was recorded in Contingent
liabilities – by RSD 14.8 bn. Long-term loans in balance sheet assets and contingent
liabilities in off-balance sheet assets, with RSD 1,871.6 bn and RSD 563.3 bn at end-
March 2019 respectively, remained the most important items subject to classification
(share of 74.6% and 59.7% in total classified balance/off-balance sheet items).
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Cash and balances with the central bank 596,715 -107 145,605 0.0% 32.3%
Loans and receiv ables 2,357,313 -11,766 231,899 -0.5% 10.9%
from banks and OFO 175,940 -32,105 -10,735 -15.4% -5.8%
from customers 2,181,373 20,338 242,634 0.9% 12.5%
Receiv ables under deriv ativ es and securities1) 662,745 -2,722 -12,215 -0.4% -1.8%
Property , plant and equipment 71,550 20,030 19,543 38.9% 37.6%
Inv estment property 13,611 -36 -1,398 -0.3% -9.3%
Other 90,869 13,306 22,745 17.2% 33.4%
Total balance sheet 3,792,802 18,704 406,179 0.5% 12.0%
Source: NBS.
1) Until 2018 the f ollowing f inancial assets hav e been included: recognised at f air v alue through income statement and held f or
trading, av ailable f or sale, held to maturity and initially recognised at f air v alue through income statement
Table 3.1 Change in key asset items of the banking sector
Amount
Change relativ e to prior periods
Nominal Relativ e
53% 54%56% 57%
23%26%
28% 27%9%
10%
9% 9%
3%
3%
2% 2%
12%7%
5% 5%2,942
3,057
3,421 3,454
0
500
1,000
1,500
2,000
2,500
3,000
3,500
31. 12. 2016 31. 12. 2017 31.12.2018 31.3.2019
А Б В Г Д
Chart 3.2 Total classified assets(in RSD bn, in % )
Sourceational Bank of Serbia.Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
12
The most significant change in balance sheet assets subject to classification
relative to a quarter earlier was a decrease in balance sheet items from category B by
RSD 19.3 bn, primarily in short term loans. Categories D and E recorded an increase
by RSD 7.8 bn and RSD 9.8 bn, respectively (rise in long-term loans). Consequently,
the share of the two worst categories rose by 0.7 pp, hence bad assets accounted for
8.9% of total classified balance sheet assets.
An increase in total classified off-balance sheet items by RSD 22.8 bn resulted
from an increase in categories A and B by RSD 22.6 bn, mostly under Contingent
liabilities, and from the decrease in category D (by RSD 7.1 bn), hence the share of bad
assets fell from 3.8% to 3.1% in total classified off-balance sheet items.
At its meeting on 24 December 2018 the NBS Executive Board adopted, inter alia,
the Decision Amending the Decision on the Classification of Bank Balance Sheet
Assets and Off-balance Sheet Items which, among other things, repealed the banks’
obligation to calculate reserve for estimated losses which may be incurred on account
of balance sheet assets and off-balance sheet items.
Assigned receivables amounted to RSD 1.9 bn in Q1 2019, which is significantly
lower than the RSD 4.2 bn in Q4 2018, but almost unchanged in y-o-y terms (in Q1
2018 assigned receivables amounted to RSD 1.8 bn). All RSD 1.9 bn worth of
receivables in Q1 2019 were assigned to non-banking sector entities.
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Balance sheet assets subject to classification 2,510,423 10,154 240,805 0.4% 10.6%
Short-term loans 329,603 -16,348 30,919 -4.7% 10.4%
Long-term loans 1,871,628 21,841 233,911 1.2% 14.3%
Receiv ables due 76,197 -954 -48,639 -1.2% -39.0%
Deposits with banks 94,465 -17,785 -7,937 -15.8% -7.8%
Off-balance sheet items subject to classification 943,274 22,834 125,572 2.5% 15.4%
Pay able guarantees 112,367 -1,463 11,068 -1.3% 10.9%
Perf ormance guarantees 221,869 4,243 38,474 1.9% 21.0%
Contingent liabilities 563,308 14,755 73,769 2.7% 15.1%
Source: NBS.
Table 3.2 Change in key balance sheet and off-balance sheet asset items of the banking sector
Amount
Change relativ e to prior periods
Nominal Relativ e
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
13
3.3 Loans4
In Q1 2019, gross loans of the Serbian banking sector recorded a nominal quarterly
increase of RSD 4.5 bn or 0.2%, reaching RSD 2,271.7 bn. In gross terms, credit
activity rose the most in the household segment – by RSD 17.1 bn or 1.9% q-o-q, and
in the corporate segment by RSD 5.4 bn or 0.5% q-o-q. As before, the increase in loans
to households is largely attributable to the rise in dinar cash loans and housing loans
with an FX clause.
Cash loans have the largest share in total household loans (45.7% followed by
housing loans with 42.4%) with the growth rate of 2.5% in Q1 2019. Gross lending
declined in nominal terms in the sector of finance and insurance, public non-financial
sector, and foreign and other other legal entities sectors. The corporate and household
sectors remained the most prevalent, with shares of 45.0% and 40.5% respectively.
4 In accordance with the Guidelines on the Obligation and Method of Collection, Processing and
Submission of Data on the Stock and Structure of Bank Loans, Receivables and Liabilities, loans include
the following loans in dinars and foreign currency: recalls, transaction account loans, overnight loans,
consumer, liquidity and current assets loans, export, investment, housing and cash loans, loans for the
payment of imports of goods and services from abroad, loans for the purchase of real estate in the country
to a natural person, and other loans.
