Download BANKING SECTOR IN SERBIA Third Quarter Report 2016

BANK SUPERVISION DEPARTMENT
BANKING SECTOR IN SERBIA
Third Quarter Report 2016
November 2016
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. Оperating expenses .................................................................................... 10
3.BANKING SECTOR ASSETS .........................................................................12
3.1. Level and structure .................................................................................... 12
3.2. Classified assets ......................................................................................... 14
3.3. Loans ......................................................................................................... 15
3.4. Non-performing loans ............................................................................... 16
4. BANKING SECTOR LIABILITIES ...............................................................23
4.1. Structure of the sources of funding ........................................................... 23
4.2. Deposits ..................................................................................................... 25
4.3. Total borrowing of banks .......................................................................... 27
4.4. External liabilities ...................................................................................... 28
4.5. Subordinated liabilities .............................................................................. 29
5. OFF-BALANCE SHEET ITEMS ....................................................................30
6. BANK LIQUIDITY .........................................................................................32
7. CAPITAL ADEQUACY ..................................................................................32
8. FOREIGN EXCHANGE RISK ........................................................................35
9. NBS REGULATORY ACTIVITY ..................................................................36
2
Banking Sector in Serbia – Third Quarter Report 2016
1. BASIC INFORMATION
1.1. Selected parameters of the Serbian banking sector1
At end-September 2016, the Serbian banking sector numbered 30 banks consisting of
1,717 organisational units (unchanged from a quarter earlier) and employed a total of
24,021 persons (107 persons fewer than at the end of the previous quarter).
Table 1.1. Selected parameters of the Serbian banking sector
(RSD bln, %)
Assets
Number
of banks
Amount
Capital
Share
Amount
Network
Share
Number of
business units
1)
Employ ment
Share
Number of
employ ees
Share
Banks in domestic
ownership
8
759
23.9%
142
21.9%
504
29.3%
6,056
25.2%
State-owned
6
575
18.1%
87
13.4%
426
24.8%
5,259
21.9%
Priv ately -owned
2
184
5.8%
55
8.5%
78
4.5%
797
3.3%
Banks in foreign
ownership
22
2,413
76.1%
507
78.1%
1,213
70.7%
17,965
74.8%
Italy
2
845
26.6%
187
28.8%
246
14.3%
4,279
17.8%
Austria
3
480
15.1%
101
15.6%
210
12.2%
3,239
13.5%
Greece
4
395
12.5%
93
14.3%
282
16.4%
4,223
17.6%
France
3
321
10.1%
52
8.0%
210
12.2%
2,557
10.6%
10
30
372
3,172
11.7%
100.0%
74
649
11.4%
100.0%
265
1,717
15.4%
100.0%
3,667
24,021
15.3%
100.0%
Other
Total banking sector
1)
Business units include all business network f orms: headquarters, branches, branch of f ices, teller units and other business units.
Source: NBS
The downward trend in banking employment in Serbia extended into the third quarter
of 2016. Employment fell by a total of 107 persons, as 11 banks hired 115 new people,
while 16 banks downsized their employment by 222. Given that five banks scaled down
their networks by closing down 13 organisational units, while three banks expanded their
networks by opening 13 units, the overall effect in terms of the number of organisational
units was neutral.
At end-September 2016, total net balance sheet assets of the Serbian banking sector
equalled RSD 3,172.0 bln (rising by 1.7% relative to Q2 2016) and total capital RSD 649.2
bln (up by 1.7% from end-Q2).
Compared with the previous quarter, the market share of banks in majority ownership
of domestic entities (private entities and the Republic of Serbia) decreased a bit (from
24.2% to 23.9%). In contrast, the market share of majority foreign-owned banks edged up
slightly (from 75.8% to 76.1%) and was accompanied with a 2.0% increase in the balance
sheet total. No changes were recorded in Q3 in terms of ownership structure2.
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.
2
On 8 July 2016, Hypo Alpe-Adria-Bank А.D. Beograd changed its name to Addiko Bank A.D. Beograd.
3
National Bank of Serbia
Banks from Italy, Austria, Greece and France (12 banks) continued to account for the
dominant share in total banking sector balance sheet assets – 64.4%, posting a barely
perceptible increase of 0.1 pp relative to the second quarter.
1.2. Concentration and competition
The Serbian banking sector still maintains an acceptable level of competition and low
concentration of activities. The Herfindahl Hirschman index3 values indicate the absence of
concentration in all observed categories (see Table 1.2.1.). For quite some time, the highest
value 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.
Table 1.2.1. Concentration and competition indicators
(Share %)
Top 5 banks
Top 10 banks
HHI 1)
Assets
54.9
77.5
812
Lending (total)
51.6
74.7
735
Household loans
49.4
76.0
719
Corporate loans
52.6
78.0
763
54.7
78.5
835
56.4
80.3
930
54.2
77.8
841
Interest
51.3
75.8
739
Fees and commissions
57.3
80.4
877
Deposits (total)
Household deposits
Income (total)
1)
Herf indahl Hirschman Index of concentration.
Source: NBS
The ten biggest banks in Serbia accounted for 77.5% of net balance sheet assets, 74.7%
of total gross loans and 78.5% of total deposits of the banking sector.
In terms of balance sheet assets, there was no change in the rankings of the top ten
banks in Serbia compared to a quarter earlier. Banca Intesa a.d. Beograd maintained the
leading position among the top ten banks, as its share rose by 0.1 pp from the previous
quarter.
3
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.
4
Banking Sector in Serbia – Third Quarter Report 2016
Table 1.2.2. Top ten banks according to the total assets criterion
(RSD bln, %)
30.09.2015.
30.06.2016.
ΔГ
30.09.2016.
Amount
Share
Ranking
Amount
Share
Ranking
Amount
Share
Ranking
480
16.0
1
519
16.6
1
529
16.7
1
394
13.1
2
410
13.1
2
410
12.9
2
308
10.2
3
311
10.0
3
317
10.0
3
232
7.7
4
241
7.7
4
254
8.0
4
219
7.3
5
227
7.3
5
231
7.3
5
178
5.9
6
178
5.7
6
175
5.5
6
Eurobank A.D.- Beograd
136
4.5
7
144
4.6
7
143
4.5
7
Banka Poštanska štedionica A.D.Beograd
123
4.1
9
132
4.2
8
138
4.4
8
Erste Bank A.D.- Nov i Sad
105
3.5
12
127
4.1
9
133
4.2
9
127.0
4.2
8
124
4.0
10
127
4.0
10
Banca Intesa A.D.- Beograd
Komercijalna banka A.D.Beograd
Unicredit Bank Srbija A.D.Beograd
Raif f eisen Banka A.D.- Beograd
Societe Generale banka Srbija
A.D.- Beograd
Agroindustrijska komercijalna
banka AIK banka akcionarsko
Vojv ođanska banka A.D.- Nov i
Sad
ΔТ
Source: NBS
5
National Bank of Serbia
2. PROFITABILITY
2.1. Profitability indicators4
The results of the Serbian banking sector at end-Q3 2016 indicate that banks’
profitability has continued to improve. As at 30 September 2016 the banking sector’s pretax net result was RSD 32.8 bln, up by 23.1% compared to the same period last year.
