Download Presentation of macroeconomic developments

Macroeconomic Developments
in Serbia
June 2017
Inflation Has Been Moving Within the Target
Tolerance Band From the Beginning of the Year
Inflation movements at the beginning of 2017
driven by a small number of products
Chart 1 CPI developments
(y-o-y rates, in %)
16
Inflation will continue moving within the target
tolerance band
Chart 2 Inflation projection (from May 2017 IR)
(y-o-y rates, in %)
7
CPI Inflation
CPI excl. Food, Energy, Alcohol and Tobacco (Core Inf.)
6
14
5
12
4
10
3
8
2
6
3.5
4
2
1
0
2.2
0
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2009
2010
2011
2012
2013
2014
2015
2016
2017
• Movement of inflation from the beginning of the year was
mainly driven by the increase in energy prices due to the
growth in world prices of oil, and by the higher than
expected seasonal growth in prices of unprocessed foods
(fruits, vegetables and fresh meat), mostly because of the
effects of cold weather.
• Core inflation stayed low, amounting to 2.2% in May. The
slight increase relative to end-2016 was due to higher prices
of mobile phone services, which is also due to the effects of
one-off factors.
• Medium-term inflation expectations of the financial sector
are anchored within the target tolerance band.
-1
-2
3 6
2015
9
12
3 6
2016
9
12
3 6
2017
9
12
3 6
2018
9
12
3
2019
• We expect that inflation will continue to move within the
target tolerance band until the end of the projection
horizon, with the expected drop to the 3% target at the
beginning of 2018.
• The main inflationary impact in the forthcoming period will
come from a gradual increase in domestic aggregate
demand and inflation abroad, while the high base for
petroleum product prices will act as a damper.
• The risks to the projected inflation path are symmetrical
and associated primarily with developments in the global
financial and commodity markets.
2
GDP Growth is Gaining Momentum
Diversified and export-oriented
growth continues
economic
Chart 3 GDP developments
(seasonally adjusted, Q1 2006=100)
Investments in export-oriented sectors – the
main driver of GDP growth in the medium term
Chart 4 GDP growth projection (from May 2017 IR)
(y-o-y rates, in %)
7
118
6
116
5
4
114
3
2
112
1
110
0
-1
108
-2
-3
106
-4
-5
104
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2009
2010
2011
2012
2013
2014
2015
2016
2017
• In 2016 GDP recorded 2.8% growth, led by net exports,
investments and consumption recovery.
• Positive trends continued this year as well, with 90% of the
economy, and above all manufacturing, recording growth
being in line with the projection.
• Temporary slowdown in economic activity was primarily a
consequence of adverse weather conditions, and as these
effects passed economic and foreign trade activity
recovered. This trend will continue owing to a more
favourable outlook for euro area growth and increasing
profitability of the Serbian economy.
IV
2014
II
IV
2015
II
IV
2016
II
IV
2017
II
IV
2018
• In the coming period, GDP growth is expected to step up,
reaching 3.0% this year and 3.5% in 2018, while retaining
a favourable growth structure.
• Growth acceleration is owed to macroeconomic stability,
improved business environment, higher government
capital spending, effects of past monetary policy easing,
implementation of structural reforms and demand
recovery.
• Major IFIs and the European Commission also gave a
positive assessment of the growth dynamics and
composition of Serbian GDP.
3
Improved Business Environment
Resulted in Strong FDI Inflow
Structural reforms and the business and
investment environment have attracted high
FDI inflow…
Chart 5 Net FDI
(EUR bln)
Chart 6 FDI composition by sector
(% of inflow)
3.5
3.0
100
9.9%
8.6%
of GDP
2.5
…which is well-diversified and concentrated
into export-oriented sectors
21
24
17
6
18
19
80
7.4%
6.7%
60
5.4% 5.5%
2.0
3.8%
1.5
19
19
23
20
4.4%
4.3%
40
3.7%
10
14
35
9
21
3.8%
2.4%
1.0
20
11
37
34
26
0.5
17
2.5
2.5
2.1
1.1
3.3
0.8
1.3
1.2
1.8
1.9
1.6
1.6
0
0.0
2005-2008
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018*
Other
2009-2012
Construction & real estate
2013-2015
Finance
Trade
2016
Manufacturing
* NBS forecast
• In the four months of 2017, net FDI inflow stood at EUR
634.1 mln (+6.4% y-o-y). FDI is still predominantly
concentrated in tradable sectors.
