banking sector in serbia first quarter report 2016 · banking sector in serbia – first quarter...

BANK SUPERVISION DEPARTMENT

BANKING SECTOR IN SERBIA

First Quarter Report 2016

June 2016

2

Contents:

1. BASIC INFORMATION ............................................................................. 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 result ............................................................................ 8

2.3. Оperating income .................................................................................. 9 2.4. Operating expenses ............................................................................. 10

3. BANKING SECTOR ASSETS ................................................................. 12

3.1. Level and structure .............................................................................. 12 3.2. Classified assets .................................................................................. 14 3.3. Loans ................................................................................................... 15 3.3.1. Non-performing loans ...................................................................... 16

4.1. Structure of sources of funding ........................................................... 23 4.2. Deposits .............................................................................................. 24

4.3. Total borrowing of banks .................................................................... 25 4.4. External liabilities ............................................................................... 26

4.5. Subordinated liabilities ....................................................................... 27 5. OFF-BALANCE SHEET ITEMS ............................................................. 28 6. BANK LIQUIDITY ................................................................................... 30

7. CAPITAL ADEQUACY ........................................................................... 31 8. FOREIGN EXCHANGE RISK ................................................................. 33

9. NBS REGULATORY ACTIVITY ............................................................ 34

Banking Sector in Serbia – First Quarter Report 2016

3

Amount Share Amount ShareNumber of

business units 1)Share

Number of

employ eesShare

Banks in domestic

ownership 7 743 24.4% 142 22.5% 468 27.2% 5,778 23.9%

State-owned 6 565 18.5% 88 14.0% 411 23.9% 5,168 21.4%

Priv ately -owned 1 178 5.9% 54 8.6% 57 3.3% 610 2.5%

Banks in foreign

ownership 23 2,300 75.6% 488 77.5% 1,250 72.8% 18,397 76.1%

Italy 2 783 25.7% 178 28.3% 246 14.3% 4,184 17.3%

Austria 3 459 15.1% 96 15.3% 205 12.0% 3,333 13.8%

Greece 4 389 12.8% 91 14.4% 290 16.9% 4,393 18.2%

France 3 311 10.2% 50 7.9% 213 12.4% 2,564 10.6%

Other 11 358 11.8% 73 11.5% 296 17.2% 3,923 16.2%

Total banking sector 30 3,043 100.0% 630 100.0% 1,718 100.0% 24,175 100.0%

1) Business units include all business network parts: headquarters, branches, branch of f ices, teller units and other business units.

Source: NBS.

Table 1.1 Selected parameters of the Serbian banking sector

Number

of banks

(in RSD bln, in %)

Assets Capital Network Employ ment

1. BASIC INFORMATION

1.1. Selected parameters of the Serbian banking sector1

At end-March 2016, the Serbian banking sector numbered 30 banks consisting of

1,718 organisational units (12 fewer than a quarter earlier) that employed a total of

24,175 persons (82 persons fewer than at the end of the previous quarter).

The downward trend in banking employment in Serbia, recorded over the past

several years, extended into the first quarter of 2016. Employment fell by a total of 223

persons in 10 banks, 17 banks hired 141 new people, while three banks kept the same

number of employees as at the end of the previous quarter. Eight banks scaled down

their network by closing a total of 20 organisational units, while merely four banks

expanded their business network by opening eight organisational units.

At end-March 2016, total net balance sheet assets of the Serbian banking sector

equalled RSD 3,043.3 bln (a 0.1% decrease relative to end-2015) and total capital RSD

630.4 bln (up by 1.8% from end-2015).

Compared with the previous quarter, the market share of banks in the majority

ownership of domestic entities (private entities and the Republic of Serbia) edged up

slightly (from 23.9% to 24.4%), while the share of foreign-owned banks dropped

negligibly (from 76.1% to 75.6%) with a mild 0.8% decrease in the balance sheet total.

1 All data in the Report are based on 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.

National Bank of Serbia

4

Top 5 banks Top 10 banks HHI 1)

Assets 54.4 77.1 799

Lending (total) 52.8 75.6 759

Household loans 49.9 76.2 732

Corporate loans 54.0 79.5 792

Deposits (total) 54.3 78.6 828

Household deposits 56.6 80.3 932

Income (total) 50.3 77.0 736

Interest 51.3 76.1 742

Fees and commissions 57.5 80.5 871

Table 1.2.1 Concentration and competition indicators

(Share in %)

1) Herf indahl Hirschman Index of concentration.

Source: NBS.

Banks from Italy, Austria, Greece and France (12 banks) continued to account for

the dominant share in total banking sector assets – 63.8%, showing a barely perceptible

increase of 0.5 pp relative to the end of the previous quarter.

1.2. Concentration and competition

The Serbian banking sector still maintains an acceptable degree of competition and

low concentration of activities. The Herfindahl Hirschman index2 values indicate the

absence of concentration in all observed categories (see Table 1.2.1.). For quite some

time, the highest level of the index was observed in deposits (chiefly household

deposits) and income from fees and commissions, while the lowest figure was noted

for household lending.

The ten biggest banks in Serbia accounted for 77.1% of net balance sheet assets,

75.6% of total net loans and 78.6% of total deposits of the banking sector. They also

accounted for over 80% of household deposits and income from fees and commissions.

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.


5

(in RSD bln, in %)

Δ Г Δ Т

Amount Share Ranking Amount Share Ranking Amount Share Ranking

Banca Intesa A.D.- Beograd 463 15.7 1 488 16.0 1 478 15.7 1

Komercijalna banka A.D.-

Beograd393 13.4 2 392 12.9 2 410 13.5 2

Unicredit Bank Srbija A.D.-

Beograd282 9.6 3 308 10.1 3 305 10.0 3

Raif f eisen Banka A.D.- Beograd 230 7.8 4 234 7.7 4 238 7.8 4

Societe Generale banka Srbija

A.D.- Beograd217 7.4 5 231 7.6 5 225 7.4 5

Agroindustrijska komercijalna

banka AIK banka akcionarsko 168 5.7 6 179 5.9 6 178 5.9 6

Eurobank A.D.- Beograd 142 4.8 7 141 4.6 7 141 4.6 7

Banka Poštanska štedionica A.D.-

Beograd115 3.9 9 130 4.3 8 129 4.2 8

Vojv ođanska banka A.D.- Nov i

Sad122 4.1 8 120 3.9 9 122 4.0 9

Erste Bank A.D.- Nov i Sad 98.7 3.4 12.0 117.5 3.9 10.0 121.4 4.0 10.0

Source: NBS.