Chart 2.1.1. Pre tax result
(in RSD bln)
40
30
32.78
26.63
20
20.95
17.04
10
0
-10
-20
9.2013
9.2014
Profit
9.2015
Loss
9.2016
Net result
Source: National Bank of Serbia.
The improvement in bank profitability however went hand in hand with the
heterogeneous structure of results as 22 banks operated with profits of RSD 37.3 bln, while
8 banks reported a negative result in the amount of RSD 4.5 bln. The profit and loss
generating items of the banking sector were highly concentrated. Five banks with the
highest net profits together made up 75% of the total sector’s profit, while three banks with
the highest net losses accounted for over 76% of the total losses. The market share of banks
which posted loss at end-Q3 stood at 15%, increasing by a negligible 0.1 pp compared to
the previous quarter. Except for one, all other banks which operated with a loss accounted
for less than 0.7% in the banking sector’s balance sheet total.
4
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.
6
Banking Sector in Serbia – Third Quarter Report 2016
Table 2.1. Banks posting highest profit and loss
(in RSD mln)
30.09.2016.
Banks posting highest net profit
Banca Intesa A.D.- Beograd
7,434
Unicredit Bank Srbija A.D.- Beograd
7,016
Raif f eisen Banka A.D.- Beograd
5,293
Agroindustrijska komercijalna banka AIK banka akcionarsko društv o, Beograd
5,247
Societe Generale banka Srbija A.D.- Beograd
3,094
Banks posting highest net loss
Komercijalna banka A.D.- Beograd
1,780
Telenor banka A.D. - Beograd
937
Marf in Bank A.D.- Beograd
775
MIRABANK AKCIONARSKO DRUSTVO BEOGRAD
320
VTB Banka a.d. Beograd
250
Source: NBS
The increase in banking sector’s profitability at end-Q3 2016 was accompanied by a yo-y improvement in profitability indicators, primarily the return on assets ratio and the
return on equity ratio. ROA equalled 1.41% (rising by 0.22 pp y-o-y), and ROE 6.89%
(rising by 1.24 pp y-o-y).
Chart 2.1.2. Banking sector profitability indicators
(in %)
8.0
6.89
5.65
6.0
4.63
3.81
4.0
2.0
0.79
0.97
1.19
1.41
0.0
9.2013
9.2014
ROA
9.2015
ROE
9.2016
Source: National Bank of Serbia.
7
National Bank of Serbia
2.2. Structure of the result
The key impetus to the improvement of the banking sector’s net profit was a decrease
in net credit losses. In Q3 2016, net credit losses came at RSD 15.6 bln, which is slightly
more than half of what was recorded in the same period of 2015 (RSD 28.6 bln), and
resulted from the fact that net expenses on account of indirect write-offs of on-balance
sheet positions dropped by 45.5% у-o-y (from RSD 28.4 bln to RSD 15.5 bln). Net
expenses originated also from direct write-offs of uncollectible receivables which rose by
53.2% from the year before (from RSD 455 mln to RSD 697 mln). On the income side,
provisioning for credit-risk weighted off-balance sheet items generated net income in the
third quarter of both 2015 and 2016. The net income generated in Q3 2016 is by RSD 304
mln higher than the amount generated in Q3 2015.
Q3 2016 was also marked by lower net interest income, while net income from fees and
commissions remained unchanged y-o-y.
Net interest gains in Q3 2016 stood at RSD 93.2 bln, down by 4.6% relative to 2015,
due to the fact that a drop in interest income (by RSD 15.6 bln y-o-y), triggered by a
decline in interest rates in the domestic and international markets, was steeper than the
decrease in interest expenses (by RSD 11.1 bln y-o-y). In terms of the composition of total
interest income and expenses, only interest income from securities denominated in foreign
currency increased y-o-y, while on the expense side, only expenses arising from securities
went up. At end-September 2016, income and expenses from securities made up 20.2% of
total interest income and 3.2% of total interest expenses. The sharpest decrease was
recorded for interest income on dinar loans – by 12.7% (from RSD 96.8 bln to RSD 84.4
bln). Looking at the composition of total interest expenses, interest expenses on deposits
accounted for most of the decline (by a total of RSD 10.3 bln or 39.1%).
Unlike interest income and expenses which did not reach their 2015 levels, income and
expenses from fees and commissions rose by 3.5% and 12.2% respectively, which, put
together, pushed net income from fees and commissions slightly up, by 0.1%.
In Q3 2016, securities generated net profit of RSD 1.5 bln, down by RSD 1.4 bln y-o-y.
The decline can be put down to lower revaluation gains on derivatives held for trading
which lost almost half of the value they had in Q3 2015 (the largest change was recorded in
one bank).
8
Banking Sector in Serbia – Third Quarter Report 2016
Chart 2.2. Structure of net result
(in RSD bln)
35
30
25
20
15
10
5
0
Net result
September 2015
Net interest
Net fees
Other income net
Operating
expenses
Credit losses
Exchange rate
effect
Net result
September 2016
Source: National Bank of Serbia.
Total operating expenses of the banking sector equalled RSD 82.0 bln, up by 0.2%
relative to the year before. Sector-wide, salary expenses rose by 1.6%, while depreciation
and other expenses edged down by 3.5% and 0.3%, respectively.
At end-Q3 2016, the net exchange rate effect on the banking sector’s result was
positive, given that net income on this account amounted to RSD 6.5 bln, though dropping
by 1.8% compared to net income realized 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 6.1 bln in 2015), while net exchange rate gains from receivables and liabilities
indexed to a currency clause amounted to RSD 14.5 bln (compared to net gains of RSD 0.5
bln in the same period a year earlier).
Table 2.2. Changes in key elements of bank profitability
(in RSD mln)
Result
Net interest
Net f ees
Credit losses
Exchange rate
ef f ect
30.09.2016.
32,782
93,162
25,903
15,629
6,501
30.09.2015.
26,629
97,672
25,887
28,642
6,620
23%
-5%
0%
-45%
-2%
Change:
Source: NBS
9
National Bank of Serbia
2.3. Оperating income
At end-Q3 2016, the banking sector’s total operating income came at RSD 130.4 bln,
down by 4.9% relative to the same period last year. The major drivers of this decrease were
net interest income and net income from securities.