(in RSD mn, in %)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Finance and insurance 23,958 -3,448 7,066 -12.6% 41.8%
Public enterprises 94,717 -3,266 13,337 -3.3% 16.4%
Companies 1,023,201 5,394 79,776 0.5% 8.5%
Public sector 28,027 3,375 2,452 13.7% 9.6%
Households 919,328 17,129 101,254 1.9% 12.4%
Foreign persons and f oreign banks 44,927 -13,779 11,957 -23.5% 36.3%
Other sectors 137,539 -870 -773 -0.6% -0.6%
Total loans 2,271,696 4,534 215,070 0.2% 10.5%
Relativ e
Source: NBS.
Table 3.3 Change in the level of net loans
Amount
Change relativ e to prior periods
Nominal
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
14
The currency structure of the Serbian banking sector’s loan portfolio is still
dominated by foreign currency. At end-Q1 2019, FX and FX-indexed loans accounted
for 68.3%. The prevalent currency of loan indexation in Serbia was the euro, with EUR
loans making up 65.1% of total loans (95.3% of total gross FX and FX-indexed loans),
followed by CHF loans and USD loans at 2.7% and 0.4% (4.0% and 0.6% of total
gross FX and FX-indexed loans, respectively). Compared to December 2018, gross
EUR and CHF loans continued to fall in nominal terms.
At end-Q1 2019, dinar loans made up 31.7% of total gross loans. Observed by
sector, households accounted for the bulk of dinar loans (56.1%), while the share of the
public non-financial sector was the smallest (6.9%), with the exception of foreign
entities (1.4%). By loan category, dinar loans accounted for the major portion of cash
and consumer loans (99.2% and 59.6% respectively) and the smallest share of housing
and investment loans (0.3% and 8.8% respectively). Despite the prolonged upward
trend of dinar cash loans, the share of cash loans in total banking sector loans equalled
18.5% at end-March 2019 compared to 18.1% in December 2018.
Observed by the remaining maturity, the structure of gross loans did not change
significantly – the share of long-term gross loans increased (from 76.4% to 77.7%),
while a decline was recorded in the share of short-term loans (from 19.2% to 18.7%)
and overnight loans (from 1.7% to 0.9%). The share of matured loans is unchanged
(2.7%).
EUR1479.4
bn
64%
CHF; 62.2 bn;
3%
USD; 9.8 bn;
0%
RSD; 719.5
bn; 31%
Other; 56.5 bn;
2%
Due; 61, bn; 3%
Up to 3 m; 129.3
bn; 6%
3 to 6 m; 85.9 bn;
4%
6 to 12 m; 231,
bn; 10%
1 to 2 y239.6 bn
10%
2 tо 5 y ; 616.5
bn; 27%
5 tо 6 y ; 139.2
bn; 6%
6 tо 7y ; 148.1
bn; 6%
7 tо 8 y ; 129.7
bn; 6%
Ov er 8 y ear;
491.4
bn; 22%
Chart 3.3 Banking sector gross loan portfolio structure(in RSD bn)
31 March 2019
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
15
Since the start of implementation of IFRS 9 – Financial instruments on 1 January
2018 the NBS has been monitoring the effects of this standard in the area of
classification, valuation and calculation method for impairment of financial
instruments. According to the data for Q1 2019 in the structure of gross loans, the
dominant part is held by loans classified in Stage 1 (88.2%), while significantly lower
share was recorded for loans classified in Stages 2 and 3 (6.7% and 4.9% respectively).
3.4 Non-performing loans
Monitoring the level and trend of non-performing loans (NPLs) is vital for
identifying potential problems in the collection of receivables and monitoring of credit
risk, as these loans and the indicators associated with them may signal deterioration in
the quality of the loan portfolio of the banking sector. Further analysis of NPLs in
relation to allowances for their impairment, regulatory provisions and capital provides
insight into the banking sector’s capacity to absorb losses arising from NPLs.
According to the methodology applied by the NBS, an NPL means the total
outstanding debt under an individual loan (including the amount of arrears):
- where the payment of the principal or interest is delayed 90 days or longer since
the initial maturity;
- where 90 days of interest payments (or higher) have been added to the loan
balance, capitalised, refinanced or delayed by agreement;
Stage 1 2003.3 bn
88%
Stage 2 151.7 bn
7%
Stage 3 112.1 bn
5%Stage 3 at the
moment of
recognition
3.6 bn
0%
Source: NBS.
Chart 3.3.1 Gross loans structure per level of impairment(31 March 2019 )
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
16
- where payments are less than 90 days overdue, but the bank has assessed that the
borrower’s repayment ability has deteriorated and doubts that the payments will be
made in full.
Gross NPLs
In Q1 2019, the banking sector’s total gross NPLs decreased by RSD 5.3 bn to
RSD 125.4 bn at end-March. During this quarter, gross NPLs5 saw a decline by RSD
1.4 bn on account of assignment and by RSD 10.7 bn on account of collection, while
write-offs accounted for an additional reduction of RSD 3.9 bn. The banking sector’s
new gross NPLs in Q1 2019 amounted to RSD 11.9 bn.
The fall in gross NPLs by 4.0%, along with a rise in total loans by 0.2%, pushed
the share of NPLs in total gross loans further down by 0.2 pp q-o-q, to 5.5%, which is
their new historic low since the introduction of the uniform definition of a non-
performing loan and mandatory reporting in 2008.
Despite a decline of RSD 5.3 bn, the major part of gross NPLs is still in the
corporate segment (RSD 51.8 bn at end-March 2019). In addition, the NPLs of
Companies in bankruptcy and other legal persons in bankruptcy stood at RSD 20.5 bn.
