Serbia’s consolidated banking system assets, including the central bank, edged up 0.1% y/y to RSD 3,895bn (RSD 34bn) at end-October 2013, slowing from a 0.7% y/y rise the month before as domestic credit continued retreating whereas foreign assets growth slowed over the period, central bank (NBS) data showed. The ratio of bank assets to full-year GDP fell to 103.6% at end-October from 115.0% a year earlier.

Domestic credit, which accounts for 57% of total banking sector assets, declined 0.4% y/y to RSD 2,217bn at end-October, improving from a 2.5% y/y contraction the month before. Loans to companies decreased 8.7% y/y to RSD 1,023bn after a 9.2% y/y drop at end-September. Retail loans, on the other hand, grew 3.1% y/y to RSD 676bn in October accelerating from 2.6% y/y in September thanks to higher cash and housing loans. The segment continues to be supported by government-subsidised housing loans programmes, whereas subsidised corporate lending was suspended at end-March as budgetary funds allocated for the purpose were exhausted.

Serbian banks' foreign assets went up 1.5% y/y to RSD 1,371bn at end-October, slowing from a 6.7% y/y growth the month before, mostly due to falling commercial banks' FX reserves.

Lending activity has faltered since the second quarter of the year due to falling corporate loans after the end of the government-subsidised lending programme in March. We expect the NBS to continue easing the monetary policy in the coming period after it cut its one-week repo rate to 10.0% from 10.5% in November. This should help trim borrowing costs and boost private sector credit. In addition, the government also said it will launch a RSD 12bn guarantee fund in order to facilitate corporate financing.