Chart 2.3. Operating income structure
(in RSD bln, in %)
150
140
4.8%
130
120
7.2%
6.1%
21.3%
20.4%
73.5%
71.8%
9.2013
9.2014
18.9%
110
100
5.0%
19.9%
90
80
70
60
50
40
71.2%
71.4%
9.2015
9.2016
30
20
10
0
-10
-20
Net interest
Net fees
Income from securities
Other income
Exchange rate effect
Source: National Bank of Serbia
2.4. Оperating expenses
In Q3 2016, operating expenses5 of the Serbian banking sector equalled RSD 82.0 bln,
rising by 0.2% у-o-y. Higher operating expenses are attributable to a 1.6% increase in
Salaries, salary compensations and other personal expenses (constituting 37.8% of total
operating expenses). Depreciation costs (6.6% of operating expenses) dropped bу 3.5% and
5
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.
10
Banking Sector in Serbia – Third Quarter Report 2016
Other expenses (constituting 55.6% of operating expenses at end-September 2016) by 0.3%
compared to the same period the year before.
Chart 2.4. Structure of operating expenses
30 September 2016
Other
expenses;
45.6. bln; 56%
Salaries,
salaries
compensations
and other
personal
expenses;
31.0. bln; 38%
Depreciation
costs; 5.4. bln;
6%
Source: National Bank of Serbia
11
National Bank of Serbia
3.BANKING SECTOR ASSETS
3.1. Level and structure
Total net balance sheet assets of the Serbian banking sector at end-September 2016
equalled RSD 3,172.0 bln, indicating a q-o-q increase of RSD 51.6 bln or 1.7%.
Chart 3.1.1. Total banking sector assets
(in RSD bln)
3,048
3,008
2,969
2,956
2,846
2,500
2,905
3,000
3,172
3,500
2,000
1,500
1,000
500
0
2013
2014
September
2015
2016
December
Source: National Bank of Serbia
Loans and receivables held a dominant share in the banking sector assets (62.4%),
rising moderately from end-Q2 2016 (by 0.9 pp), owing to an increase in household and
corporate lending. Still, the dominant share of this category confirms banks’ orientation
towards traditional banking activities. Other prominent items were financial assets available
for sale (16.4%) and cash and assets with the central bank (13.3%), which dropped by 0.1
pp and 0.9 pp, respectively in the period observed.
12
Banking Sector in Serbia – Third Quarter Report 2016
Chart 3.1.2. Banking sector assets structure
30 September 2016
Other assets, 181 bln,
6%
Cash and assets held
with the central bank,
422 bln, 13%
Property, plant and
equipment and
Investment property,
71 bln, 2%
Loans and receivables
from banks and other
financial organisations,
248 bln, 8%
Financial assets
available for sale, 520
bln, 16%
Loans and receivables
from clients, 1,731 bln,
55%
Source: National Bank of Serbia.
Table 3.1. Change in key asset items of the banking sector
(in RSD mln)
Change relative to prio r perio ds
A mo unt
30.09.2016
No minal
30.06.2016
Relative
31.12.2015
30.06.2016
31.12.2015
421,781
-21,378
-99,725
-4.8%
1,978,451
60,656
141,766
3.2%
7.7%
247,761
17,350
69,919
7.5%
39.3%
1,730,690
43,306
71,847
2.6%
4.3%
643,075
10,796
83,428
1.7%
14.9%
at fair value thro ugh the inco me statement and held fo r trading
20,310
1,763
3,782
9.5%
22.9%
initially reco gnised at fair value thro ugh the inco me statement
3,894
452
-78
13.1%
-2.0%
519,738
4,150
78,397
0.8%
17.8%
99,133
4,431
1,327
4.7%
1.4%
P ro perty, plant and equipment
52,901
1,580
938
3.1%
1.8%
Investment pro perty
17,827
59
88
0.3%
0.5%
Cash and balances with the central bank
Lo ans and receivables
fro m banks and OFO
fro m custo mers
Financial assets
available fo r sale
held to maturity
Other
B a nk ing s e c t o r ba la nc e s he e t t o t a l
-19.1%
57,995
-129
-2,289
-0.2%
-3.8%
3 ,17 2 ,0 3 1
5 1,5 8 4
12 4 ,2 0 6
1.7 %
4 .1%
So urce: NB S
13
National Bank of Serbia
3.2. Classified assets
At end-September 2016, total classified assets (on- and off-balance sheet) equalled
RSD 2,922.3 bln, up by RSD 28.4 bln or 1.0% from a quarter earlier. Balance sheet assets
subject to classification rose by RSD 16.8 bln and off-balance sheet items subject to
classification by RSD 11.6 bln. The rise in classified balance sheet items was driven
primarily by a rise in short-term and long-term loans (by RSD 27.1 bln and RSD 20.0 bln,
respectively), while bank deposits recorded the sharpest decline (by RSD 20.9 bln.). Under
off-balance sheet items, only Payment guarantees and Other sureties did not go up, while
Performance guarantees recorded the sharpest increase of RSD 5.6 bln, making up 21% of
total off-balance sheet items. The most significant off-balance sheet item subject to
classification are Contingent liabilities, constituting 59.4% of off-balance sheet items.
The most significant change in the structure of classified balance sheet assets compared
to the quarter before is a RSD 32.7 bln increase in balance sheet assets classified in
category B (mostly short-term and long-term loans), while balance sheet assets classified in
category E shrunk by RSD 11.0 bln (long-term loans and liabilities which fell due).
Consequently, the overall structure improved, as the share of the two worst categories
dropped by 0.5 pp, so bad assets accounted for 21.1% of total classified balance sheet
assets.
An increase in total classified off-balance items by RSD 11.6 bln resulted from an
increase in B category (by a total of RSD 25.0 bln), mostly under Contingent liabilities. The
share of bad assets in total classified off-balance sheet items shrunk from 5.6% to 5.0%.
The share of assigned receivables increased by 10% from a quarter earlier, but the
absolute amount of receivables assigned in Q3 accounted for only 25% of the record
amount of receivables assigned in the first quarter. In Q3 2016, all assignments went to
persons outside the banking sector.
As a result of the above movements, the calculated balance sheet regulatory provisions
dropped by RSD 9.6 bln or 2.1% in Q3 and came at RSD 454.1 bln. Calculated off-balance
sheet regulatory provisions declined by RSD 1.0 bln or 6.3% to RSD 14.6 bln.
Chart 3.2 Total classified assets
( in RSD bin , in % )
3,000
2,500
2,783
2,793
16%
16%
4%
7%
4%
8%
20%
22%
53%
50%
2,922
2,894
14%
15%
3%
9%
3%
9%
21%
23%
52%
51%
2,000
1,500
1,000
500
0
12.2014
12.2015
А
Source: National Bank of Serbia.
14
B
06.2016
C
D
09.2016
E
Banking Sector in Serbia – Third Quarter Report 2016
Accordingly, the total required reserve for estimated losses arising from credit risk
(which for each borrower represents a positive difference between the amount of regulatory
provisions and the sum of allowances for impairment of balance sheet assets and provisions
for losses on off-balance sheet items) decreased by RSD 6.0 bln or 3.1% in the same
period, amounting to RSD 185.4 bln.