• Net FDI projection for 2017 is cautious and stands at EUR
1.6 bn.
• Improvement of the business environment is confirmed by
the World Bank Doing Business list, where Serbia is ranked
among the ten most-improved countries.
• Since the crisis, and particularly in the last four years,
FDIs are project diversified and mostly directed to exportoriented sectors.
• Within manufacturing, most FDI inflows went to the
production of basic metals, food products, motor vehicles,
chemicals, pharmaceutical and rubber and plastic
products.
• FDI inflows are increasingly diversified by the region of
origin as well, with a greater share of countries from the
Asia Pacific and Middle East regions, alongside the EU.
4
Reduction in External Imbalances
Strong and well-diversified export growth
Further narrowing of the CAD in the coming
period
Chart 7 Exports and imports
(seasonally adjusted, 2008=100)
220
200
Exports, lhs
Chart 8 Current account deficit and remittances
(% share in GDP)
90%
25
CAD
Remittances Inflow
Imports, lhs
X/M coverage (12M MA), rhs
80%
20
21.2
180
160
18.6
70%
15
10.4
140
120
60%
10
50%
8.2
8.3
7.8
6.8
6.0
6.1
80
40%
1 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
• In the four months of 2017, goods exports and imports grew
8.5% and 12.7% y-o-y, respectively, while exports-toimports ratio stood at 78.1%. Higher imports growth was led
by the higher imports of capital and reproduction goods, as
well as energy due to bad weather and higher oil price.
• Exports growth is still high, diversified and in line with our
projection. It is led by manufacturing exports which grew
11.8% y-o-y, with nearly all branches recording growth (19
out of 23).
• Largest positive contribution to exports growth came from
strong (more than 50% y-o-y) growth in exports of basic
metals.
8.5
7.9 7.9
11.6
6.6
5
8.1
10.9
6.8
100
60
10.0
8.9
4.7
4.0
4.0
7.5
3.6
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018*
forecast
*NBS
• In 2016, CAD continued to improve – declining to 4.0% of
GDP. This year we expect CAD share in GDP at the
same level.
• The ongoing investment cycle (supported by an improved
business environment, favourable financial conditions and
lower risk premium) will contribute to export growth and a
mild reduction in the share of CAD in GDP in 2017 and
2018, despite the expected oil price hike.
• In the medium term, we expect FDI inflows to remain
more than sufficient to cover the CAD.
5
Sustained Improvement of Fiscal Position
Significant fiscal adjustment as of 2015
supported by IMF arrangement yielded betterthan-expected results…
Chart 9 Fiscal revenues, expenditures and result
(% share in GDP)
55
50
Chart 10 Public debt (central government)
Primary balance, rhs
Fiscal balance, rhs
Revenues, lhs
Expenditures, lhs
8
6
4
35
-1.3
Internal, lhs
70
% of GDP, rhs
50
8
40
6
30
-4
4
20
-6
2
10
-8
0
-2
-2.6
-4.4
-3.7
-4.6
-4.8
-5.5
overall balance:
30
14
in % of GDP
80
10
0
-1.9
External, lhs
60
2
45
EUR bn
16
12
1.2
40
…resulting in a decline of public debt-to-GDP
ratio in 2016 already, which will continue in the
coming years
-6.8
-6.6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Q1
• The deficit declined cumulatively by 5.3pp in 2015/16
(outperforming IMF SBA target by 3.4pp in 2016) and the
fiscal balance switched to surplus (1.2% of GDP) in Q1 2017.
• The first year of the consolidation programme was based on
expenditure-side measures (share of expenditures in GDP
dropped 2.5pp in 2015).