Table 1.2.2 Top ten banks according to the total assets criterion

31.03.2015. 31.12.2015. 31.03.2016.

In terms of balance sheet assets, there was no change in the ranking of the top ten

banks in Serbia from a quarter earlier. Banca Intesa a.d. Beograd maintained a leading

position in the top ten banks ranking even though its market share dropped slightly

from the previous quarter (by 0.3 pp).


6

10.84

8.097.25

14.33

-4

-2

0

2

4

6

8

10

12

14

16

03/2013 03/2014 03/2015 03/2016

Profit Loss Net result

Source: NBS.

Chart 2.1.1. Pre tax result(in RSD bln)

2. PROFITABILITY

2.1. Profitability indicators3

The results of the Serbian banking sector at end-Q1 2016 indicate that banks’

profitability has continued to improve. As at 31 March 2016 the banking sector’s pre-

tax net result was RSD 14.3 bln, up by RSD 7.1 bln compared to the same period last

year.

At end-March 2016, of 30 banks operating in Serbia, 23 banks operated with

profits of RSD 14.9 bln, while 7 reported a negative result amounting to RSD 0.6 bln.

The profit and loss generating items of the banking sector were highly concentrated.

Four banks which posted the highest net profit together made up more than half of the

total sector’s profit, while one bank with the highest net losses accounted for one half

of the total losses.

3 In line with the amendments to accounting regulations (Chart of Accounts and forms of financial

statements), the methodology for calculating some profitability indicators has been changed, starting from

31 December 2014.


7

(in RSD mln) 31.03.2016.

Banks posting highest net profit

Unicredit Bank Srbija A.D.- Beograd 2,862

Banca Intesa A.D.- Beograd 2,288

Raif f eisen Banka A.D.- Beograd 1,963

Agroindustrijska komercijalna banka AIK banka akcionarsko društv o, Beograd 1,693

Komercijalna banka A.D.- Beograd 1,403

Banks posting highest net loss

Telenor banka A.D. - Beograd -320

MIRABANK AKCIONARSKO DRUSTVO BEOGRAD -127

Marf in Bank A.D.- Beograd -111

Piraeus Bank A.D.- Beograd -53

mts banka akcionarsko drustv o, Beograd -21.552

Table 2.1 Banks posting highest profit and loss

Source: NBS.

1.511.15 0.98

1.88

7.25

5.42

4.69

9.18

0.0

2.0

4.0

6.0

8.0

10.0

03/2013 03/2014 03/2015 03/2016

ROA ROE

Source: NBS.

Chart 2.1.2 Banking sector profitability indicators(in %)

The increase in banking sector’s profitability at end-Q1 2016 was accompanied by

an improvement in profitability indicators, primarily return on assets and return on

equity. ROA equalled 1.88% (rising by 0.90 pp y-o-y) and ROЕ 9.18% (up by 4.49 pp

y-o-y).


8

2.2. Structure of the result

The key impetus to improvement in the banking sector’s net profit was a decrease

in net credit losses. In Q1 2016, net credit losses came at RSD 2.5 bln, less than one

fourth of what was recorded in the same period of 2015, owing to the fact that net

expenses on account of indirect write-offs of balance sheet positions dropped by 77.9%

y-o-y (from RSD 11.0 bln to RSD 2.4 bln). Net expenses originated also from direct

write-off of uncollectible receivables which rose by 141.6% from the year before (from

RSD 138 mln to RSD 334 mln). Provisioning for credit-risk weighted off-balance sheet

items was the only item generating net income in the first quarters of both years,

though net income generated in Q1 2016 is RSD 209 mln lower than the income

generated in Q1 2015.

Banking sector’s net income from fees and commissions also dropped in y-o-y

terms.

Net interest income in Q1 2016 stood at RSD 31 bln, down by 4.0% relative to

2015, due to the fact that a drop in interest income (by RSD 5.5 bln y-o-y), triggered

by a further decline in interest rates in the domestic and international markets, was

steeper than the decrease in interest expenses (by RSD 4.3 bln y-o-y). In terms of the

composition of total interest income, only income from securities denominated in

foreign currency increased y-o-y, reaching 5.2% of total interest income at end-Q1

2016. The sharpest decrease was recorded for interest income on dinar loans – by

14.0% (from RSD 33.1 bln to RSD 28.4 bln). Looking at the composition of total

interest expenses, dinar and foreign currency deposits accounted for most of the

decline (dropping by 46.6% and 34.8%, respectively).

Unlike interest income and expenses which did not reach 2015 levels, income and

expenses from fees and commissions rose by 1.4% and 9.3%, respectively, which, put

together, pushed net income from fees and commissions down by 1.7%.


9

0

2

4

6

8

10

12

14

16

Net result March2015

Net interest Net fees Other income net Operatingexpenses

Credit losses Exchange rateeffect

Net result March2016

Source: NBS.

Chart 2.2 Structure of net result(in RSD bln)

(in RSD mln)

Result Net interest Net f ees Credit lossesExchange rate

ef f ect

31.03.2016. 14,331 31,048 34.924 2,537 2,218

31.03.2015. 7,252 32,328 34.825 10,697 2,201

98% -4% 0% -76% 1%

Source: NBS.

Change:

Table 2.2 Changes in key elements of bank profitability

Securities generated lower net profit as well. At RSD 301 mln in Q1 2016, it was

merely one fifth of what was recorded in 2015 (RSD 1.5 bln). A major portion of a

RSD 1.2 bln decrease (as much as RSD 1.1 bln) can be put down to a decrease in net

revaluation gains on derivatives held for trading (two banks posted jointly a decrease

of over RSD 1.5 bln).

Total operating expenses of the banking sector equalled RSD 25.9 bln, down by

5.4% relative to the year before, mostly due to a decline in item “Other expenses”.

Sector-wide, salary expenses rose by 1.3%, while depreciation costs edged down by

2.9%.

In Q1 2016, net exchange rate effect on the banking sector’s result was positive, as

net income on this account amounted to RSD 2.2 bln, slightly more (by 0.7%) than

what was recorded in 2015. Net exchange rate losses in respect of foreign currency

receivables and liabilities came at RSD 8.0 bln (compared to net losses of RSD 7.2 bln

in 2015), while net exchange rate gains from receivables and liabilities with an agreed

currency clause amounted to RSD 10.2 bln (compared to net gains of RSD 9.4 mln in

the same period a year earlier).