3.3. Loans
In Q3 2016, gross loans of the Serbian banking sector recorded a nominal increase of
RSD 42.6 bln or 2.2%, reaching RSD 1,977.1 bln. In net terms (after reduction for
allowances for impairment) this growth is even sharper, because of the reduction in
allowances for impairment by RSD 5.0 bln.
In gross terms, credit activity rose the most in the household segment (up by RSD 21.5
bln or 3.0% q-o-q) and in the corporate segment (by RSD 19.2 bln or 2.3%), while the
highestt nominal decrease was recorded in the finance and insurance sector (by RSD 4.8
bln or 18.8%), as far as domestic banks are concerned.
Table 3.3. Change in the level of net loans
(in RSD mln, in %)
Change relative to prio r perio ds
A mo unt
30.09.2016
No minal
30.06.2016
Relative
31.12.2015
30.06.2016
31.12.2015
Finance and insurance
20,535
-4,768
7,461
-18.8%
P ublic secto r
29,024
-1,422
-2,720
-4.7%
-8.6%
P ublic enterprises
131,491
-1,508
-22,516
-1.1%
-14.6%
Ho useho lds
727,314
21,502
56,731
3.0%
8.5%
Co mpanies
849,316
19,213
27,306
2.3%
3.3%
28,746
9,989
12,014
53.3%
71.8%
Fo reign perso ns and fo reign banks
Other secto rs
Total loans
57.1%
190,672
-422
13,585
-0.2%
7.7%
1,977,098
42,584
91,861
2.2%
4.9%
So urce: NB S.
The currency structure of the banking sector’s loan portfolio is still dominated by
foreign currency. At end-September 2016, FX and FX-indexed loans accounted for 70.1%.
The prevalent currency of loan indexation in Serbia was the euro, with EUR loans making
up 62.7% (89.5% of total gross FX and FX-indexed loans), followed by CHF loans and
USD loans at 5.2% and 1.7% (7.4% and 2.4% of total gross FX and FX-indexed loans,
respectively). Compared to the previous quarter, CHF loans continued to fall both in
nominal and relative terms. At end-September 2016, the dinar portfolio accounted for
29.9% of total gross loans, rising from a quarter earlier (28.6%) owing to an increase in
cash loans (by RSD 19.2 bln) and current assets and liquidity loans (RSD 13.6 bln). Among
FX loans, overnight loans recorded the sharpest increase (by RSD 8.5 bln).
15
National Bank of Serbia
Chart 3.3. Banking sector gross loan portfolio structure
(in RSD bln)
(30 September 2016)
RSD;
591 bln;
30%
Other; 10
bln; 0%
Up to 3
m; 95
bln; 5%
Due; 204
bln; 10%
3 to 6 m;
71 bln;
4%
6 to 12
m; 215
bln; 11%
USD; 34
bln; 2%
EUR
1,240 bln
63%
CHF;
102 bln;
5%
Over 1
year
1,392
bln
70%
Source: National Bank of Serbia
The structure of gross loans by remaining maturity remained broadly the same: shortterm loans made up 17.5%, long-term loans 70.4%, matured loans 10.3% аnd overnight
loans 1.8%.
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 and the related allowances
for loan 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 principal and interest is 90 days or more past due its original
maturity date;
- where at least 90 days of interest payments have been added to the loan balance,
capitalized, refinanced or delayed by agreement;
- 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.
16
Banking Sector in Serbia – Third Quarter Report 2016
Gross NPLs
In Q3 2016, the banking sector’s gross NPLs decreased by RSD 7.8 bln to RSD 396.5
bln at end-September, A reduction was recorded across all of the sectors observed. Of this
reduction in gross NPLs6, RSD 17.8 bln was due to collection and RSD 5.7 bln to
assignment of receivables.
Chart 3.4.1. Gross non performing loans (NPL)
(in RSD bln)
600
25
21.6
21.5
20.2
500
19.5
20
421.3
424.6
404.3
396.5
34%
34%
18%
19%
48%
47%
6.2016
9.2016
400
25%
32%
15
300
16%
17%
10
200
59%
5
51%
100
0
0
12.2014
12.2015
Corporates
Households
Other
Total
Gross NPL %
Source: National Bank of Serbia.
Observed by sector, corporates continued to account for the largest share of gross NPLs
(RSD 170.6 bln at end-September 2016), though the share and nominal amount of
corporate NPLs contracted further – from 43.7% at end-June to 43.0% at end-September
2016. Next in line were non-financial legal persons in bankruptcy (their NPLs stood at RSD
113.7 bln, compared to RSD 115.6 bln at end-June 2016), making up 28.7%, same as in the
quarter before. Despite the re-distribution across sectors and/or change of status and
bankruptcy, primarily of corporate legal persons, a decrease in gross NPLs of non-financial
legal persons in bankruptcy resulted from write-offs, resolution and assignment.
In the household sector, gross NPLs stood at RSD 73.2 bln, or 18.5% of total household
loans.
6
Calculated based on the NPL 3 report which banks submit to the NBS.
17
National Bank of Serbia
Chart 3.4.2. NPL ratio for main sectors
(in %)
50
45
Other sectors
40
35
Corporate sectors
( Pubilc enterprizes + Private companies)
30
25
20
Total NPL
15
Households
10
5
0
12.2014
12.2015
6.2016
9.2016
Source: National Bank of Serbia.
.
As gross NPLs decreased and total loans went up by RSD 33.3 bln, the share of NPLs
in total gross loans edged down to 19.5%, posting a q-o-q decrease of 0.7 pp.
NPL coverage
At end-Q3 2016, the coverage of total gross NPLs by loan loss reserves equalled
114.5%, while allowances for impairment ensured the coverage of 65.4%.
Chart 3.4.3. NPL coverage
(in %)
180
160
140
118.4
118.2
118.6
118.2
120
100
114.5
80
114.7
114.5
66.8
69.5
69.5
62.3
65.1
65.4
114.2
59.0
60
40
54.9
20
0
12.2014
IFRS provision* / NPL
12.2015
IFRS provision (NPL) ** / NPL
6.2016
9.2016
Total calculated reserve*** / NPL
Calculated reserve**** / NPL
* Total loan provision;
** Provision for non-performing loans;
*** Total calculated reserve for potential losses (on- and off-balance shee).
**** Calculated reserve for potential losses on balance-sheet lending (loan loss reserve);
Source: National Bank of Serbia.
18
Banking Sector in Serbia – Third Quarter Report 2016
The data indicate that the coverage of total gross NPLs by loan loss reserves is
constantly high, while the coverage by allowances for impairment shows a continuous
rising trend.
Chart 3.4.4. NPL coverage* across countries of origin of banks in
Serbia
(in %)
130
125
120
115
110
105
100
95
90
12.2014
12.2015
Serbia
Austria
6.2016
Greece
9.2016
France
Italy
*provisions for balance sheet exposure
Source: National Bank of Serbia.