• Fiscal improvement since early 2016 was driven primarily by
higher revenues, supported by improved collection of all tax
revenue items as well as pickup of economic growth.
• On the expenditure side, further savings this year are
observed on the wage and pension bill.
0
Q1
2013
Q3
Q1
2014
Q3
Q1
2015
Q3
Q1
2016
Q3
Q1
2017
• The public debt-to-GDP ratio declined in 2016, one year
earlier than initially projected.
• Central government debt amounted to EUR 24.2 bln
(67.7% of projected 2017 GDP) at end-April 2017.
• Measures to continue the structural adjustment include
reforms of public enterprises and rightsizing of the public
sector, as well as further improvements to the efficiency of
the Tax Administration.
6
Monetary Policy has Been
Significantly Eased Since 2013
Reduction in the key policy rate and
consequent reduction in private sector interest
rates
Chart 11 Interest rates
(y-o-y rates, in %)
25
Chart 12 Reserve requirement ratios
(in %)
Private Sector* (3 months moving average)
50
23
21
Monetary policy easing was also achieved
through a reduction in the FX required reserve
Policy Rate
RSD <2y
40
19
30
15
13
9
29.0
26.0
22.0
9.2
20
19.0
20.0
13.0
7
5
FX >2y
RSD >2y
17
11
FX <2y
10
4.0
3
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2009
2010
2011
2012
2013
2014
2015
2016
2017
*weighted interest rate on non-indexed RSD loans (up to September 2010
the data was exclusively used for research purposes of NBS)
• Тhe NBS Executive Board decided to keep the key policy
rate at 4.0%. The decision was made having in mind
inflation factors, the effects of past monetary easing, and
expectations that inflation will continue to move within the
target tolerance band in the coming period.
• The Board considers the international environment is still
fraught with uncertainties as to the developments in
international financial markets (largely due to diverging
monetary policies of the leading central banks) and
commodity markets (particularly oil market, which is under
the impact of strengthened geopolitical tensions).
5.0
0
0.0
1 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5
2011
2012
2013
2014
2015
2016
2017
• In order to support lending activity, the NBS eased
monetary conditions through the required reserves.
• Since September 2015, the NBS cut FX RR ratio by 6 pp
(to the level of 20/13% for liabilities up to/over 2Y
maturity), thereby releasing banks’ credit potential by app.
EUR 730 mln (o/w app. 2/3 in foreign currency and 1/3 in
RSD).
• In Маy 2017, RR amounted to EUR 1.6 bln and RSD
150.3bln.
7
Fall in Interest Rates is Supporting
the Recovery of Lending Activity
Interest rates on dinar loans have declined
significantly over the last three years
Chart 13 Interest rates on loans– new business
(3 months moving average, in %)
24
22
20
18
16
14
12
10
8
6
4
2
0
We expect economic recovery and lower costs
of financing to remain the main drivers of bank
lending
Chart 14 Bank lending to enterprises and households
(y-o-y rates, constant exchange rate 30 Sept 2014 , in %)
11
25
10
20
9
15
8
7
10.8
11.6
10
4.0
5
6
5.7 5
4
4.4
3
3.2
2
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2011
2012
2013
2014
2015
2016
2017
Dinar loans to enterprises - l.h.s
Dinar loans to households - l.h.s
Eur-indexed loans to enterprises - r.h.s
Eur-indexed loans to households - r.h.s
• Monetary policy easing from May 2013 (by 7.75 pp) was the
main driver of the strong fall in dinar lending rates to
enterprises and households (by 10.7 pp and 9.6 pp
respectively up to April 2017).
• In April, interest rates on new dinar loans stood at 5.7% for
corporates and 10.9% for households.
• Monetary easing by the ECB, as well as a fall in country risk
premia contributed to the fall in EUR-indexed lending rates.
0
-1.5
-5
-10
-15
1 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3 5 7 9111 3
2010
2011
2012
2013
2014
2015
2016
2017
Enterprises
Households
Total
• Domestic lending rose by 4.0% y-o-y in April 2017, driven
by growth in lending to households (11.6%), while
corporate loans dropped by 1.5% y-o-y.