10

70.9% 72.7%71.3% 72.6%

20.4% 20.1%

18.5%19.3%

7.1% 6.1%

4.9%

5.2%

-5

0

5

10

15

20

25

30

35

40

45

50

03/2013 03/2014 03/2015 03/2016

Net interest Net fees Income from securities Other income Exchange rate effect

Source: National Bank of Serbia

Chart 2.3. Operating income structure(in RSD bln, in %)

2.3. Оperating income

In Q1 2016, the banking sector’s total operating income came at RSD 42.8 bln,

down by 5.6% relative to the same period last year. The major drivers of this decrease

were net interest and fee income and net income from securities, while other operating

income and net exchange rate gains and gains from agreed currency clause remained

unchanged.

2.4. Operating expenses

In Q1 2016, operating expenses4 of the Serbian banking sector equalled RSD 25.9

bln, dropping by 5.4% у-o-y. Lower operating expenses are largely attributable to a

10.1% decrease in the “Other expenses” category (which made up 53.4% of operating

expenses at end-March 2016) compared to the same period a year earlier. The main

driver of the decrease was a drop in expenses pertaining to the write-off of outdated

inventories, penalties and damage compensations, as well as corrections of materially

insignificant errors from prior periods.

4 Operating expenses include: salaries, salary compensations and other personal expenses, depreciation

costs and other expenses (costs of material, production services, intangible costs…), in accordance with

the amended methodology.


11

Salaries, salaries

compensations and other personal

expenses; 10.2 bln; 40%

Depreciation costs;

1.9 bln; 7%

Other expenses;

13.8 bln; 53%

Source: NBS.

Chart 2.4 Structure of operating expenses31 March 2016

Salaries, salary compensations and other personal expenses (making up 39.5% of

total operating expenses) rose by 1.3%, while depreciation costs (constituting 7.1% of

operating expenses) edged down by 2.9%.


12

2,8

55

2,8

24

2,9

44

3,0

43

2,8

46

2,9

69

3,0

48

0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2013 2014 2015 2016

March December

Source: NBS.

Chart 3.1.1 Total banking sector assets(in RSD bln)

3. BANKING SECTOR ASSETS

3.1. Level and structure

Total net balance sheet assets of the Serbian banking sector at end-March 2016

equalled RSD 3,043.3 bln, indicating a q-o-q decrease of RSD 4.5 bln or 0.1%.

Loans and receivables held a dominant share in the banking sector assets (60.8%),

slightly rising from end-2015 (by 0.6 pp), owing to an increase in lending to other

banks, while loans to clients dropped mildly. Still, the dominant share of this category

confirms banks’ orientation towards traditional banking. Currency and deposits with

the central bank (14.5%), which dropped by 15.7% in the quarter observed, and

financial assets (20.5%), which rose by 11.7%, also took up a significant share. A RSD

65.9 bln increase in financial assets mostly stemmed from higher bank investments in

government securities (which rose by RSD 63.1 bln).


13

Cash and assets held with the central bank,

440 bln, 14%

Loans and receivables from banks and other

financial organisations, 206 bln, 7%

Loans and receivables from clients; 1,643 bln;

54%

Financial assets available for sale, 504

bln, 17%

Property, plant and equipment and

Investment property, 69 bln, 2%

Other assets, 181 bln, 6%

Source: NBS.

Chart 3.1.2 Banking sector assets structure31 March 2016

(in RSD mln)

31.03.2016 30.09.2015. 31.12.2014. 30.09.2015. 31.12.2014.

Cash and balances with the central bank 439,626 -81,881 -75,353 -15.7% -14.6%

Loans and receivables 1,849,397 12,712 2,508 0.7% 0.1%

from banks and OFO 206,457 28,616 572 16.1% 0.3%

from customers 1,642,940 -15,904 1,936 -1.0% 0.1%

Financial assets 625,086 65,439 164,686 11.7% 35.8%

at fair value through the income statement and held for trading 19,166 2,639 6,745 16.0% 54.3%

initially recognised at fair value through the income statement 4,248 276 1,057 6.9% 33.1%

available for sale 504,113 62,772 142,457 14.2% 39.4%

held to maturity 97,558 -247 14,428 -0.3% 17.4%

Property, plant and equipment 51,610 -353 1,117 -0.7% 2.2%

Investment property 17,600 -139 1,313 -0.8% 8.1%

Other 59,971 -313 5,365 -0.5% 9.8%

B anking secto r balance sheet to tal 3,043,290 -4,534 99,636 -0.1% 3.4%

Source: NBS.

Table 3.1 Change in key asset items of the banking sector

Amount Nominal

Change relative to prior periods

Relative


14

51%53% 50% 52%

19%

20% 22% 21%

9%

7% 8% 8%5%

4% 4% 4%16%

16% 16% 15%2,568

2,783 2,793 2,796

0

500

1,000

1,500

2,000

2,500

3,000

12/2013 12/2014 12/2015 03/2016

А B C D E

Chart 3.2 Total classified assets(in RSD bin, in %)

Source: NBS

3.2. Classified assets

At end-March 2016, total classified assets (on- and off-balance sheet) equalled

RSD 2,795.7 bln, up by RSD 2.5 bln or 0.1% from a quarter earlier. Classified balance

sheet assets rose by RSD 10.8 bln, while classified off-balance sheet items decreased

by RSD 8.3 bln. The rise in classified off-balance sheet items was driven primarily by

a rise in deposits to other banks (by RSD 20.1 bln), while receivables due recorded the

sharpest decline (by RSD 14.3 bln). Within off-balance sheet items, the largest item –

contingent liabilities (making up as much as 58.4%) went up by RSD 7.9 bln, but other

two important classified off-balance sheet items (financial and performance

guarantees) shrunk by RSD 8.4 bln and RSD 7.9 bln, respectively.

Compared to the previous quarter, the most significant change in the structure of

classified balance sheet assets is the increase in balance sheet items classified in A

category by RSD 35.5 bln, while balance sheet assets classified in categories D and E

(the so-called “bad assets”) dropped considerably (by RSD 3.8 bln and 17.4 bln,

respectively). Consequently, the composition improved, as the two worst categories

shrunk by 1.1 pp, pushing the share of bad assets in total classified balance sheet assets

down by 22.5%. Such movement was particularly pronounced in receivables due,

which declined in all categories except category А (in the segment of bad assets, the

decline amounted to RSD 14 bln).