Corporate NPLs
Amounting to RSD 170.6 bln at end-Q3 2016, gross corporate NPLs recorded a RSD
6.1 bln or 3.4% decrease relative to the quarter before. The main reasons behind the
decrease are assignments to other legal persons and sectoral re-allocations.
Table 3.4.1. Changes in gross NPLs by main economic sectors
(in RSD mln)
Change relative to prio r perio ds
No minal
A mo unt
30.09.2016
30.06.2016
Relative
31.12.2015
30.06.2016
31.12.2015
M anufacturing
64,458
-609
-4,629
-0.9%
-6.7%
Trade
43,427
-1,263
-14,635
-2.8%
-25.2%
Co nstructio n
25,294
-1,547
-2,476
-5.8%
-8.9%
Educatio n and real estate
23,034
-958
-2,766
-4.0%
-10.7%
4,141
-1,843
-2,116
-30.8%
-33.8%
9,930
187
-977
1.9%
-9.0%
A griculture
Transpo rt, ho tels/restaurants, co mmunicatio ns
So urce: NB S
19
National Bank of Serbia
By sector, the biggest share in total corporate NPLs continued to be held by
manufacturing (37.8%, with a 21.6% NPL gross ratio), followed by trade (25.4%, with a
15.9% gross NPL ratio) and construction (14.8%, with a 32.5% gross NPL ratio). In Q3, the
ratio markedly declined in all sectors except in transport. The sharpest decrease was
recorded in agriculture, real estate and construction (by 2.9 pp, 2.3 pp and 2.2 pp,
respectively). Manufacturing and trade stand out by a relatively higher degree of collection,
but also by the volume of new NPLs. They also recorded the greatest decreases in NPLs on
account of a change in sectoral affiliation i.e. initiation of bankruptcy proceedings.
Table 3.4.2. Corporate NPL ratio by sector
(in %)
Change relative to prio r perio ds
(pp)
30.09.2016
30.06.2016
31.12.2015
Co nstructio n
32.5%
-2.2
-5.7
Real estate and educatio n
28.3%
-2.3
-5.0
M anufacturing
21.6%
-1.0
-2.0
Trade
15.9%
-0.9
-5.6
A griculture
6.0%
-2.9
-3.1
Transpo rt
17.2%
1.1
-3.4
So urce: NB S
Chart 3.4.5. Private corporates NPL structure
(30 September 2016)
Agriculture
4 bln
2%
Real estate and
education
23 bln
14%
Gross NPL
indicator
6.0%
28.3%
17.2%
Hotel,
restaurants and
communication
10 bln
6%
21.6%
Processing
industry
65 bln
38%
15.9%
32.5%
Commerce
43 bln
25%
Source: National Bank of Serbia.
20
Construction
25 bln
15%
Electricity
0.3. bln
0%
Banking Sector in Serbia – Third Quarter Report 2016
Natural persons’ NPLs7
Measuring 10.7% at end-Q3 2016, the share of gross NPLs of natural persons was
below the average of the total portfolio and 0.4 pp lower than a quarter earlier.
At end-Q3 2016, natural persons’ NPLs equalled RSD 87.5 bln, dropping negligibly
(by 0.7%) from end-Q2 2016. All types of loans, except cash loans and current account
overdrafts, recorded a decrease.
Table 3.4.3. Changes in gross non-performing household loans by category
(in RSD mln)
Change relative to prio r perio ds
A mo unt
No minal
30.09.2016
30.06.2016
Relative
31.12.2015
30.06.2016
31.12.2015
Ho using lo ans
32,577
-293
-354
-0.9%
Cash lo ans
23,062
77
470
0.3%
2.1%
Credit cards
4,748
-74
-495
-1.5%
-9.4%
Current acco unt o verdrafts
4,399
59
141
1.4%
3.3%
Co nsumer lo ans
3,586
-56
-125
-1.5%
-3.4%
-1.1%
Other
19,133
-291
-305
-1.5%
-1.6%
To tal
87,505
-578
-668
-0.7%
-0.8%
So urce: NB S
The category of housing construction loans accounted for a dominant share both in
lending to natural persons (43.3%) and in gross NPLs of natural persons (37.2%). Cash
loans came next with a 32.7% share in total loans of natural persons and a 26.4% share in
total NPLs of natural persons.
Table 3.4.4. Gross NPL ratio for households by category
(in %)
Change relative to prio r perio ds
(pp)
30.09.2016
30.06.2016
31.12.2015
Ho using co nstructio n
9.2%
-0.2
-0.4
Cash lo ans
8.6%
-0.6
-1.5
Credit cards
13.2%
-0.1
-1.1
Current acco unt o verdrafts
16.9%
0.3
-0.3
Co nsumer lo ans
20.0%
-0.5
-2.8
So urce: NB S
Observing natural persons’ loans at end-September 2016, the highest gross NPL ratio
(20.0%) was recorded for consumer loans (which made up 2.2% of total natural persons’
loans and 4.1% of total natural persons’ NPLs), followed by current account overdrafts
with the ratio of 16.9% (3.2% of loans, 5.0% of NPLs), credit card loans with 13.2% (4.4%
of loans, 5.4% of NPLs), cash loans with 8.6%, and housing loans with 9.2%. Gross NPL
ratio declined across all major categories, except in current account overdrafts.
7
Households, entrepreneurs, private households with employed persons and registered farmers.
21
National Bank of Serbia
Chart 3.4.6. Natural persons NPL structure
(30 September 2016)
Consumer
4 bln
5%
Overdraft
4 bln
4%
Credit cards
5 bln
6%
Housing
33 bln
37%
20.0%
16.9%
13.2%
Gross NPL
9.2%
8.6%
16.4%
Cash
23 bln
26%
Other lending*
19 bln
22%
Other lending = agriculture, other activities, vehicle purchase loans and other loans
Source: National Bank of Serbia.
22
Banking Sector in Serbia – Third Quarter Report 2016
4. BANKING SECTOR LIABILITIES
4.1. Structure of the sources of funding
Deposits8, were the primary source of bank funding in Serbia, making up 68.1% of total
liabilities. At end-Q3 2016, own sources of funding made up 20.5% and borrowing 7.9% of
total liabilities.