• We expect further growth in domestic lending in 2017,
facilitated by the effects of past monetary policy easing,
expected recovery in economic activity, competition
among banks in the lending market and low interest rates
in the international money market.
8
Sustainable Economic Prospects are also
Confirmed by Serbia’s Improved Rating
Fall in the risk premium since end-Q1 2016
Chart 15 EMBI risk premium
(basis points, daily values)
EMBI Global
Poland
Croatia
600
500
Relatively stable EUR/RSD exchange rate
movements
Chart 16 Exchange rate developments
(31 December 2012 = 100)
Romania
Turkey
Hungary
Serbia
400
105
Serbia
Romania
Poland
Hungary
100
300
200
95
100
0
90
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5*
2013
2014
2015
2016
2017
*Until June 6, 2017
• Macroeconomic stabilization in Serbia combined with fall in
global risk aversion resulted in a significant fall in Serbia’s
risk premium (to the level below 160 bp).
• In June 2016, Fitch upgraded the rating from ‘B+’ to ‘BB-’
with stable outlook and affirmed it in December, while S&P
revised Serbia’s outlook to positive from stable (‘BB-’) in
December. In March 2017, Moody’s upgraded Serbia’s
rating from ‘B1’ to ‘Ba3’ with a stable outlook.
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5*
2013
2014
2015
2016
2017
*Until June 6, 2017
• Despite global uncertainties, relative stability of the dinar
against the euro has been preserved.
• Exchange rate movements in 2017 were mostly
determined by movements in global financial markets.
Appreciation of the dinar since April is supported by
favorable macroeconomic fundamentals and increased
interest of foreign investors in dinar government
securities.
• After purchasing EUR 520 mln net in the IFEM in 2015,
the NBS sold EUR 160 mln net in 2016. Since the
beginning of 2017, the NBS has sold EUR 110 mln net.
9
Upward Trend of Dinarisation
Overall macroeconomic stability leading to
increased deposit dinarisation
Chart 17 Share of dinar deposits of corporate and household
sectors in total banking sector deposits (in %)
16
Dinarisation of household loans on a firm
upward path
Chart 18 Share of dinar in total bank receivables from the
corporate and household sectors(in%)
60
50
40
55
45
35
50
40
30
45
35
25
40
30
20
35
25
15
30
20
10
15
14
13
12
11
10
9
8
7
6
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2010
2011
2012
2013
2014
2015
2016
2017
Household sector outstanding amounts lhs
Corporate sector outstanding amounts rhs
• The NBS supports the use of the dinar by delivering low and
stable inflation, preserving relative stability of the dinar
exchange rate and also by appropriate design of monetary
policy instruments. The Government is contributing to the
same goal through tax policy and by developing the dinar
securities market – the dinar share of debt rose from 2.5%
(2008) to 20.8% (April 2017). The dinar yield curve has
been extended to ten years.
• Private sector deposit dinarisation at end-April 2017 stood at
27.2% – up by 8 pp compared to end-2012 (when it stood at
19.3%) and also up by 3 pp compared to end-2014.
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2010
2011
2012
2013
2014
2015
2016
2017
Household sector outstanding amounts lhs
Corporate sector outstanding amounts rhs
• At end-Аpril 2017, 32.0% of loans to the private sector
were in dinars.
• Dinarisation of household loans is on the rise – from
35.1% at end-2012 to 48.3% at end-April 2017 as a result
of a sharp drop in dinar interest rates, low inflation,
relative stability of the exchange rate and NBS measures
aimed to support dinarisation.
• Results of the dinarisation process are confirmed by the
first dinar security issuance by a top-rated IFI. In
December 2016, the EBRD issued the dinar bond (3Y;
RSD 2.5 bln; 3M BELIBOR+0.4pp), with high demand for
the RSD security.