By contrast, a drop in classified off-balance sheet items by RSD 8.3 bln affected

primarily categories D (which went down by RSD 6.6 bln) and B (down by RSD 13.0

bln), so the share of off-balance sheet bad assets in total classified off-balance sheet

items decreased from 6.8% to 5.9%.

The aforementioned decrease in total bad assets resulted mostly from an almost

triple increase in the volume of assigned receivables compared to a quarter earlier.


15

(in RSD mln, in %)

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

Finance and insurance 13,825 751 -2,454 5.7% -15.1%

Public sector 30,292 -1,452 -10,466 -4.6% -25.7%

Public enterprises 142,232 -11,774 -27,434 -7.6% -16.2%

Households 683,050 12,467 35,675 1.9% 5.5%

Companies 807,133 -14,876 12,891 -1.8% 1.6%

Foreign persons and foreign banks 23,396 6,664 -7,626 39.8% -24.6%

Other sectors 179,669 2,582 22,450 1.5% 14.3%

Total loans 1,879,598 -5,639 23,037 -0.3% 1.2%

Source: NBS.

Table 3.3 Change in the level of net loans

Amount


Nominal Relative

Taking into account the above movements, the calculated balance sheet regulatory

provisions dropped by RSD 17.5 bln or 3.6% in Q1 2016 and came at RSD 467.3 bln,

and calculated off-balance sheet regulatory provisions declined by RSD 1.0 bln or

6.1%, to RSD 15.9 bln.

Accordingly, the total required reserve for estimated losses arising from credit risk

(which for each borrower represents a positive difference between regulatory

provisions on the one hand and the sum of allowances for impairment of balance sheet

assets and provisions for losses on off-balance sheet items) decreased by RSD 9.8 bln

or 4.7% in the same period, to RSD 197.0 bln.

3.3. Loans

In Q1 2016, gross loans of the Serbian banking sector recorded a nominal decrease

of RSD 5.6 bln or 0.3% and came at RSD 1,879.6 bln at end-March. In net terms (after

reduction for allowances for impairment) this growth was offset, because allowances

for impairment declined by RSD 6.3 bln or 2.5%.

Gross loans contracted most sharply in the corporate sector (RSD 14.9 bln or 1.8%

down from the previous quarter) and public enterprises (RSD 11.8 bln or 7.6%), while

the greatest nominal increase was recorded in the household sector (RSD 12.5 bln or

1.9%).

The currency structure of the banking sector’s loan portfolio is still dominated by

foreign currency. At end-March 2016, FX and FX-indexed loans accounted for 72.3%.

The prevalent currency of loan indexation in Serbia was the euro, with EUR loans

making up 64.5% (89.1% of total gross FX and FX-indexed loans), followed by CHF

loans and USD loans at 5.7% and 1.6%, respectively (7.8% and 2.2% of total gross FX

and FX-indexed loans, respectively). Compared to the previous quarter, CHF loans

extended their fall both in nominal and relative terms. At end-March 2016, the dinar

portfolio accounted for 27.7% of total gross loans.


16

Source: NBS.

EUR; 1,211

bln; 64%CHF; 106 bln;

6%

USD; 30 bln; 1%

RSD; 520 bln;

28%

Other; 13 bln; 1% Due; 204

bln; 11%

Up to 3 m; 104 bln; 6%

3 to 6 m; 63 bln;

3%

6 to 12 m; 179 bln; 9%

Over 1 year; 1,330

bln; 71%

Chart 3.3 Banking sector gross loan portfolio structure(in RSD bln)31 March 2016

In terms of maturity structure, the share of short-term and long-term gross loans

remained unchanged (16.8% and 70.7%, respectively), matured loans slid by 0.5 pp

from the end of previous quarter (to 10.8%), while overnight loans edged up by 0.5 pp

(to 1.6%).

3.3.1. 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 the level of

NPLs relative to allowances for impairment, regulatory provisions and capital provides

insight into the banking sector’s capacity to absorb losses arising from NPLs.

In accordance with the methodology applied by the NBS, an NPL implies the level

of outstanding debt on individual loan balances (including the overdue amount):

- where the payment of principal and interest is 90 days or more past due its

original maturity date;

- where interest at the quarterly level (and longer) was ascribed to the loan balance,

capitalised, refinanced or delayed;

- 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.


17

60% 59%51% 50%

14%16%

17%18%

25%

25%32%

32%

395.3421.3 424.6

406.6

21.4 21.5 21.620.9

0

5

10

15

20

25

0

100

200

300

400

500

12/2013 12/2014 12/2015 03/2016

Corporates Households Other Total Gross NPL %

Chart 3.3.1.1 Gross non performing loans (NPL)(in RSD bln)

Source: NBS.

Gross NPLs

In Q1 2016, the banking sector’s gross NPLs decreased by RSD 18.1 bln, to RSD

406.6 bln at end-March. Of this reduction in gross NPLs5, RSD 28.9 bln was due to

collection and RSD 12.8 bln to assignment.

Observed by sector, corporates continued to account for the largest share of gross

NPLs (RSD 183.7 bln at end-March 2016), though their share contracted further –

from 46.7% at end-December 2015 to 45.2% at end-March 2016. Next in line were

non-financial legal persons in bankruptcy (their NPLs stood at RSD 108.8 bln at end-

March 2016, rising from 26.5% to 26.8%) and the household sector (RSD 73.6 bln,

rising from 17.3% to 18.1%). The increase in gross NPLs of non-financial legal

persons in bankruptcy resulted primarily from the change of status, i.e. initiation of

corporate bankruptcy.

As gross NPLs decreased, the share of NPLs in total gross loans also went down,

to 20.9%, posting a q-o-q decrease of 0.7 pp.

5 Calculated based on the NPL 3 report which banks submit to the NBS.


18

0

5

10

15

20

25

30

35

40

45

50

12/2013 12/2014 12/2015 03/2016

Households

Corporate sector( Pubilc enterprises + Private companies)

Total NPL

Other sectors

Source: NBS..