In the household sector, gross NPLs stood at RSD 40.6 bn, or 32.4% of total gross
NPLs.
5 Calculated based on the NPL 3 report which banks submit to the NBS.
50%
53%
44% 45%
20%
22%
30% 32%
30%
25%
26% 23%
345.8
204.9
130.6 125.4
17.0
9.8
5.7 5.5
0
5
10
15
20
0
50
100
150
200
250
300
350
400
450
31.12.2016 31.12.2017 31.12.2018 31. 3. 2019
Corporates Households Other Tota l Gross NPL %
Chart 3.4.1 Gross non performing loans (NPL)(in RSD bn)
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
17
NPL coverage
Despite a high write-off amount, at end-Q1 2019 the coverage of total gross NPLs
with allowances for impairment stayed relatively high at 61.3%.
Decision Amending the Decision on the Classification of Bank Balance Sheet
Assets and Off-balance Sheet Items, among other things, repealed the banks' obligation
to calculate reserve for estimated losses which may be incurred on account of balance
sheet assets and off-balance sheet items.
Total NPLs were covered by allowances for NPL impairment (80.7% coverage).
0
5
10
15
20
25
30
35
40
31.12.2016 31.12.2017 31. 12. 2018 31. 3. 2019
Households
Corporate sectors(Public enterprises + Companies)
Total NPL
Other sectors
Source: NBS.
.
Chart 3.4.2 NPL ratio for main sectors(in %)
67.8
58.1 60.2 61.3
72.9
66.8
78.780.7
50
55
60
65
70
75
80
85
90
31.12.2016 31.12.2017 31.12.2018 31. 3. 2019
IFRS provision (NPL)** / NPL
IFRS provision* / NPL
* Prov ision f or total loans; ** Prov ision f or non-perf orming loans;
Chart 3.4.3 NPL coverage(in %)
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
18
Corporate NPLs
At end-Q1 2019, gross corporate NPLs equalled RSD 51.8 bn, down by RSD 1.6
bn or 3.0% q-o-q, mainly due to: assignment (RSD 0.2 bn), collection (RSD 3.1 bn)
and write-offs (RSD 1.8 bn).6
By sector, the biggest share in total corporate NPLs continued to be held by
manufacturing (34.1%, with a 5.2% gross NPL ratio), followed by real estate (21.2%,
with an 11.2% gross NPL ratio), trade (18.3%, with a 2.9% gross NPL ratio) and
construction (16.9%, with an 8.6% gross NPL ratio). During this quarter, the NPL ratio
markedly declined in all sectors (except in the real estate). The sharpest reduction was
registered in construction (1.8 pp).
6 Calculated based on the NPL 3 report which banks submit to the NBS.
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Agriculture 1,533 -355 -640 -18.8% -29.4%
Manuf acturing 17,669 -1,833 -27,719 -9.4% -61.1%
Construction 8,763 -1,010 -3,079 -10.3% -26.0%
Trade 9,487 -99 -10,196 -1.0% -51.8%
Transport, hotels/restaurants, communications 3,061 -108 -1,683 -3.4% -35.5%
Real estate 10,976 1,831 -1,646 20.0% -13.0%
Source: NBS.
Table 3.4.1 Changes in gross NPLs by main economic sectors
Amount
Change relativ e to prior periods
Nominal Relativ e
(in %)
31. 3. 2019 31. 12. 2018 31. 3. 2018
Agriculture 2.0% -0.3 -1.1
Manuf acturing 5.2% -0.5 -9.2
Construction 8.6% -1.8 -5.3
Trade 2.9% -0.1 -3.4
Transport, hotels/restaurants, communications 4.0% -0.1 -2.8
Real estate 11.2% 1.8 -3.0
Source: NBS.
Table 3.4.2 Corporate NPL ratio by sector
Change relativ e to prior periods (pp)
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
19
Natural persons’ NPLs7
Measuring 4.4% at end-Q1 2019, the share of gross NPLs of natural persons is
still below the average of the total portfolio and 0.02 pp lower than a quarter earlier.
At end-Q1 2019, natural persons’ NPLs equalled RSD 45.6 bn, having risen by
1.6% q-o-q. Cash loans recorded the most significant increase in NPLs (by 9.3%) at the
rate of total cash loans growth of 3.2%, or RSD 13.9 bn. Their share in total gross
loans to natural persons amounted to 43.5% at end-March 2019. At the same time, the
share of cash loans in total NPLs to natural persons increased to 39.5% at end-March
2019 (36.8% in the previous quarter). On the other hand, the gross NPL ratio of cash
loans recorded relatively low values (4.0% at end-March 2019 while on 31 December
2018 it equalled 3.8%).
7 Households, entrepreneurs, private households with employed persons and registered farmers
Agriculture1,5 bn
3%
Processing industry
17.7 bn…
Electricity0.3 bn
1%
Construction8.8 bn
17%
Commerce9.5 bn
18%
Hotel, restaurants and
communication
3.0 bn…
Real estate and education
11.0 bn
21%
8.6%
1.5%
2.0%
5.2%
2.9%
11.2%
4.0%
Gross NPL
Chart 3.4.4 Private corporates NPL structure31 March 2019
Source: NBS.