10
Conservative Framework Created
a Robust Banking Sector
High banking sector capitalisation as a result
of strong prudential measures
Chart 19 Capitalization of the Serbian banking sector
(in %)
Stress tests show that Serbian banking sector
is resilient to potential adverse shocks
Table 1 Core FSIs
26
Core FSI’s – April 2017 data
24
CAR*
22.3%
Tier I to RWA*
20.6%
22
22.3
20
20.6
19.9
Liquidity indicator (reg. min 1.0)
2.1
18
Gross NPL
16
Gross NPL LLR coverage
120.4%
14
Gross NPL IFRS coverage
67.7%
12
Q1
2013
Q3
Q1
2014
CAR
Q3
Q1
2015
Tier I to RWA
Q3
Q1
2016
Q3
Q1
2017
Leverage
16.5%
NOP
3.9%
ROA
2.2%
ROE
11.0%
* Latest available data as of 30 April 2017
• As a result of conservative prudential measures in the
previous period, Serbian banks have built up strong capital
buffers, making them capable to cope with credit risk which
is still relatively high.
• High quality of the Serbian banking sector capital base is
evidenced by the fact that Tier 1 capital accounts for the
largest share (more than 90%) of regulatory capital.
• The Quantitative Impact Study has shown that Serbian
banks would have no difficulties complying with Basel 3
minimum capital requirements.
• As a result of adopted measures, the share of NPLs
declined by 5.7 pp since the adoption of the NPL
Resolution Strategy, to 16.5% in April 2017. Narrowing
was most evident with corporates – their share was
reduced by almost 9 pp, to 17.1% in April 2017.
• Their coverage by IFRS provisions and regulatory
reserves is high and rising.
• Solvency stress tests confirm that the CAR remains
above the regulatory minimum even in the worst-case
scenario.
11
During the Crisis Excess Risk Aversion Pushed
Asset Structure Towards More Liquid Assets
Serbian banking sector is highly liquid
Favourable structure of banking sector assets
Chart 20 Liquidity indicators of the Serbian banking sector
(lhs in ratio points, rhs in %)
Chart 21 Structure of banking sector assets
(RSD bn)
3.00
100
2.75
90
2.50
2.1
2.25
80
70
2.00
1.7
1.75
35.5%
1.25
3.8%
3.000
2.500
60
50
1.50
3.500
40
60.6%
2.000
1.500
1.00
30
0.75
20
1.000
0.50
10
500
21.1%
14.5%
0
0.25
4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2013
2014
2015
2016
2017
Liqudity indicator (reg. min 1.0, lhs)
Narrow liquidity indicator (reg. min 0.7, lhs)
Liquid assets to total assets (%, rhs)
0
2010
2011
2012
2013
Cash and assets with central bank
2014
2015
Securities
2016
2017
(Apr)
Loans
Other
• Liquidity indicators are constantly at levels significantly
higher than regulatory limits.
• Liquid assets accounted for ca. 36% of total balance
sheet assets in April 2017.
• Seasonal effects of the “savings week” no longer have a
high impact on liquidity indicators due to a decrease in
interest rates on term deposits.
• In seven years, the share of securities (dominantly
government securities) has increased by ca. 15 pp, and in
April 2017 it accounted for about 21% of the banking
sector’s total net balance sheet assets.
12
Structural slides
13
Recent Pick-up in Headline Inflation Driven
Mainly by Energy and Unprocessed Food Prices
Chart 22 Contributions of CPI components to y-o-y inflation
(y-o-y rates, pp)
16
12
8
3.5
4
0
-4
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5
2010.
2011.
2012.
2013.
2014.
2015.
2016.
2017.
Energy
Industrial products excl. food and energy
Unprosessed food
Tolerance Band
Services
Processed food
CPI Inflation
Inflation Target
• Historically, short-term volatility of headline inflation was mainly driven by food prices.