Chart 3.3.1.2 NPL ratio for main sectors(in %)

55.8 59.066.8 68.1

117.9 118.4 118.2 118.9

50.9 54.9

62.3 63.5

113.8 114.5 114.2 114.9

0

20

40

60

80

100

120

140

160

180

200

12/2013 12/2014 12/2015 03/2016IFRS provision* / NPL Total calculated reserve‡ / NPL

IFRS provision (NPL) ** / NPL Calculated reserve† / NPL

† Calculated reserve for potential losses on balance-sheet lending (loan loss reserve); * Total loan provision; ** Provision for non-performing loans; ‡ Total calculated reserve for potential losses (on- and off-balance sheet).

Chart 3.3.1.3 NPL coverage(in %)

Source: NBS.

NPL coverage

At end-Q1 2016, the coverage of total gross NPLs by regulatory reserves for

estimated balance sheet losses equalled 114.9%, while allowances for impairment

under IFRS ensured the coverage of 63.5%.


19

90

95

100

105

110

115

120

125

130

135

140

12/2013 12/2014 12/2015 03/2016

Serbia Austria Greece France Italy

Chart 3.3.1.4 NPL coverage* across countries of origin of banks in Serbia(in %)

*Provisions for balance sheet exposure.

Source: NBS.

(in RSD mln)

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

M anufacturing 68,869 -217 -4,394 -0.3% -6.0%

Trade 46,012 -12,050 -18,897 -20.8% -29.1%

Construction 27,692 -78 -10,117 -0.3% -26.8%

Education and real estate 24,477 -1,322 -5,910 -5.1% -19.5%

Agriculture 5,971 -286 -4,129 -4.6% -40.9%

Transport, hotels/restaurants, communications 10,303 -604 -1,837 -5.5% -15.1%

Source: NBS.

Table 3.3.1.1 Changes in gross NPLs by main economic sectors

Amount


Nominal Relative

Corporate NPLs

At RSD 183.7 bln at end-Q1 2016, gross corporate NPLs recorded a RSD 14.6 bln

or 7.3% decrease relative to the quarter before. The main reasons behind the decrease

in gross NPLs were partial or full loan repayment, assignment of NPLs to other legal

persons (RSD 24.4 bln) and sectoral re-allocation. On the other hand, in the period

observed RSD 9.6 bln worth of corporate loans became non-performing.


20

(in %)

31.03.2016 31.12.2015 31.03.2015

Construction 37.7% -0.5 -13.1

Real estate and education 30.8% -2.5 -9.2

M anufacturing 24.1% 0.5 -0.9

Trade 17.8% -3.7 -7.1

Agriculture 9.1% 0.0 -7.9

Transport 18.8% -1.7 -5.6

Source: NBS.

Table 3.3.1.2 Corporate NPL ratio by sector


(pp)

Chart 3.3.1.5 Private corporates NPL structure(31 March 2016)

Agriculture; 6 bln; 3%

Processing industry; 69 bln;

38%

Electricity; 0.4 bln; 0%

Construction; 28 bln; 15%

Commerce; 46 bln; 25%

Hotel, restaurants and communication;

10 bln; 6%

Real estate and education; 24

bln; 13%

37.7%

17.8%

9.1%

24.1%

17.8%

30.8%

18.8%

Gross NPL indicator

Source: NBS.

By sector, the biggest share in total corporate NPLs continued to be held by

manufacturing (37.5%, with a 24.1% NPL gross ratio), followed by trade (25.0%, with

a 17.8% gross NPL ratio) and construction (15.1%, with a 37.7% gross NPL ratio).

This quarter again, the ratio markedly declined in all sectors except in manufacturing

(where the gross NPL ratio increased from 23.6% to 24.1%). The sharpest decrease

was recorded in trade (by 3.7 pp), primarily owing to a high volume of assignment and

collection (over 52% and 73%, respectively).


21

(in RSD mln)

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

Housing loans 32,958 28 2,489 0.1% 8.2%

Cash loans 22,873 281 1,560 1.2% 7.3%

Credit cards 5,006 -238 -451 -4.5% -8.3%

Current account overdrafts 4,284 26 118 0.6% 2.8%

Consumer loans 3,708 -4 -115 -0.1% -3.0%

Other 19,481 43 -1,167 0.2% -5.7%

Total 88,309 137 2,435 0.2% 2.8%

Source: NBS.

Table 3.3.1.3 Changes in gross non-performing natural persons loans by category

Amount


Nominal Relative

(in %)

31.03.2016 31.12.2015 31.03.2015

Housing construction 9.5% -0.1 0.6

Cash loans 9.8% -0.2 -0.9

Credit cards 13.8% -0.5 -1.0

Current account overdrafts 16.3% -0.9 1.0

Consumer loans 21.8% -1.0 -4.4

Source: NBS.

Table 3.3.1.4 Gross NPL ratio for households by category


(pp)

Natural persons’ NPLs6

At 11.5% at end-Q1 2016, the share of gross NPLs of natural persons was below

the average of the total portfolio and 0.2 pp lower than a quarter earlier.

At end-Q1 2016, natural persons’ NPLs equalled RSD 88.3 bln, rising negligibly

(by 0.2%) from end-Q4 2015. Consumer and credit card loans recorded a decrease.

The category of housing construction loans accounted for a dominant share both in

total loans (45.2%) and gross NPLs (37.3%) of natural persons. Cash loans came next

with a 30.2% share in total loans of natural persons and a 25.9% share in total NPLs of

natural persons.

At end-March 2016, the highest gross NPL ratio in natural persons’ loans (21.8%)

was recorded for consumer loans (which made up 2.2% of total natural persons’ loans

and 4.2% of total natural persons’ NPLs), followed by current account overdrafts with

16.3% (3.4% of loans, 4.8% of NPLs), credit card loans with 13.8% (4.7% of loans,

5.7% of NPLs) and cash loans with 9.8%. The lowest ratio was recorded for housing

loans – 9.5%. In terms of loan purpose, gross NPL ratio declined across all major

categories.

6 Households, entrepreneurs, private households with employed persons and registered farmers.


22

Cash; 23 bln; 26%

Credit cards; 5 bln; 6%

Overdraft; 4 bln; 5%

Consumer; 4 bln; 4%

Housing; 33 bln; 37%

Other lending*; 19 bln; 22%

17.6%

9.8%

16.3%

9.5%

13.8%Gross NPL

21.8%

Other lending = agriculture, other activities, vehicle purchase loans and other loans

Chart 3.3.1.6 Natural persons NPL structure(31 Мarch 2016)

Source: NBS.


