The consolidated assets held by Serbian banks fell 1% y/y to RSD 3,896bn (EUR 34bn) at end-May after inching up 2% y/y at end-April, dragged down by falling corporate lending, central bank data showed. The ratio of bank assets to full-year GDP retreated to 104% at end-May from 116% a year earlier and 122.1% at end-2012.

Domestic credit, which makes up 56% of the banking sector assets, shrank 2.4% y/y to RSD 2,178bn, after increasing 1.7% in April due to falling corporate lending while retail loans stagnated.

Loans to companies fell 7.1% y/y to RSD 1,051bn in May for a second straight month as budgetary funds earmarked for subsidised loans have been spent in the first quarter of the year. Loans to households recorded 0.0% y/y growth to RSD 655bn.

Loans to the government sector, which have been recording double-digit growth rates in annual terms since March 2012, rose 12.2% y/y to 282bn in May, braking from the 24.2% increase the month before.

Serbia’s credit growth could benefit from more accommodative monetary policy as inflationary pressures are expected to cool in H2. In June, the central bank (NBS) cut its one-week key repo rate by 25bps to 11%, sustaining its monetary easing stance for the second straight month.

However, further monetary policy easing will depend on the local dinar currency stabilization. The dinar lost 3.1% m/m and 0.7% ytd against the euro as of June 25, amid investors’ concerns over rising fiscal imbalances.