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Housing loans 16,691 -805 -4,912 -4.6% -22.7%
Cash loans 18,041 1,531 3,389 9.3% 23.1%
Credit cards 2,005 337 14 20.2% 0.7%
Current account ov erdraf ts 1,864 79 -65 4.4% -3.4%
Consumer loans 498 -47 -29 -8.6% -5.5%
Other 6,537 -370 -2,804 -5.4% -30.0%
Total 45,637 725 -4,407 1.6% -8.8%
Source: NBS.
Relativ e
Table 3.4.3 Changes in gross non-performing household loans by category
Amount
Change relativ e to prior periods
Nominal
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
20
The category of housing construction loans accounted for 37.7% of total loans and
36.6% of total gross NPLs.
The highest gross NPL ratio in the natural persons’ segment at end-March 2019
(8.0%) was recorded in the category of current account overdrafts (which accounted
for 2.3% of total loans to natural persons and for 4.1% of total NPLs of natural
persons). The next were credit cards, with the ratio of 6.1% (making up 3.2% of total
loans to natural persons and 4.4% of the NPLs of natural persons), housing loans with
4.3% and cash loans with 4.0%.
(in %)
31. 3. 2019 31. 12. 2018 31. 3. 2018
Housing construction 4.3% -0.3 -1.7
Cash loans 4.0% 0.2 0.1
Credit cards 6.1% 1.2 0.1
Current account ov erdraf ts 8.0% 0.1 -0.1
Consumer loans 3.7% 0.3 0.1
Source: NBS.
Table 3.4.4 Gross NPL ratio for households by category
Change relativ e to prior periods (pp)
Cash18.0 bn
40%
Credit cards2.0 bn
4%
Ov erdraf t1.9 bn
4%Consumer
0.5 bn
1%
Housing16.7 bn
37%
Other lending*6.5 bn
14%
5.2%
4.0%
8.0%
4.3%
6.1%
Gross NPLindicator
3.7%
Other lending = agriculture, other activ ities, v ehicle purchase loans and other loans
Chart 3.4.5 Natural persons NPL structure31 March 2019
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
21
When observing NPLs to natural persons in relation to allowances for their
impairment, housing loans are a category with the lowest allowances for impairment
(42.5% relative to gross NPLs), due to generally better collateral coverage. In current
account overdrafts, cash loans and credit cards, allowances for impairment are much
higher (76.8%, 64.2% and 62.3%, respectively).
Concentration risk
At end-2018 the NBS adopted regulatory measures aimed at preventing new NPLs
and preserving financial stability as a response to unsecured non-purpose loans with
unreasonably long maturities. These measures cover cash, consumer and other
household loans (with the exception of housing loans and current account overdrafts)
with the repayment term of eight years or longer. In accordance with the Decision on
Managing Concentration Risk Arising from Bank Exposure to Specific Products,
concentration risk indicator was introduced as an additional regulatory and supervisory
instrument of the NBS.
Concentration risk indicator is the ratio of cash, consumer and other household
loans with contracted maturity longer than eight years (except for housing loans and
current account overdrafts) and capital increased by dinar liabilities whose remaining
maturity is over five years. At end-Q1 2019 concentration risk indicator of the Serbian
banking sector is 23.05%, significantly below the prescribed 50% for banks in the
observed year and down by 2.1 pp from end-January 2019 (first reporting date). The
banking sector exposure on account of loans extended to households was reduced by
6.3% (from RSD 156.1 bn to RSD 146.4 bn) in the same period (March-January).
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
22
4 BANKING SECTOR LIABILITIES
4.1 Structure of the sources of funding
Deposits8 were the primary source of bank funding in Serbia, making up 71.4% of
total liabilities. At end-Q1 2018, own sources of funding made up 18.0% and
borrowing 5.8% of total liabilities.
Total liabilities of the banking sector rose by RSD 13.5 bn (or 0.4%) q-o-q.
Increased liabilities are attributable mainly to the rise in Other liabilities, specifically
financial leasing liabilities. The most significant deposit category recorded a net
reduction as a result of the fall in deposits and other financial liabilities towards banks
by RSD 26.6 bn and the increase in deposits and other financial liabilities towards
other clients by RSD 9.6 bn (0.4%).
8 Including transaction and other deposits as part of items: Deposits and other liabilities to banks, other
financial organisations and the central bank and Deposits to other clients.
(in RSD mn)
Amount
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Deposits and other liabilities 2,992,534 -16,976 370,489 -0.6% 14.1%
to banks, OFO and the central bank 453,289 -26,470 61,306 -5.5% 15.6%
to other customers 2,539,245 9,494 309,183 0.4% 13.9%
Liabilities under securities1)588 28 16 4.9% 2.9%
Subordinated liabilities 29,077 -5,872 -4,210 -16.8% -12.6%
Prov isions 12,339 871 1,870 7.6% 17.9%
Share capital and other capital 396,958 3,728 110 0.9% 0.0%
Prof it 88,163 -9,976 -17,971 -10.2% -16.9%
Loss 24,062 258 -9,257 1.1% -27.8%
Reserv es and unrealised losses 220,840 11,700 17,520 5.6% 8.6%
Other 76,365 35,459 29,096 86.7% 61.6%
Total liabilities 3,792,802 18,704 406,179 0.5% 12.0%
Source: NBS.
Table 4.1 Change in key items of banking sector liabilities
Change relativ e to prior periods
Nominal Relativ e
632
667
677
682
2,6
09
2,7
02 3,0
97
3,1
11
0
500
1,000
1,500
2,000
2,500
3,000
3,500
31. 12. 2016. 31. 12. 2017. 31. 12. 2018. 31. 3. 2019.
Capital Liab ilities
Source: NBS.