23

(in RSD mln)

Amount

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

Deposits and other liabilities 2,299,232 -16,976 92,198 -0.7% 4.2%

to banks, OFO and the central bank 319,239 -6,254 -18,714 -1.9% -5.5%

to other customers 1,979,993 -10,722 110,912 -0.5% 5.9%

Securities issued and other borrowings 124 1 -1,743 0.4% -93.4%

Subordinated liabilities 64,128 -978 -4,411 -1.5% -6.4%

Provisions 11,699 -390 -338 -3.2% -2.8%

Share capital and other capital 403,107 590 -10,848 0.1% -2.6%

Profit 69,327 8,732 6,586 14.4% 10.5%

Loss 44,812 350 -184 0.8% -0.4%

Reserves and unrealised losses 202,790 2,356 11,649 1.2% 6.1%

Other 37,695 2,480 6,357 7.0% 20.3%

T o tal banking secto r liabilit ies 3,043,290 (4,534) 99,636 -0.1% 3.4%

Source: NBS.

Table 4.1 Change in key items of banking sector liabilities

Nominal


Relative

4. BANKING SECTOR LIABILITIES

4.1. Structure of the sources of funding

Deposits7 were the primary source of bank funding, making up 65.8% of total

liabilities. At end-Q1 2016, own sources of funding made up 20.7% and borrowing

9.4% of total liabilities.

Compared to end-2015, total banking sector liabilities went down by RSD 15.9 bln

(0.6%), chiefly on account of a RSD 17.0 bln (0.7%) decrease in the item “Deposits

and other liabilities”

By contrast, total banking sector capital went up by RSD 11.3 bln (1.8%) in Q1

2016, mainly profit and reserves.

The maturity structure of the Serbian banking sector sources of funding did not

change significantly. At end-Q1 2016, long-term sources (liabilities with the remaining

maturity of over one year and bank capital) accounted for 33.9% of liabilities

(compared to 34.0% at the end of the previous quarter).

The currency structure showed no major changes in Q1 2016 either. At the end of

the period observed, dinar sources of funding (capital included) accounted for 41.7%.

As regards the FX portion of liabilities, EUR-denominated liabilities were dominant,

making up 90.1% of total FX liabilities, while the rest were denominated

predominantly in USD (5.4%) and CHF (3.8%).

7 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”.


24

595

614

619

630

2,2

52

2,3

55

2,4

29

2,4

13

0

500

1,000

1,500

2,000

2,500

3,000

12/2013 12/2014 12/2015 03/2016

Capital Liabilities

Source: NBS.

Chart 4.1 Banking sector capital and liabilities (in RSD bln)

4.2. Deposits

Total deposits with banks stood at RSD 2,002.6 bln at end-Q1 2016, down by RSD

7.1 bln or 0.4% relative to end-2015. The decrease stemmed mainly from a RSD 30.2

bln drop in other dinar deposits (chiefly corporate deposits).

At end-Q1 2016, the share of FX and FX-indexed deposits stood at 71.5%, with

the euro accounting for a dominant 89.6% share of the portfolio. The rest of FX

deposits were mainly in USD (6.5%) and CHF (3.1%).

Short-term deposits8 accounted for the bulk of received deposits of banks in Serbia.

Demand deposits made up 53.7% of total deposits, followed by deposits with

remaining maturity of up to one year with 37.9% (of which around 40% had the

remaining maturity of 6–12 months), while deposits with the remaining maturity of

over one year accounted for only 8.2% of total deposits. A quarterly increase is notable

in respect of demand deposits (2.6 pp) while deposits with the remaining maturity of

up to one year posted a decrease (2.4 pp).

In terms of initial (agreed) maturity, demand deposits still made up over one half

of total deposits (53.7%), followed by deposits with remaining maturity of up to one

year (26.1%), while every fifth deposit (20.2%) was agreed for over one year term.

Compared to the end of the previous quarter, total household savings9 contracted

by RSD 3.2 bln (0.4%), to RSD 813.5 bln at end-Q1 2016. The drop did not result

from withdrawal, but from the maturing of savings and their transfer to transaction

8 At remaining maturity 9 Accounts 402 and 502 from the Chart of Accounts, sector 6 (domestic and foreign natural persons –

residents)


25

(in RSD mln)

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

Finance and insurance sector 59,440 254 3,642 0.4% 6.5%

Public sector 37,157 6,182 290 20.0% 0.8%

Public enterprises 125,057 5,561 20,992 4.7% 20.2%

Household sector 1,141,047 9,572 45,280 0.8% 4.1%

Companies 398,304 -31,804 34,905 -7.4% 9.6%

Foreign entities and foreign banks 119,406 -1,666 12,306 -1.4% 11.5%

Other sectors 122,151 4,819 19,374 4.1% 18.9%

T o tal depo sits 2,002,562 -7,082 136,789 -0.4% 7.3%

Source: NBS.

Table 4.2 Changes in deposits levels

Amount


Nominal Relative

Sectoral structure Currency structure Maturity structure

Chart 4.2 Banking sector deposits structure(31 March 2016)

Up to 3 m; 1,400 bln;

70%

3 to 6 m; 136 bln;

7%

6 to 12 m; 303 bln;

15%

Over 1 year; 164 bln; 8%

Households; 1,141 bln; 57%

Corp. (public and

private); 523 bln;

26%

Foreign entities; 119 bln;

6%

Other depositors;

220 bln; 11%

Source: NBS.

RSD; 571 bln; 29%

EUR; 1,263 bln;

63%

Other currencies 149 bln;

7%

deposit accounts which recorded a RSD 12 bln increase in the period observed, causing

a rise in total household deposits. Contrary to FX savings (94.7% of total savings

deposits of households), which edged down by RSD 4.9 bln relative to a quarter

earlier, dinar savings went up by RSD 1.7 bln. Nevertheless, their share in total

household savings remained relatively modest (5.3% at end-March 2016), albeit on the

rise.

4.3. Total borrowing of banks

Total borrowing of the banking sector amounted to RSD 286.6 bln at end-Q1 2016,

down by RSD 10.0 bln or 3.4% relative to the previous quarter. The decline was

recorded for loans received (by RSD 12.7 bln), while overnight loans edged up by

RSD 3.0 bln.