14
GDP Growth More Sustainable than Pre-Crisis
Pre-crisis GDP growth was driven by
consumption; the trend reversed after the
crisis in favour of investments and net exports
Chart 23 Contributions to real GDP growth
(y-o-y rates, pp)
20
5.9
12
5.5
4.9
Chart 24 GDP composition
(share in GDP)
NX
I
CII
16
GDP composition has shifted towards less
consumption and more net exports and
investments
G
C
GDP
5.4
100%
C
I
G
77.7% 76.9%
80%
CII
NX
74.6% 75.0% 74.7% 73.3%
72.2% 71.2%
60%
8
2.6
4
0.6
2.8 3.0 3.5
1.4
0.8
0
40%
20%
-4
-1.0
-1.8
0%
-8
-12.4%
-20%
-12
-16.9%-17.5%
-3.1
-16
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*2018*
* NBS forecast
• Prior to the crisis, high capital inflows led to consumptionbased growth which resulted in increased external
imbalances. With the first wave of the crisis, this trend
reversed. Growth was slower, but more sustainable and
driven by net exports and investments.
• Large-scale investments in the automobile and oil industries
(2011–2012) have helped the economy to rebalance.
• The new investment cycle that began in 2015 is more
diversified, and is leading to further rebalancing of the
economy and sustainable growth.
-13.3%
-11.2%-10.5%
-12.2%
-14.0%
-40%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*2018*
* NBS forecast
• As a consequence of the crisis, the share of private
consumption in GDP is declining, bringing painful but
necessary adjustments.
• The EU accession process and euro area recovery, as
well as improvement of the investment and business
climate, led to an increase in tradable sector FDIs,
contributing to a more favourable GDP composition.
• Successful fiscal consolidation and structural reforms
created a foundation for healthy growth and freed up
growth potential.
15
Positive Developments on the Labour Market
Unemployment rate on a stable downward
path
Chart 25 Labour market indicators according to the Labour
Force Survey
(%)
50.0
41.2
42.6
45.5
44.2
Sustained manufacturing productivity increase
coupled with growth in real wages
Chart 26 Unit labour costs in manufacturing
(cumulative indices, Q4 2014=100)
115
40.0
110
30.0
105
19.0
20.0
19.0
14.6
13.0
100
10.0
95
0.0
IV
IV
IV
IV
IV
Q1 Q3 Q1 Q3 Q1 Q3 Q1
2009 2010 2011 2012 2013 2014*
2015
2016
2017
Source: Statistical Office Republic of Serbia.
* Since 2014, LFS data published according to the new methodology.
Unemployment rate
Employment rate
• According to the Labour Force Survey for Q1 2017,
unemployment rate stood at 14.6%, which is 4.4 pp lower
compared to Q1 2016.
• At the same time, employment rate stood at 44.2%,
improved by 1.6 pp. Higher employment rate is primarily a
result of higher employment in industry and services.
• Most favorable trends on the labour market are recorded on
the formal segment, with employment in the private sector
soaring by 6.9% in the last two and a half years, by and
large as a result of higher employment in manufacturing.
90
I
2015
II
III
Source: SORS, CROSO, NBS calc.
IV
I
II
III
IV
I
2016
2017
Real gross wages
Unit labour cost in manufacturing
Productivity in manufacturing
• Relative to Q4 2014, productivity in manufacturing
increased by 5.1% in Q1 2017, driven by faster output
(14.3%) than employment (8.7%) growth.
• Productivity growth is most significant in sectors which
saw high FDI inflows (automobiles, electronics, metals),
suggesting positive effects of technology transfers.
• Real gross wages went up as well – by 10.3%, which led
to a slight increase in unit labour costs.
16
Improved External Position Owing to the Recovery of
External Demand and Improved Supply of Exports
Chart 27 Imports by country in I-IV 2017
(EUR mln)
900
800
Chart 28 Exports by country in I-IV 2017
(EUR mln)
12.5%
of total
imports
900
15.3%
of total
800 exports
700
700
10.0%
600
8.9%
500
12.9%
600
8.0%
500
7.6%
400
400
4.6%
300
4.2%
5.6
300
3.5%
200
3.0%
3.0%
5.0% 4.3%
3.9%
3.6%
3.6%
3.5%
ROM
BUG
MKD
HUN
CRO
200
100
100
0
0
GER
ITA
RUS
CHN
HUN
PL
TUR
AT
ITA
FRA
Chart 29 External Demand Indicator
(long-term average = 100)
GER
BH
RUS
MNE
Chart 30 Real Effective Exchange Rate
(2005=100)
140
120
135
110
130
100
125
120
90
115
80
110
70
105
100
60
7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4 7101 4
2009 2010 2011 2012 2013 2014 2015 2016 2017
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4
2010
2011
2012
2013
2014
2015
2016
2017
17
Source: European Commission,NBS
*Growth indicates appreciation.