Chart 4.1 Banking sector capital and liabilities (in RSD bn)
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
23
In Q1 2019, the total capital of the banking sector rose by RSD 5.2 bn in nominal
terms (i.e. by 0.8%), with the share of capital in total balance sheet liabilities also
increasing (from 17.9% to 18.0%). Within capital structure, the most significant
changes were recorded for: reserves (up by RSD 11.7 bn), profit (down by RSD 10.0
bn – primarily envisaged for reserves and payment of dividends), and share capital (up
by RSD 3.7 bn – capital increase in one bank).
In terms of the currency structure, Q1 2019 saw a further decrease in dinar sources
of funding (including capital), from 43.1% to 42.7%. As regards the FX and FX-
indexed portion of liabilities, EUR-denominated liabilities remained dominant, making
up 91.7% of total FX liabilities, while the rest were mostly liabilities in USD (5.0%)
and CHF (2.5%).
4.2 Deposits
Total deposits with banks stood at RSD 2,707.7 bn at end-Q1 2019, down by RSD
24.3 bn (0.9%) q-o-q. The decrease stemmed mainly from a drop in corporate and
public non-financial sector transaction deposits (by RSD 46.0 bn and RSD 16.4 bn,
respectively).
At end-Q1 2019 dinar deposits went down by RSD 33.2 bn and FX-indexed
deposits by RSD 3.5 bn, while FX deposits rose by RSD 12.4 bn. The share of FX and
FX-indexed deposits in total deposits went up from 67.5% to 68.4%. The EUR was the
dominant currency, making up 90.9% of total FX and FX-indexed deposits. The rest of
FX and FX-indexed deposits were mainly in USD (5.6%) and CHF (2.6%).
In terms of initial (agreed) maturity, demand deposits remained dominant (63.2%),
followed by deposits maturing in up to one year (24.5%), while 12.3% of all deposits
were agreed for over one year term.
Short-term deposits (observed by the remaining maturity) made up the bulk of bank
deposits in Serbia. Demand deposits made up over a half of all deposits (63.6%), followed
by deposits with the remaining maturity of up to one year with 29.2%, while deposits with
the remaining maturity of over one year accounted for 7.2% of total deposits.
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Finance and insurance sector 71,508 -7,288 9,203 -9.2% 14.8%
Public enterprises 170,270 -19,359 40,011 -10.2% 30.7%
Companies 654,958 -28,688 115,606 -4.2% 21.4%
Public sector 69,983 30,426 29,615 76.9% 73.4%
Households 1,364,133 35,044 118,503 2.6% 9.5%
Foreign entities and f oreign banks 239,684 -7,414 24,575 -3.0% 11.4%
Other sectors 137,204 -27,027 -4,430 -16.5% -3.1%
Total deposits 2,707,740 -24,305 333,084 -0.9% 14.0%
Source: NBS.
Nominal Relativ e
Table 4.2 Changes in deposits levels
Amount
Change relativ e to prior periods
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
24
At end-Q1 2019, total household deposits in foreign currency amounted to RSD
1,155.3 bn (rising by 2.4% q-o-q) and were made up mainly of savings (62.0%) and
transaction deposits (35.6%).
Compared to the end of the previous quarter, household savings deposits9
increased by RSD 9.2 bn (1.2%) to RSD 775.3 bn at end-Q1 2019. This increase
resulted from higher savings in foreign currency (by RSD 5.1 bn) due to the dinar
appreciating by 0.2%, and the rise in dinar savings (by RSD 4.1 bn). At end-March
2019, FX savings were dominant in total household savings deposits, making up
92.4%, while dinar savings accounted for 7.6%.
9 Accounts 402 and 502 in the Chart of Accounts, sector 6 (domestic and foreign natural persons –
residents)
Sectoral structure Currency structure Maturity structure
Chart 4.2 Banking sector deposits structure31 March 2019
Up to 3 m2071.64
bn
77%
3 to 6 m143.65 bn
5%6 to 12 m298.6 bn
11%
Ov er 1 y ear
193.85 bn
7%
Households1364.13 bn
50%
Corp. (public and
priv ate)
825.23 bn
31%
Foreign entities
239.68 bn
9%
Other depositors
278.7 bn
10%
Source: NBS.
RSD854.88 bn
32%
EUR1683.67 bn
62%
Other currencies
169.19 bn
6%
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
25
4.3 Total borrowing of banks
At end-Q1 2019, the total credit borrowing of the banking sector amounted to RSD
278.9 bn, an increase by RSD 7.0 bn or 0.7% relative to the previous quarter (2.6%).
The largest individual item in total credit borrowing were loans taken (primarily
from parent banks, related banks in the same group and international financial
institutions), making up 78.4% (unchanged from the end of the previous quarter) and
rising by RSD 5.5 bn nominally q-o-q. The next largest item were liabilities under
overnight loans which accounted for 18.5% (end of the previous quarter: 17.7%), after
an increase of RSD 3.6 bn in Q1. Other financial liabilities made up 2.9% (end of the
previous quarter: 3.9%), falling by RSD 2.4 bn q-o-q.
In this segment, the biggest creditors of banks were foreign persons with 74.3%
(primarily foreign banks) and the general government sector with 16.9% (primarily
government bodies and organisations).
The dominant currency of borrowing was the euro, accounting for RSD 248.5 bn
(end of the previous quarter: RSD 249.4 bn) or 89.1% of total credit borrowing.
Liabilities in dinars stood at RSD 24.9 bn (end of the previous quarter: RSD 18.3 bn)
or 8.9% of total credit borrowing, while banks owed RSD 2.2 bn in CHF and USD
each (end of the previous quarter: RSD 2.4 bn and RSD 1.5 bn, respectively), or 0.8%
of total credit borrowing.