Table 4.1. Change in key items of banking sector liabilities
(in RSD mln)
Change relative to prio r perio ds
No minal
A mo unt
30.09.2016
Depo sits and o ther liabilities
to banks, OFO and the central bank
to o ther custo mers
Securities issued and o ther bo rro wings
Subo rdinated liabilities
P ro visio ns
Share capital and o ther capital
P ro fit
Lo ss
Reserves and unrealised lo sses
Other
T o t a l ba nk ing s e c t o r lia bilit ie s
30.06.2016
Relative
31.12.2015
30.06.2016
31.12.2015
2,423,930
65,824
107,722
2.8%
4.7%
290,979
-6,002
-34,515
-2.0%
-10.6%
2,132,952
71,826
142,237
3.5%
7.1%
124
1
1
0.4%
0.4%
50,009
-11,131
-15,097
-18.2%
-23.2%
-4.9%
11,497
119
-592
1.0%
399,853
619
-2,664
0.2%
-0.7%
81,900
12,937
21,305
18.8%
35.2%
28,728
569
-15,734
2.0%
-35.4%
196,222
-2,200
-4,213
-1.1%
-2.1%
37,225
-14,014
2,010
-27.4%
5.7%
1.7%
4.1%
3,172,031
51,584
124,206
So urce: NB S
Compared to end-Q2 2016, total banking sector liabilities increased by RSD 40.8 bln
(1.6%), chiefly on account of a RSD 71.8 bln (3.5%) increase in item Deposits and other
liabilities to other clients.
Given that the total banking sector capital also went up in Q3, by RSD 10.8 bln (1.7%),
its share in total banking sector liabilities remained unchanged. Capital increased as a result
of the profit generated in the banking sector.
The currency structure showed that dinar sources of funding (capital included)
increased from 42.6% to 43.2% in Q3. As regards the FX portion of liabilities, EURdenominated liabilities remained dominant, making up 89.6% of total FX liabilities, while
the rest were mostly liabilities in USD (6.3%) and CHF (3.3%).
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.
23
National Bank of Serbia
Chart 4.1. Banking sector capital and liabilities
(in RSD bln)
3,000
2,482
2,429
2,355
2,000
2,523
2,500
1,500
619
638
649
500
614
1,000
12.2014
12.2015
6.2016
9.2016
0
Capital
Liabilities
Source: National Bank of Sebia.
4.2. Deposits
Total deposits with banks stood at RSD 2,161.7 bln at end-Q3 2016, up by RSD 92.4
bln or 4.5% relative to a quarter earlier. The increase stemmed mainly from a RSD 70.9 bln
increase in transaction deposits, specifically: FX household and corporate deposits and
dinar deposits of other clients (non-financial legal persons in bankruptcy) and corporates.
At end-Q3 2016, the share of FX and FX-indexed deposits was 69.8%, with the euro
accounting of a dominant 88.6% share of the portfolio. The rest of FX deposits were mainly
in USD (7.3%) and CHF (3.1%).
Short-term deposits9 accounted for the bulk of bank deposits in Serbia. Demand
deposits made up 57.0% of total deposits, followed by deposits with the remaining maturity
of up to one year with 35.8%, while deposits with the remaining maturity of over one year
accounted for only 7.2% of total deposits. A quarterly increase is notable in respect of
demand deposits (0.9 pp), while both short-term and long-term deposits posted a decrease
(0.7 pp and 0.2 pp, respectively).
In terms of initial (agreed) maturity, demand deposits were still dominant (56.7%),
followed by deposits with the remaining maturity of up to one year (27.4%), while 15.9%
of all deposits were agreed for over one year term. In the quarter observed, the share of
long-term deposits decreased further, as demand deposits went up.
9
24
At remaining maturity.
Banking Sector in Serbia – Third Quarter Report 2016
Compared to the end of the previous quarter, total household savings10 contracted by
RSD 10.3 bln (1.3%), coming at RSD 802.6 bln at end-Q3. The drop did not result from
withdrawal, but from the maturing of savings and their transfer to FX transaction deposit
accounts which recorded a RSD 15.6 bln increase in the period observed. At endSeptember 2016, FX savings were dominant in total household savings deposits, making up
94.5%, while dinar savings accounted for 5.5%. Relative to a quarter before, dinar savings
went up by RSD 0.4 bln, while FX savings contracted by RSD 10.7 bln.
At end-Q3 2016, total household deposits in foreign currency equalled RSD 1,044.0 bln
(rising by 0.5% from end-Q2) and consisted mainly of savings deposits (72.7%).
Table 4.2. Changes in deposits levels
(in RSD mln)
Change relative to prio r perio ds
No minal
A mo unt
30.09.2016
30.06.2016
Relative
31.12.2015
30.06.2016
31.12.2015
Finance and insurance secto r
58,977
-2,660
-209
-4.3%
-0.4%
P ublic secto r
39,727
-5,015
8,752
-11.2%
28.3%
15.8%
P ublic enterprises
138,377
5,111
18,881
3.8%
Ho useho ld secto r
1,177,362
10,154
45,887
0.9%
4.1%
Co mpanies
461,145
39,491
31,038
9.4%
7.2%
Fo reign entities and fo reign banks
135,765
23,170
14,694
20.6%
12.1%
Other secto rs
150,342
22,107
33,010
17.2%
28.1%
2 ,16 1,6 9 5
9 2 ,3 5 8
15 2 ,0 5 3
4 .5 %
7 .6 %
T o t a l de po s it s
So urce: NB S.
Chart 4.2. Banking sector deposits structure
(30 September 2016)
Currency structure
Sectoral structure
Foreign
entities
136 bln
6%
Other
depositors
249 bln
12%
Other
currencies
172 bln
8%
RSD
653 bln
30%
Maturity structure
3 to 6 m
157 bln
7%
6 to 12 m
188 bln
9%
Over 1
year
155 bln
7%
Corp.
(public and
private)
600 bln
28%
Household
s
1,177 bln
54%
Source: National Bank of Serbia.
10
EUR
1,337 bln
62%
Up to 3 m
1,662 bln
77%
Accounts 402 and 502 in the Chart of Accounts, sector 6 (domestic and foreign natural persons – residents)
25
National Bank of Serbia
4.3. Total borrowing of banks
At end-Q3 2016, total borrowing of the banking sector amounted to RSD 252.0 bln,
down by RSD 27.2 bln or 9.7% relative to the previous quarter. The decline was recorded
in respect of loans received and other financial liabilities (by RSD 29.3 bln and RSD 3.6
bln, respectively), while overnight loans edged up by RSD 5.7 bln.
Table 4.3. Changes in the level of bank borrowing
(in RSD mln)
Change relativ e to prior periods
Amount
30.09.2016
Nominal
30.06.2016
Relativ e
31.12.2015
30.06.2016
31.12.2015
Ov ernight loans
46,309
5,741
7,485
14.2%
19.3%
Loans receiv ed
199,142
-29,332
-52,153
-12.8%
-20.8%
Other f inancial liabilities
Total borrowing
6,578
-3,565
131
-35.1%
2.0%
252,029
-27,156
-44,537
-9.7%
-15.0%
Source: NBS.
Loans were the largest individual borrowing item (received predominantly from parent
banks and international financial institutions), accounting for 79.0% (end-Q2 2016: 81.8%),
followed by liabilities under overnight loans with 18.4% (end-Q2 2016: 14.5%). Other
financial liabilities made up 2.6% (end-Q2 2016: 3.6%).
Banks that are majority foreign-owned accounted for 89.8% of total credit borrowing of
the banking sector, 93.2% of overnight loans, 89.0% of loans received and 90.6% of other
financial liabilities.