NPL Resolution Required a Systemic Approach –
and, as Such, Gave Results
• NPL development after the adoption of the NPL
Resolution Strategy, especially in 2016, confirmed
the correctness of implementation of interinstitutional and coordinated approach envisaged
by the Strategy.
NPL data,
April 2017
Gross
loans
(EUR bn)
Gross
NPL
(EUR bn)
NPL
ratio
(%)
Corporates
7.2
1.2
17.1
Households
7.0
0.7
9.4
6.3
0.5
8.7
Corporates in
bankruptcy
proceedings
0.7
0.6
99.9
Other
1.7
0.2
11.6
Total
16.5
2.7
16.5
of which:
natural persons
• The share of NPLs is still relatively high, but has a
significant drop (0,5 p.p. since the beginning of the
year and 5,7 p.p. since the adoption of the
Strategy)
• Despite a substantial fall, companies still account
for the largest share in NPLs, especially those
engaged in manufacturing, trade and construction
activities, as well as entities in the bankruptcy
procedure.
• CHF-linked NPLs (66.5% of which are housing
loans) accounted for 8.4% of total NPLs at the end
of April 2017.
• The continuation of NPL resolution efforts by
banks, as well as the regulatory measures aimed
at the recovery of credit activity are expected to
further stimulate the decrease in the share of
NPLs.
18
Efforts on NPL Resolution and Regulatory Efforts

On 13 August 2015, the Government adopted the national NPL Resolution Strategy. In addition to this, both the
Government and the National Bank of Serbia adopted action plans in order to fulfil strategic objectives.

In the previous period, the NBS conducted all activities envisaged by its Action Plan aimed primarily at the enhancement of
banks’ capacities to resolve NPLs. In line with this plan, the NBS:
 Published the Guidelines for implementation of IAS 39,
 Enhanced the reporting of NPLs by banks,
 Conducted an analysis regarding NPL market obstacles and limitations,
 Established a database on real estate collateral valuations and loans approved based on reported collateral,
 Introduced additional requests for banks regarding monitoring of collateral and engagement of persons which
evaluate that collateral,
 Strengthened the regulatory treatment of restructured receivables in order to encourage sustainable restructuring
practices and prevent the unsustainable restructuring practices (evergreening),
 The distressed asset management in banks has been improved by introducing additional requirements for banks in
the context of strategic planning,
 Published the Guidelines for Disclosure of Bank Data and Information Related to the Quality of Assets for Banks.

Other activities envisaged by the Strategy are under the competence of ministries (finance, economy, justice and
construction), as well as the Deposit Insurance Agency.

In addition, bylaws implementing Basel III standards in the Republic of Serbia have been adopted, cooperation with
supervisors of the home countries of banks present in Serbia is continuously developing and strengthening and regular
communication with the ECB and EBA is maintained.