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
REPO 343 343 343 0.0% 0.0%
Ov ernight loans 51,628 3,620 16,664 7.5% 47.7%
Loans receiv ed 218,735 5,478 27,909 2.6% 14.6%
Other f inancial liabilities 8,215 -2,425 -7,878 -22.8% -49.0%
Total borrowing 278,921 7,016 37,037 2.6% 15.3%
Source: NBS.
Nominal Relativ e
Table 4.3 Changes in the level of bank borrowing
Amount
Change relativ e to prior periods
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
26
4.4 External liabilities
At end-Q1 2019, banks’ total external liabilities under credit operations stood at
RSD 207.2 bn, down by RSD 4.1 bn (1.9%) q-o-q. An increase was recorded only for
borrowings – by RSD 3.7 bn. This segment remained highly concentrated, given that
of the 12 banks which borrowed externally, three banks accounted for over half of the
total debt. Also, overnight foreign loans were recorded for only four banks, one bank
having over 84%.
Long-term loans held a dominant 79.4% share in the maturity structure of external
borrowing (at the end of the previous quarter: 76.7%), i.e. 43.1% of all borrowings
were extended with the maturity of over five years.
External borrowing was primarily euro-denominated – 97.4%, unchanged from the
quarter before (97.6%), followed by CHF and RSD borrowing which accounted for
1.1% each (also unchanged).
4.5 Subordinated liabilities
At end-Q1 2019, total subordinated liabilities of Serbian banks stood at RSD 34.9
bn, which is an increase by 10.7% q-o-q, whereby the prior downward trend was
discontinued.
In terms of creditors, total subordinated liabilities were structured in the following
manner: liabilities to foreign banks accounted for 80.2%, liabilities to foreign legal
persons – 18.1% and liabilities to corporates –1.7%.
The currency structure was as follows: the share of subordinated liabilities in euros
increased to 87.1%, liabilities in Swiss francs amounted to 11.2%, liabilities in dinars
made up 1.4%, and in rubles – 0.3%.
Subordinated liabilities were highly concentrated – of the 11 banks with
subordinated debt, one bank accounted for over 44% of all subordinated liabilities, and
the top four banks made up over 79% of total subordinated liabilities.
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Ov ernight loans 20,245 -7,149 12,343 -26.1% 156.2%
Loans receiv ed 184,988 3,730 31,510 2.1% 20.5%
Other f inancial liabilities 1,940 -652 -5,041 -25.2% -72.2%
Total borrowing 207,174 -4,072 38,812 -1.9% 23.1%
Source: NBS.
Nominal Relativ e
Table 4.4 Changes in bank external borrowing
Amount
Change relativ e to prior periods
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
27
Given the regulatory restrictions on inclusion of subordinated liabilities in Tier 2
and/or regulatory capital, banks included 70.1% of the stated subordinated debt in their
Tier 2 capital.
5 OFF-BALANCE SHEET ITEMS
At end-Q1 2019, total off-balance sheet items of the banking sector stood at RSD
6,727.7 bn, rising (by 0.2%) q-o-q, mostly on account of an increase in Other off-
balance sheet assets (by RSD 19.4 bn). Under this item (accounting for the dominant
73.7% of total off-balance sheet), the strongest growth of RSD 35.9 bn was recorded in
Other off-balance sheet assets, while the sharpest drop (RSD 48.0 bn) was recorded in
guarantees received and other sureties for settling the obligations of bank debtors.
Other important off-balance sheet items are Derivatives with an 8.9% share and issued
guarantees and other sureties with 5.1%. In Q1 2019 the former fell by 3.2%, while the
latter rose by 0.5%.
As of 1 January 2018, the amendments and supplements to the Chart of Accounts
introduced two new accounts for disclosing written-off financial assets, which were
carried over to off-balance sheet records (in dinars and foreign currency) for the
purpose of reporting in accordance with the Decision on the Accounting Write-off of
Bank Balance Sheet Assets. At end-Q1 2019, the banking sector disclosed RSD 208.7
bn on these accounts, up by RSD 0.6 bn or 0.3% q-o-q.
Risk-free items still accounted for the bulk (86.0%) of off-balance sheet items:
material collateral received, guarantees and other sureties accepted for the settlement
of borrowers’ liabilities, custody operations and other off-balance sheet assets.
6% 8% 8% 8%7% 8% 9% 9%
82% 79%74% 74%
5% 5%9% 9%
7,129 7,0546,711 6,728
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
31. 12. 2016 31. 12. 2017 31. 12. 2018 31. 3. 2019
Other Off-balance sheet assets Derivatives Contigent liabilities
Chart 5.1 Off-balance sheet items(in RSD bn in %)
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
28
At end-Q1 2019, the classified part of off-balance sheet items (i.e. which is
considered risk-bearing) amounted to RSD 943.3 bn (an increase by RSD 22.8 bn or
2.5%).
At end-Q1 2019, contingent liabilities10 equalled RSD 552.5 bn (falling by RSD
6.0 bn or 1.1% q-o-q) and made up 8.2% of total off-balance sheet items (8.3% at end
of the previous quarter).
