The consolidated assets held by Serbian banks inched down 0.1% to RSD 3,953bn (EUR 34.6bn) at end-August 2013 after shrinking 0.9% y/y the month before, dragged down by falling lending activity, central bank data showed. The ratio of bank assets to full-year GDP retreated to 105.1% at end-August from 116.9% a year earlier and 122.0% at end-2012.

Domestic credit, which makes up 56% of the banking sector assets, fell 2.5% y/y to RSD 2,223bn at end-August after dropping 1.8% y/y the month before, mainly due to falling corporate lending.

Loans to companies have been on a steady downward trend since the second quarter of the year after the end of the government subsidized lending program in March 2013. Corporate lending contracted 6.8% to RSD 1,060bn in August, following a 5.9% y/y decline in July. Loans to households edged up 0.3% y/y to RSD 674bnin August after a 0.8% y/y growth in the previous month.

Serbia’s credit growth could benefit from more accommodative monetary policy as inflationary pressures are expected to cool down in Q4. In September, the central bank kept its key repo rate unchanged at 11%, noting that further monetary policy easing will depend on the implementation of fiscal consolidation measures and structural reforms.