26

(in RSD mln)

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

Ov ernight loans 41,859 3,035 -8,488 7.8% -16.9%

Loans receiv ed 238,620 -12,676 -33,442 -5.0% -12.3%

Other f inancial liabilities 6,107 -340 351 -5.3% 6.1%

Total borrowing 286,586 -9,981 -41,579 -3.4% -12.7%

Source: NBS.

Table 4.3 Changes in the level of bank borrowing

Amount

Change relativ e to prior periods

Nominal Relativ e

(in RSD mln)

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

Ov ernight loans 2,656 -2,501 -2,447 -48.5% -48.0%

Loans receiv ed 177,010 -12,786 -41,382 -6.7% -18.9%

Other f inancial liabilities 988 66 -59 7.2% -5.7%

Total borrowing 180,654 -15,221 -43,888 -7.8% -19.5%

Source: NBS.

Table 4.4 Changes in bank external borrowing

Amount


Nominal Relativ e

Received loans were the largest individual borrowing item (received predominantly

from parent banks and international financial institutions), accounting for 83.3% (end-

Q4 2015: 84.7%), followed by liabilities under overnight loans with 14.6% (end-Q4

2015: 13.1%). Other financial liabilities stayed at the same level as in the quarter

before, at 2.1%.

In terms of the remaining maturity, the share of long-term liabilities with

remaining maturity from 2 to 5 years and over 5 years increased to 37.2% and 25.9%,

respectively (end of previous quarter: 35.4% and 24.4%). Within short-term liabilities,

those under overnight loans (without remaining maturity) were dominant, with a 14.6%

share in total borrowing (end-Q4 2015: 13.1%). In the segment of loans received,

liabilities with remaining maturity of 6 to 12 months and 1 to 2 years were halved

(from 10% to 5%).

The dominant currency of borrowing was the euro, accounting for RSD 237.9 bln

(end of previous quarter: RSD 248.0 bln) or 83.0% of total borrowing. Dinar liabilities

stood at RSD 29.1 bln (end-Q4 2015: RSD 24.1 bln) or 10.2% of total borrowing,

while banks’ debt in Swiss francs was RSD 17.7 bln (end-Q4 2015: RSD 23.1 bln), or

6.2% of total borrowing.

4.4. External liabilities

The downward trend in the banking sector’s external borrowing, in place since Q3

2013, continued in the quarter observed. At end-Q1 2016, banks’ total external

liabilities under credit operations stood at RSD 180.7 bln, down by RSD 15.2 bln

(7.8%) q-o-q, chiefly due to the fall in liabilities under loans received. External credit

debt remained highly concentrated, as four banks accounted for 61.8% of the total

debt.


27

Long-term loans held a dominant 74.0% share in the maturity structure of external

borrowing (end-Q4 2015: 75.1%).

As regards the currency composition of external borrowing, the share of the euro

again slightly increased, reaching 90.2%, while the share of the Swiss franc was 9.5%

(end-Q4 2015: 88.4% and 11.5%, respectively).

All categories of Swiss franc assets and liabilities decreased, in part owing to the

dinar’s appreciation against this currency by 0.1% in Q1 2016.

4.5. Subordinated liabilities

Total subordinated liabilities of banks in Serbia reached RSD 63.7 bln at end-Q1

2016, posting a RSD 1.2 bln (1.9%) decrease relative to the previous quarter. This was

a continuation of a trend in place throughout 2015 which caused a 10% decrease in

subordinated liabilities.

Their maturity structure was less favourable than a quarter earlier, as the share of

liabilities with the remaining maturity of two to five years fell to 37.9% at end-March

2016 (end-Q4 2015: 39.6%), while the share of subordinated liabilities with the

maturity of up to one year grew from 35.7% to 36.7%.

Liabilities denominated in euros made up 91.0% of total liabilities, followed by

liabilities in Swiss francs (8.3%) and dinars (0.7%).

Subordinated liabilities were highly concentrated – of the 18 banks with these

liabilities, four banks accounted for 59.6% of all subordinated liabilities.

Given the regulatory restrictions on inclusion of subordinated liabilities in

supplementary and/or regulatory capital, banks were able to include only 38.1% of

total subordinated liabilities in supplementary capital.


28

15% 15% 7% 6%

10% 10% 8% 6%

73%

84%

87% 87%3,160.0

6,155.0

7,134.0 7,044.0

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

12/2013 12/2014 12/2015 03/2016

Other off-balance sheet items Derivatives Operation on behalf of third parties Contigent liabilities

Chart 5.1 Off-balance sheet items(in RSD bln, in %)

Source: NBS.

5. OFF-BALANCE SHEET ITEMS

At end-Q1 2016, total off-balance sheet items of the banking sector stood at RSD

7,043.9 bln, edging down slightly (by 1.3%) from the end of the previous quarter,

mostly on account of a decrease in derivatives (by RSD 36.2 bln) and risk-free off-

balance sheet items i.e. Other balance sheet items (by RSD 33.6 bln). Risk-free items

accounted for the bulk (90.8%) of off-balance sheet items (material collateral received,

received guarantees and other sureties accepted for the settlement of borrowers’

liabilities, custody operations and other off-balance sheet assets).

The off-balance sheet segment of the banking sector operations remained the most

highly concentrated. At end-Q1 2016, 23.2% of total banking sector off-balance sheet

items were held by a single bank. The top five banks accounted for 58.7% of total off-

balance sheet items, over 60% of all irrevocable commitments and other balance sheet

assets and/or over 55% of all issued guarantees and other sureties, receivables under

repurchase agreements and all irrevocable commitments regarding undisbursed loans

and placements.

The portion of off-balance sheet items subject to classification (considered risk-

bearing) amounted to RSD 646.8 bln at end-Q1 2016, falling by RSD 8.3 bln or 1.3%

q-o-q.


29

(in RSD mln)

31.03.2016 31.12.2015 31.03.2015 31.12.2015 31.03.2015

Issued guarantees and other sureties 253,826 -17,181 -15,584 -6.3% -5.8%

Receiv ables under deriv ativ es 410,495 -36,174 -116,755 -8.1% -22.1%

Contingent liabilities and other irrev ocable commitments 179,631 -2,085 18,027 -1.1% 11.2%

Securities receiv ed as collateral 148,938 834 4,973 0.6% 3.5%

Sureties f or liabilities 86,032 1,388 -440 1.6% -0.5%

Other of f -balance sheet assets 7,043,953 -90,468 -85,361 -1.3% -1.2%

Source: NBS.