(in RSD mn)
31. 3. 2019 31. 12. 2018 31. 3. 2018 31. 12. 2018 31. 3. 2018
Issued guarantees and other sureties 345,282 1,873 50,598 0.5% 17.2%
Receiv ables f rom deriv ativ es 598,327 -19,551 24,334 -3.2% 4.2%
Contingent liabilities and other irrev ocable commitments207,235 -7,891 108 -3.7% 0.1%
Securities receiv ed as collateral 212,011 5,713 28,789 2.8% 15.7%
Sureties f or liabilities 119,103 9,821 22,279 9.0% 23.0%
Written of f f inancial assets 208,692 569 15,735 0.3% 8.2%
Other of f -balance sheet assets 4,960,164 19,362 -1,363,982 0.4% -21.6%
Other 76,865 6,608 19,170 9.4% 33.2%
Total off-balance assets 6,727,680 16,505 -1,202,969 0.2% -15.2%
Source: NBS.
Nominal Relativ e
Table 5.1 Changes in off-balance sheet items in the Serbian banking sector
Amount
Change relativ e to prior periods
10 Issued guarantees and other sureties, irrevocable commitments regarding undisbursed loans and
placements, and other irrevocable commitments.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
29
6 BANK LIQUIDITY
Based on reference values of liquidity indicators, Serbia’s banking sector has been
characterised by considerable excess liquidity for a long time now. At end-Q1 2019,
the average monthly liquidity ratio was 2.18, twice higher than the regulatory floor of
1.0. The narrow liquidity ratio at banking sector level measured 1.85 (regulatory floor
– 0.7). The share of liquid assets in total banking sector balance sheet assets is stable,
reaching 36.7% at end-Q1 2019.
Banks’ investments in NBS repo securities decreased relative to December 2018,
from RSD 16.5 bn to RSD 15.0 bn at end-Q1 2019. The number of banks which
invested in repo securities dwindled (five banks). As for government securities, their
portfolio also decreased to RSD 637.4 bn at end-March 2019, by 0.4% from end-
December.
To further strengthen the resilience of the banking sector,11 the liquidity coverage
ratio was introduced. This indicator is the ratio of the liquidity buffer (made up by
high-quality liquid assets) and net outflow of a bank’s liquid assets that would occur in
the 30 days after the calculation of this ratio in the assumed stress conditions.
As of 1 January 2018, banks are required to maintain this ratio at a level not lower
than 100% (prescribed floors are the same as in the European Union). As at 31 March
2019, the liquidity coverage ratio at the level of the banking sector measured 209.76%.
11 The Decision on Liquidity Risk Management was adopted in December 2016 as part of the
implementation of the Strategy for Introduction of Basel III Standards in Serbia.
2.05 2.00 2.04
2.18
1.70 1.66 1.70
1.85
0.92 0.93 0.90 0.91
0.37 0.37 0.37 0.37
0.00
0.50
1.00
1.50
2.00
2.50
31. 12. 2016 31. 12. 2017 31. 12. 2018 31. 3. 2019
Liquidity indicator Narrow liquidi ty indicator
Loan to deposit ratio LTD Liqu id assets to total assets
Chart 6.1 Banking sector liquidity indicators
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
30
7 CAPITAL ADEQUACY
The Serbian banking sector is well-capitalised, both from the aspect of compliance
with the prescribed capital adequacy ratio12, and in terms of the structure of regulatory
capital. At end-March 2019, the capital adequacy ratio of the Serbian banking sector
averaged 23.68% (22.26% in December 2018), which is well above the NBS
regulatory minimum (8%).
At end-March 2019, the Tier 1 capital ratio of the Serbian banking sector averaged
22.61% (vs. 21.13% in December 2018), and Common Equity Tier 1 capital ratio –
22.55% (vs. 21.07% in December 2018).
As capital grew faster than risk-weighted assets in Q1 2019 (9.7% vs. 3.2%,
respectively), capital adequacy ratio went slightly up (by 1.42 pp). The increase in risk-
weighted assets by RSD 76.4 bn stemmed from the rise in credit risk-weighted assets
by RSD 76.9 bn. The increase in credit risk-weighted assets was prevalent in the part
of exposure to natural persons. Market-risk weighted assets declined (by RSD 4.4 bn),
primarily with regard to foreign exchange risk exposure (by RSD 6.5 bn).
12 For the purposes of harmonisation with the relevant EU legislation in the field of banking, and to
strengthen banking sector resilience, the NBS adopted new regulations in line with the requirements of
Basel III standards, coming into effect as of 30 June 2017. The minimum prescribed capital adequacy ratio
was reduced from 12% to 8%. In parallel, capital buffers were introduced (capital conservation buffer,
countercyclical capital buffer, systemic risk buffer, capital buffer for a systemically important bank).
380 463
510 563
38
21
27
26
-8
21.8322.61 22.26 23.68
0
5
10
15
20
25
-150
-50
50
150
250
350
450
550
650
31. 12. 2016 31. 12. 2017 31. 12. 2018 31. 3. 2019
Deductibles Tier 2 Tier 1 CAR
Chart 7.1 Regulatory capital and CAR*(in RSD bn, CAR in %)
* CAR = Regulatory capital adequacy ratio
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
31
In the structure of risk-weighted assets, the dominant share referred to credit risk
(85.3%), taking into account banks’ traditional business models relying on lending to
corporates and households. Next was operational risk with a share of 13.1%, while the
shares of market risks and credit valuation adjustment risk were negligibly low – at
1.5% and 0.1%, respectively.
In Q1 2019, a 9.7% increase in regulatory capital (in absolute amount: RSD 52.3
bn) was recorded, while the whole of 2018 recorded 10.9% growth. Regulatory capital
of the banking sector equalled RSD 589.4 bn at end–Q1 2019.
