Annual Report 2010 - ProCredit Bank

Management Business Review 11
Political and Economic Environment
In 2010 Serbia continued to make progress towards
EU accession. EU officials recognised
that the country had implemented significant reforms,
that its co-operation with the International
Criminal Tribunal for the former Yugoslavia in The
Hague had improved, and that it was a factor for
stability in the region. In November, the European
Commission issued its Serbia 2010 Progress
Report, confirming that the country had made
political progress, and was on the road to economic
recovery and GDP growth. However, it also
mentioned that issues relating to the judiciary
and to corruption still needed to be addressed.
By December the Stabilisation and Association
Agreement between the EU and Serbia had been
ratified by 11 of the EU’s 27 member countries.
The real economy showed signs of improvement.
After a 3.1% decline in 2009, 1 GDP grew
1.7% 2 y-o-y, and this upward trend is expected
to continue. Increased industrial output and rising
exports aided by a competitive exchange rate
helped to narrow the trade deficit, but it is still
large and capital inflows are insufficient.
In the first six months, inflation was consistently
below the NBS’s target tolerance band of 6 ± 2%,
but started to rise in the second half of the year,
overshooting the tolerance band in October. 3 In
response, the National Bank raised key interest
rates and signalled a tightening of monetary policy.
Price increases were due partly to food price
shocks and partly to the depreciation of the local
currency by approximately 11%. The value of
the dinar against the euro dropped from a peak
of RSD 95.9 in January to a low of RSD 107.5
in November. 4
Fiscal performance remained on target. In November
the Serbian parliament adopted a revised
budget for 2010 with a deficit of RSD 148 billion
(4.9% GDP), and the target for 2011 is a budget
deficit of no more than 4.1% of GDP. 5
Fitch Ratings revised Serbia’s outlook from negative
to stable and reaffirmed the country’s longterm
Issuer Default Rating of BB- for foreign currency
debt. The government’s commitment to
comply with the IMF programme and the narrowing
of the current account deficit were key factors
behind the revision of Serbia’s outlook.
IMF support for the balance of payments under
a EUR 1.87 billion stand-by arrangement which
runs until April 2011 has helped bolster reserves
and investor confidence, while foreign-owned
banks have maintained their exposure to Serbia. 6
Financial Sector Development 7
The banking sector in Serbia comprised 33 banks
and 8 representative offices of foreign banks at
the end of 2010. Two government-owned banks
merged in September. Compared to 2009, total
banking assets decreased to 1.56% in real
terms to RSD 2,534 billion (EUR 24 billion). As
in previous years, the top three banks accounted
for approximately one third of total banking
sector assets.
Lending was the main driver behind asset growth,
continuing the trend of recovery that started in the
last quarter of 2009. Total net lending amounted
to RSD 1,685 billion (EUR 15.97 billion), an increase
of RSD 285 billion (EUR 1.37 billion) or
9.38% compared to the end of 2009. Business
loans again made up the largest share of bank
lending, amounting to RSD 936 billion (EUR 8.87
billion) or 56% of the total, while loans to private
households came to RSD 501 billion (EUR 4.75
billion) and loans to the public sector totalled RSD
209 billion (EUR 1.98 billion). Although foreign
1
National Bank of Serbia, Key macroeconomic indicators,
www.nbs.rs/export/internet/english/80/index.html
2
National Bank of Serbia, http://www.nbs.rs/export/
internet/english/15/konferencije_guvernera/
attachment/20110315_DS_press_presentation.pdf
3
National Bank of Serbia, Target and actual inflation,
www.nbs.rs/export/internet/english/30/30_9/
kretanje_inflacije.html
4
National Bank of Serbia, Exchange rates
5
IMF Country Report Jan. 2011, http://www.imf.org/
external/pubs/ft/scr/2011/cr1109.pdf
6
IMF Country Report Jan. 2011, http://www.imf.org/
external/pubs/ft/scr/2011/cr1109.pdf
7
Unless otherwise stated, all figures in the Financial
Sector Development section were taken from National
Bank of Serbia, Banking Supervision, Fourth Quarter
Report 2010