Serbian Banking Sector: Rising Opportunities On The Horizon

After the first wave of the global crisis, in 2010 and 2011, the Serbian banking sector remained stable, largely owing to the preserved vitality of the real sector of the economy due to a moderate recovery of FDI inflow, as well as the Government's program for mitigating the adverse effects of the global economic crisis, aimed at stimulating domestic demand (the GDP growth rate amounted to 1% and 1.6%, respectively). During 2012, the election year, the economy went into recession (the GDP growth rate was -1.7%), i.e. economic activity, FDI and the overall performance of the real sector of the economy declined, which, combined, had an impact on a decline in banking sector performance. Data indicate that banks' credit activity in post-crisis years has recorded a trend of deceleration, both in terms of scale and in terms of risk or conservatism in their approach, all of which is a result of economic recession. However, if banking sector performance is viewed from another perspective, although profitability exhibited a downward trend over the observed period, capitalization of the banking sector is more than adequate and the current share of banking sector assets in the GDP (about 82%) indicates that there is room for further growth. As yet, there is no threat to banks' liquidity and solvency, and confidence in the banking system is stable. However, the main risk to banking sector stability and the influence of the monetary policy on the economy lies in the vitality, or recovery, of the real sector of the economy, i.e. in the economic policy makers' activities/measures aimed at reviving economic activity in the forthcoming period.