At the same time, Tier 1 capital of the banking sector13 stood at RSD 563.0 bn, up
by 10.4% (RSD 53.0 bn) from December 2018. Tier 2 capital of the banking sector fell
relative to the end of the previous quarter, by RSD 0.8 bn (2.8%) and stood at RSD
26.4 bn on account of a RSD 0.7 bn reduction in subordinated liabilities included in
Tier 2 capital.
Regulatory capital consists of: Tier 1 capital, which made up 95.5% and Tier 2
capital, which made up 4.5%. Tier 1 capital, which is the highest quality segment,
consists of Common Equity Tier 1 capital (99.7%) and Additional Tier 1 capital
(0.3%).
The package of regulations which the NBS adopted at end-2018 also prescribed an
obligation to maintain a certain level of capital depending on the riskiness of a
household loan14 in terms of loan purpose, availability of collateral, repayment
capacity bearing in mind total indebtedness and whether the payment term is justified
depending on loan purpose or lack of any specific purpose. The Amendments to the
13 According to Basel III regulations, among other things, Tier 1 and Tier 2 capital are not reduced by the
appropriate part of deductibles from regulatory capital, rather each of them has its own deductibles. 14 Consumer, cash or other loan (other than a housing loan or a current account overdraft).
85.3%
1.5%
13.1%0.1%
Credit r isk Market risk
Operational risk Credit r isk adjustments
Chart 7.2 RWA by risk type (in %)31 March 2019
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
32
Decision on Capital Adequacy of Banks prescribed new deductibles from Common
Equity Tier 1 capital (relating to consumer, cash and other loans) in the event that the
60% debt-to-income ratio has been exceeded, a loan with maturity of eight years or
longer has been approved (for 2019, or seven years for 2020 and six years for 2021) or
a consumer loan for the purchase of motor vehicles whose contracted maturity is eight
years or longer. As of 31 March 2019 as the first reporting date banks disclosed an
amount of RSD 3.4 bn as a deductible from Common Equity Tier 1 capital on this
account.
In accordance with the Amendments to the Decision on Reporting Requirements
for Banks, adopted in December 2016 and implemented as of 30 June 2017, the
leverage ratio is calculated as the ratio of Tier 1 capital and a bank’s total exposure
amount. As at 31 March 2019, the leverage ratio at banking sector level measured
13.83%15, sustaining the stable upward trend of this ratio since its introduction.
15 According to Basel III standards, the leverage ratio floor is 3%.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
33
8 FOREIGN EXCHANGE RISK
At end-Q1 2019, Serbia’s banking sector posted a short open FX position worth
RSD 10.6 bn (excluding the position in gold). Fifteen banks ended March 2019 with a
net short open FX position, while the remaining twelve banks showed a net long open
FX position.
On 31 March 2019, banks in Serbia operated at net short open positions in major
currencies, (euros – RSD 9.32 bn, US dollars – RSD 0.98 bn and Swiss francs – RSD
0.25 bn.
At end-March 2019, the foreign exchange risk ratio for the banking sector equalled
1.81%, indicating relatively low foreign exchange risk compared to the regulatory cap
(20% of banks’ capital).
9 NBS REGULATORY ACTIVITY
Exercising its regulatory competences in the area of bank supervision, the NBS
issued the following regulations in Q1 2019:
In February 2019 the NBS Executive Board adopted by-laws aimed at adjusting
the reporting system with the adopted set of regulations for addressing the issue of
unsecured long-term non-purpose household loans.
8.4410.50
21.99
6.89
1.342.08
1.02
9.32
2.74
2.90
4.52
1.81
0
1
2
3
4
5
6
0
5
10
15
20
31. 12. 2016 31. 12. 2017 31. 12. 2018 31. 03. 2019
Long EUR Short EUR FX ratio
Chart 8.1 Quarterly breakdown of the sector's long and short FX position (in EUR) and foreign exchange risk ratio(in RSD bn)
Source: NBS.
Banking Sector in Serbia – First Quarter Report 2019 National Bank of Serbia
34
The reason for adopting the Decision Amending the Decision on Capital
Adequacy of Banks was to adjust the Report on Capital prescribed by the decision
governing reporting on a bank’s capital adequacy (KAP Form) in order to enable
reporting to the NBS on the new introduced deductibles from Common Equity Tier 1
items – starting from the first reporting date (31 March 2019).
The Decision on Reporting Requirements for Banks introduced a new Report
on debt-to-income ratio (DTI Form) with a view to verifying whether receivables in D
category have been classified properly on account of exceeding the debt-to-income
ratio prescribed by the Decision оn the Classification of Bank Balance Sheet Assets
and Off-Balance Sheet Items (60%), but also to obtain detailed data for the needs of
future calibration of this percentage which is a threshold for applying the appropriate
deductible from Common Equity Tier 1 prescribed by the current Decision on Capital
Adequacy of Banks.
Both regulations were published in the RS Official Gazette, No 8/2019, and
applied as of 31 March 2019.
The following regulations passed by the NBS Governor were also published in RS
Official Gazette No 13/2019 of 28 February 2019.
- Decision Amending the Decision on the Chart of Accounts and Contents of
Accounts in the Chart of Accounts for Banks, and
- Decision Amending the Decision on Collection, Processing and Submission of
Data on the Balance and Structure of Accounts in the Chart of Accounts.
The decisions were adopted in order to ensure the collection of data required for
monitoring the application and effects of new regulations for banks adopted in
December 2018 aimed at promoting the practice of sustainable household lending, all
with a view to improving certain solutions based on the needs identified in practice and
improving the quality of reports for monetary and financial statistics.