The dominant currency of borrowing was the euro, accounting for RSD 213.5 bln (endQ2 2016: RSD 228.0 bln) or 84.7% of total borrowing. Dinar liabilities stood at RSD 28.1
bln (end-Q2 2016: RSD 37.0 bln) or 11.2% of total borrowing, while banks’ debt in Swiss
francs was RSD 8.9 bln (end-Q2 2016: RSD 12.0 bln), or 3.5% 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-Q3 2016, banks’ total external liabilities
under credit operations stood at RSD 149.0 bln, down by RSD 15.3 bln (9.3%) q-o-q, and
by 23.9% in the first nine months of 2016. Borrowing contracted mainly on account of a
decrease in loans received (by RSD 19.4 bln), while overnight loans went up by RSD 5.9
bln. External credit debt remained highly concentrated, given that of the 16 banks which
borrowed externally, four banks accounted for 63.9% of the total debt. Also, only three
banks took overnight foreign loans, and 92.0% of that debt referred to two banks.
Long-term loans held a dominant 79.6% share in the maturity structure of external
borrowing (end-Q2 2016: 76.4%).
26
Banking Sector in Serbia – Third Quarter Report 2016
As regards the currency composition of external borrowing, the share of the euro again
increased slightly, reaching 93.8% (despite a RSD 12.6 bln decrease), while the share of the
Swiss franc continued to shrink (to 5.8% from over 10% at end-2014 and 2015 and 7.1% at
end-Q2 2016).
Table 4.4. Changes in bank external borrowing
(in RSD mln)
Change relativ e to prior periods
Amount
30.09.2016
Nominal
30.06.2016
Relativ e
31.12.2015
30.06.2016
31.12.2015
Ov ernight loans
9,367
5,894
4,211
169.7%
81.7%
Loans receiv ed
138,633
-19,395
-51,163
-12.3%
-27.0%
Other f inancial liabilities
Total borrowing
1,027
-1,751
106
-63.0%
11.5%
149,027
-15,252
-46,846
-9.3%
-23.9%
Source: NBS.
4.5. Subordinated liabilities
Total subordinated liabilities of banks in Serbia reached RSD 49.7 bln at end-Q3 2016,
posting a RSD 11.3 bln (18.6%) decrease relative to the previous quarter. This was a
continuation of an entrenched trend, given that 2015 saw a decrease of 10.1% and the first
nine months of 2016 a further drop of 23.5%.
Of total subordinated liabilities, 73.0% were liabilities toward foreign banks, 13.7%
toward foreign legal persons, 12.4% to international financial institutions, and 0.9% to
corporates.
Subordinated liabilities contracted primarily in the euro segment, which continued to
make up 92.9% of all liabilities. Liabilities in Swiss francs made up 6.2%, while the
remaining 0.9% were in dinars.
Subordinated liabilities were highly concentrated – of the 17 banks with subordinated
debt, three banks accounted for 44.6% 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 48.7% of total
subordinated debt in supplementary capital.
27
National Bank of Serbia
5. OFF-BALANCE SHEET ITEMS
At end-Q3 2016, total off-balance sheet items of the banking sector stood at RSD
7,130.2 bln, rising slightly (by 0.6%) from the end of the previous quarter, mostly on
account of an increase in Other off-balance sheet items (by RSD 47.9 bln) – specifically,
Received guarantees and other sureties on behalf of bank creditors. The most significant
items in the structure of the banking sector's off-balance sheet were Other off-balance sheet
items (82.9%), followed by Derivatives (6.5%) and Issued guarantees and other sureties
(3.6%).
The off-balance sheet segment of the banking sector operations remained the most
highly concentrated, given that at end-Q3 2016, 24.4% of total banking sector off-balance
sheet items were held by a single bank and that values of the HHI index for all types of offbalance sheet items and for total off-balance sheet items exceeded 1,000.
Chart 5.1. Off-balance sheet items
(in RSD bln.in %)
8,000
7,000
7,134
7,086
7,130
88%
87%
88%
8%
6%
7%
7%
8%
6%
6%
6%
12.2014
12.2015
6.2016
9.2016
Derivatives
Operation on behalf of third parties
6,156
6,000
5,000
4,000
85%
3,000
2,000
1,000
0
Other off-balance sheet items
Contigent liabilities
Source: National Bank of Serbia.
Risk-free items accounted for the bulk (90.4%) 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.
The off-balance sheet items which are subject to classification (considered riskbearing) amounted to RSD 687.4 bln, rising by RSD 11.6 bln or 1.7% q-o-q.
28
Banking Sector in Serbia – Third Quarter Report 2016
At end-Q3 2016, contingent liabilities11 equalled RSD 413.2 bln (down by RSD 14.6
bln or 3.4% q-o-q), making up 5.8% of total off-balance sheet items (end of the previous
quarter: 6.0%).
Table 5.1. Changes in off-balance sheet items in the Serbian banking sector
(in RSD mln)
Change relativ e to prior periods
Amount
30.09.2016
Nominal
30.06.2016
Relativ e
31.12.2015
30.06.2016
31.12.2015
Issued guarantees and other sureties
258,513
4,452
-12,494
1.8%
Receiv ables under deriv ativ es
466,065
-16,787
19,395
-3.5%
4.3%
Contingent liabilities and other irrev ocable commitments 154,686
-19,096
-27,031
-11.0%
-14.9%
161,432
10,550
13,328
7.0%
9.0%
93,657
1,161
9,013
1.3%
10.6%
7,130,232
44,730
-4,189
0.6%
-0.1%
Securities receiv ed as collateral
Sureties f or liabilities
Other of f -balance sheet assets
-4.6%
Source: NBS.
11
Issued guarantees and other sureties, irrevocable commitments regarding undisbursed loans and placements, and other
irrevocable commitments.
29
National Bank of Serbia
6. BANK LIQUIDITY
Based on the long-term historical record of all basic liquidity indicators, Serbia’s
banking sector has been characterised by considerable excess liquidity. At end-Q3 2016,
the average monthly liquidity ratio was 2.18, rising slightly from a quarter earlier (2.10),
and being considerably above the regulatory floor of 1.0. The narrow liquidity ratio also
increased q-o-q, to 1.78 (regulatory floor – 0.7).
The share of liquid assets in total banking sector balance sheet assets has been broadly
stable in recent years and even increased mildly, to 34.6% at end-Q3 2016.
At end-Q3 2016, banks’ investments in NBS repo securities increased relative to June
2016 by RSD 36.8 bln, to RSD 65.0 bln. The number of banks which invested in repo
securities also increased (from 13 to 16). As for government securities, their portfolio was
worth RSD 613.6 bln at end-September, increasing by 1.8% from a quarter earlier. For
quite some time, the share of securities in euros has shown an upward tendency, reaching
38.1% at end-Q3 (rising by 0.3 pp q-o-q).