19
Serbia’s Economic Outlook
2008
2009
2010
2011
2012
2013
2014
2015
2016
NBS
Forecast
2017
5.4
-3.1
0.6
1.4
-1.0
2.6
-1.8
0.8
2.8
3.0
3.5
6.1
-0.2
-0.5
0.9
-2.0
-0.6
-1.3
0.5
0.8
1.4
2.2
Private investment, in %
14.6
-23.7
-7.9
7.3
14.3
-7.7
-5.8
4.3
2.0
5.7
4.9
Government, in %
-0.4
-4.4
0.1
-0.5
2.8
-6.4
0.9
0.3
4.9
2.2
3.7
Exports, in %
9.4
-6.9
15.0
5.0
0.8
21.3
5.7
10.2
11.9
10.0
9.0
Imports, in %
Serbia
Real GDP, y-o-y %
Private consumption, in %
1
NBS
Forecast
2018
12.0
-19.6
4.4
7.9
1.4
5.0
5.6
9.3
6.8
7.2
7.0
Unemployment Rate, in %4
13.6
16.1
19.2
23.0
23.9
22.1
19.2
17.7
15.3
n/a
n/a
Real Wages, in %
5.6
0.8
1.0
0.2
1.1
-1.5
-1.5
-2.1
2.5
n/a
n/a
Money Supply (M3), in %
9.8
21.5
12.9
10.3
9.4
4.6
7.6
6.6
11.5
n/a
n/a
CPI, 2 in %
8.6
6.6
10.3
7.0
12.2
2.2
1.7
1.5
1.6
Chart 2
Chart 2
National Bank of Serbia Key Policy Rate, 3 in %
17.8
9.5
11.5
9.75
11.25
9.5
8.0
4.5
4.0
n/a
n/a
Current Account Deficit BPM-6 (% of GDP)
21.2
6.6
6.8
10.9
11.6
6.1
6.0
4.7
4.0
4.0
3.6
¹ Excluding the effect of change in inventories
² Inflation figures in the table represent Dec on Dec inflation: (Pt/Pt-12)*100-100
³ End of period data
4
Labour Force Survey. Since 2014, data are revised according to the new LFS methodology. Data for 2017 is average of four quarters.
20
Banking Sector Overview
2009
2010
2011
2012
2013
2014
2015
2016
April
2017
34
33
33
32 *
30*
29*
30*
31*
31
Employees
31,182
29,887
29,228
28,394
26,380
25,106
24,257
23,847
23,788
Branches
2,635
2,487
2,383
2,243
1,989
1,787
1,730
1,719
1,704
636
629
664
678
741
794
796
813
802
74.3
73.5
74.1
75.2
74.3
74.5
76.1
76.7
74.6
22,530
24,015
25,211
25,322
24,827
24,545
25,059
26,253
26,029
Serbia
Number of banks
HHI Assets
Share of foreign banks,
Assets (net),
Capital,
%
EUR m
4,667
4,720
5,104
5,198
5,186
5,074
5,090
5,122
5,196
13,404
15,324
17,204
17,273
16,140
16,170
16,175
16,442
16,535
2,103
2,592
3,275
3,217
3,448
3,483
3,491
2,800
2,735
15.7
16.9
19.0
18.6
21.4
21.5
21.6
17.0
16.5
13,570
14,263
14,584
14,936
15,067
15,637
16,523
18,242
17,964
209
21.4
241
19.9
296**
19.1
230***
19.9
-18
20.9
29
20.0
80
20.9
172
21.8
189
22.3
Liquidity Ratio
1.9
1.0
2.2
2.1
2.4
2.2
2.1
2.1
2.1
FX ratio,
3.6
3.9
6.2
5.5
4.4
3.9
4.4
2.7
3.9
%
1.0
1.1
1.2**
1.0***
-0.1
0.1
0.3
0.7
2.2
ROE,
%
4.6
5.4
6.0**
4.7***
-0.4
0.6
1.6
3.4
11.0
NIM1,
%
5.1
4.6
4.6
4.3
4.2
4.3
4.3
3.9
3.8
EUR m
Loans (gross), EUR m
Of which gross NPL, EUR m
Gross NPL ratio, %
Deposits,
EUR m
Pretax Income,
CAR, %
ROA,
EUR m
%
1
NIM to average total asset
* The NBS revoked operating licence from Nova Agrobanka on 27 October 2012, from Razvojna banka Vojvodine on 6 April 2013, from Privredna banka Beograd on 26 October 2013 and from Univerzal
banka Beograd on 31 January 2014. The NBS issued operating licence to Mirabank on 16 December 2014 and the bank started its operations in April 2015. The NBS issued operating licence to Bank of
China Srbija on 20 December 2016 but the data on the bank's operations are not included in this table.
** with Agrobanka: Pretax Income € 12.0m, ROA 0.05, ROE 0.24
*** with Razvojna banka Vojvodina: Pretax Income €102.5m, ROA 0.43, ROE 2.05
21