Table 5.1 Changes in off-balance sheet items in the Serbian banking sector

Amount


Nominal Relativ e

At end-Q1 2016, contingent liabilities10

equalled RSD 433.5 bln (down by RSD

19.3 bln or 4.3% q-o-q), making up 6.2% of total off-balance sheet items (end of the

previous quarter: 6.3%).

10 Issued guarantees and other sureties, irrevocable commitments regarding undisbursed loans and placements, and

other irrevocable commitments.


30

2.41

2.162.09

2.18

1.811.68 1.67

1.76

1.141.03 0.99 0.99

0.39 0.36 0.34 0.34

0.00

0.50

1.00

1.50

2.00

2.50

3.00

12/2013 12/2014 12/2015 03/2016

Liquidity indicator Narrow liquidity indicator

Loan to deposit ratio LTD Liquid assets to total assets

Chart 6.1 Banking sector liquidity indicators

Source: NBS.

6. BANK LIQUIDITY

Serbia’s banking sector was characterised by exceptionally high liquidity levels

according to all relevant criteria. At end-Q1 2016, the average monthly liquidity ratio

was 2.18, rising slightly from a quarter earlier (2.09) and being considerably above the

regulatory floor of 1.0. The narrow liquidity ratio also increased, from 1.67 to 1.76

(regulatory floor – 0.7).

The share of liquid assets in total banking sector balance sheet assets has been

broadly stable in recent years, ranging between 30% and 40% (34.2% at end-Q1 2016).

At end-Q1 2016, banks’ investments in NBS repo securities remained unchanged,

at RSD 30.0 bln. At the same time, the portfolio of government securities continued to

grow, rising by RSD 63.1 bln to RSD 599.4 bln at end-Q1 2016. The share of

securities in euros went up to 37.4% at end-Q1 2016 (end-Q4 2015: 36.7%).


31

383

303 331 345

58

45 41

40

-95 -8 -8 -10

20.94

19.9620.89

21.46

0

5

10

15

20

-150

-50

50

150

250

350

450

550

650

12/2013 12/2014 12/2015 03/2016

Deductibles Tier 2 Tier 1 CAR

Chart 7.1 Regulatory capital and CAR*(in RSD bln, CAR in %)

* CAR = Regulatory capital adequacy ratio

Source: NBS.

7. CAPITAL ADEQUACY

The Serbian banking sector is well-capitalised, both from aspect of compliance

with the prescribed capital adequacy ratio and the structure of regulatory capital. At

end-Q1 2016, capital adequacy ratio of Serbia’s banking sector was 21.46%, which is

well above the domestic regulatory minimum (12%) and the minimum according to

Basel standards (8%).

At end-Q1 2016, the capital adequacy ratio was 0.57 pp stronger than a quarter

earlier, because regulatory capital increased more than total capital requirements (3.1%

vs. 0.4%). Dominant in the structure of capital requirements was the capital

requirement for credit risk (over 86%), which recorded a 0.6% increase.


32

86.4%

1.2% 12.4%

Credit risk Market risk Operational risk

Chart 7.2 Capital requirements

(in %)

Source: NBS.

In the structure of capital requirements, the capital requirement for credit risk has

been stable and dominant for years, moving at around 86%, followed by operational

risk at around 12%. The share of market risks was negligible.

Regulatory capital mostly (90%) consisted of the highest quality, the so-called core

capital, while the share of supplementary capital was 10%. Core capital was increasing

gradually throughout 2015 and Q1 2016.

At end-Q1 2016, the banking sector’s core capital (before deductions from

regulatory capital) stood at RSD 344.9 bln, up by RSD 14.0 bln (or 4.2%) q-o-q.

The release of RSD 9.8 bln on account of a reduction in the required reserve for

estimated losses arising from credit risk provided the strongest positive contribution to

the increase in the banking sector’s core capital in Q1 2016.

After the remaining prescribed deductions from capital, the remaining core capital

equalled RSD 339.8 bln, which was RSD 13.2 bln or 4.0% more than at the end of the

previous quarter.

Supplementary capital of the banking sector (before deductions from regulatory

capital), comprising mostly subordinated liabilities (61%) and revaluation reserves

(32%), contracted from a quarter earlier by RSD 1.2 bln (2.9%) and came at RSD 39.7

bln. Subordinated liabilities eligible for inclusion in supplementary capital continued to

decrease (by RSD 0.8 bln), same as revaluation reserves (by RSD 1.0 bln). After the

remaining prescribed deductions from capital, the remaining supplementary capital

amounted to RSD 35.1 bln, dropping by RSD 2.0 bln (5.4%) from a quarter earlier.

The leverage11

ratio of banks remained highly favourable, rising by 0.40 pp from

end-Q4 2015 and reaching 20.7%. At end-Q1 2016, balance sheet capital (of which

64.0% referred to top-quality equity capital) came at 20.71% of banks’ balance sheet

assets.

11 Balance sheet capital to balance sheet assets ratio.


33

3.37

9.48

5.49

8.61

12.59

4.22

13.56

4.32

4.37

3.93

4.44

3.20

0

1

2

3

4

5

6

0

2

4

6

8

10

12

14

16

18

20

12/2013 12/2014 12/2015 03/2016

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 bln)

Source: NBS.

8. FOREIGN EXCHANGE RISK

At end-Q1 2016, Serbia’s banking sector posted the usual long open FX

position worth RSD 11.8 bln (excluding the position in gold). Nineteen banks ended

March 2016 with a net long FX position.

On 31 March 2016 banks in Serbia operated at net long positions in euros and

US dollars (RSD 8.61 bln and 2.37 bln, respectively), while at the same time posting a

net short position in Swiss francs (RSD 1.24 bln).

The foreign exchange risk ratio for the banking sector equalled 3.20%.


34

9. NBS REGULATORY ACTIVITY

Pursuing the objectives defined in the NBS’s Action Plan for the implementation

of the NPL Resolution Strategy (including the objective on improved implementation

of IAS 39), in February 2016 the NBS published Guidelines for IAS 39. The

Guidelines set out supervisory expectations regarding the determining of allowances

for impairment in banks’ balance sheets in accordance with IAS 39 –Financial

Instruments: Recognition and Measurement, specifying supervisory expectations

regarding the write-off of receivables and interest recognition on NPLs.

banking sector in serbia first quarter report 2016 · banking sector in serbia – first quarter...

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