Chart 6.1. Banking sector liquidity indicators
3.00
2.50
2.00
2.18
2.16
2.09
2.10
1.68
1.67
1.67
1.03
0.99
0.98
0.96
0.36
0.34
0.34
0.35
12.2014
12.2015
6.2016
9.2016
1.78
1.50
1.00
0.50
0.00
Liquidity indicator
Narrow liquidity indicator
Loan to deposit ratio LTD
Liquid assets to total assets
Source: National Bank of Serbia.
30
Banking Sector in Serbia – Third Quarter Report 2016
7. CAPITAL ADEQUACY
The Serbian banking sector is well-capitalised, both from the aspect of compliance with
the prescribed capital adequacy ratio and the structure of regulatory capital. At endSeptember 2016, capital adequacy ratio of the Serbian banking sector averaged 21.15%
(down by 0.55 pp from a quarter before), which is well above the domestic regulatory
minimum (12%) and the minimum according to Basel standards (8%).
Chart 7.1. Regulatory capital and CAR*
(in RSD bln, CAR in %)
650
21.60
20.89
21.15
19.96
20
550
450
350
45
41
40
41
358
362
15
250
150
303
331
10
50
5
-8
-50
-8
-10
-11
12.2015
6.2016
9.2016
-150
0
12.2014
Deductibles
Tier 2
Tier 1
CAR
* CAR = Regulatory capital adequacy ratio
Source: National Bank of Serbia.
The value of the capital adequacy ratio was 0.55 pp weaker than a quarter earlier,
because total capital requirements increased more than did the regulatory capital (3.1% vs.
1.0%). An increase in total lending of the banking sector led to higher capital requirements
for credit risk (by 3.4%), which was the major driver behind the increase in total capital
requirements.
The structure of capital requirements changed slightly compared to a quarter earlier.
The dominant share was taken up by capital requirements for credit risk (87%), followed by
capital requirements for operational risk (11.7%), while the share of capital requirements
for market risks was negligible (1.3%).
31
National Bank of Serbia
Chart 7.2. Capital requirements
(in %)
(30 September 2016)
1.3%
11.7%
87.0%
Credit risk
Market risk
Operational risk
Source: National Bank of Serbia.
In 2015 through Q3 2016, regulatory capital of the banking sector has been rising
moderately. The last quarter saw a 1% increase (in absolute amount: RSD 3.8 bln).
Regulatory capital consists of: Tier 1 or core capital, the highest quality segment (91%)
and Tier 2 or supplementary capital (9%).
At end-Q3 2016, the banking sector’s core capital (before deductions from regulatory
capital) stood at RSD 362.1 bln, up by 1.2% (or RSD 4.1 bln) q-o-q. The banking sector’s
core capital increased as a result of the release of RSD 7.2 bln on account of a reduction in
required reserves for estimated losses arising from credit risk.
The core capital, after the remaining prescribed deductions, equalled RSD 356.7 bln,
which was RSD 3.9 bln more than at end-June 2016.
Supplementary capital of the banking sector (before deductions from regulatory
capital), comprising mostly of subordinated liabilities (60%) and revaluation reserves
(34%), rose slightly from a quarter earlier – by RSD 353 mln (0.9%), reaching RSD 40.5
bln. Subordinated liabilities eligible for inclusion in supplementary capital shrunk by 2% to
RSD 24.2 bln, while revaluation reserves went up by RSD 780 bln relative to the quarter
before. The supplementary capital, after the remaining prescribed deductions, from capital,
amounted to RSD 35.4 bln, same as at end-Q2.
The leverage12 ratio of banks was satisfactory and unchanged from a quarter earlier. At
end-Q3 2016, on-balance sheet capital came at 20.47% оf total bank balance sheet assets.
12
32
Balance sheet capital to balance sheet assets ratio.
Banking Sector in Serbia – Third Quarter Report 2016
8. FOREIGN EXCHANGE RISK
At end-Q3 2016, Serbia’s banking sector posted long FX position worth RSD 16.6 bln
(excluding the position in gold). Twenty five banks ended September 2016 with a net long
FX position, while the remaining five banks showed net short FX position.
On 30 September 2016, banks in Serbia operated at net long positions in euros and US
dollars (RSD 12.78 bln and RSD 2.92 bln, respectively), while at the same time posting a
net short position in Swiss francs (RSD 1.81 bln).
The foreign exchange risk ratio for the banking sector equalled 4.25%, indicating a
relatively low FX risk compared to the regulatory cap (20% of banks’ capital).
Chart 8.1. Quarterly breakdown of the sector's long and short FX
position (in EUR) and foreign exchange risk ratio
(in RSD bln)
16
6
14
5
4.44
4.25
12
3.93
4
3.55
10
8
3
13.56
12.78
6
2
10.28
9.48
4
5.49
2
1
4.22
2.22
0.56
0
0
12.2014
12.2015
Long EUR
6.2016
Short EUR
9.2016
FX ratio
Source: National Bank of Serbia
33
National Bank of Serbia
9. NBS REGULATORY ACTIVITY
Exercising its regulatory competences in the area of bank supervision, the NBS issued
the following regulations in Q3 2016:
At its session of 11 August 2016, the NBS Executive Board adopted the Decision
Amending the Decision on the Classification of Bank Balance Sheet Assets and OffBalance Sheet Items (RS Official Gazette No 69/2016), wishing to encourage banks to
tackle more efficiently NPLs in their portfolios. The Decision allows banks to use models
for reducing and/or eliminating required reserves for estimated losses depending on the
level and/or reduction of NPL ratio. The amendments among other envisage that banks
which on 30 June 2016 and as at the reporting date have NPL ratio (for non-governmental
and non-financial sector) 10% or more may calculate the amount of required reserves for
estimated losses – which is treated as a deductible from capital and credit-risk weighted
assets – in the amount equivalent to zero, while banks which as at 30 June 2016 have NPL
ratio (for non-governmental and non-financial sector) above 10% and reduce that ratio on
the reporting date, may calculate the amount of reduction of the required reserves for
estimated losses by applying the given formula. Also, in order to create conditions
conducive to credit growth, the Decision also allows to reduce the percentage applied in
calculation of required reserves for estimated losses from 2% to 0% for receivables
classified in category B based on contracts concluded after 30 September 2016, provided
those exposures are not intended for refinancing or restructuring.
At the same session, the Executive Board adopted the Decision Amending the
Decision on Reporting Requirements for Banks (RS Official Gazette No 69/2016) which
aims to align the regulatory reporting system with the amendments to the Decision on the
Classification of Bank Balance Sheet Assets and Off-Balance Sheet Items and to enable the
supervisor to verify the fulfilment of conditions for reduction and/or elimination of required
reserve for estimated losses by introducing a new reporting schedule – NPL 5. The
amendments also enable a more detailed analysis of the cause of a high share of NPLs in
total loans by collecting additional information on the structure of NPLs by largest
borrowers from non-financial and non-government sectors.
34