Serbian central bank vice governor Bojan Markovic said that he is not worried at the rise of bad loans in the last 3 months and attributed the rise to the overall fall of new loans.

Serbia’s bad loans that are overdue more than 90 days rose to 17.9% of all loans in the third quarter.

The increase is slight from 17.5% in previous quarter.

“We are not concerned with this figure,” Markovic said and added that the “capital adequacy index at banks in Serbia is above 20 percent and the NPLs (non-performaing loans) are covered by 130 percent, which means that for every dinar in NPL the banks have allocated 1.30 dinars from their reserves.”

The level of bad loans in Serbia are among the highest in emerging Europe, just behind Ukraine.

Serbian banking is dominated by foreign banks.

Many borrowers in Serbia took out loans in Euro or Swiss francs so when the national currency, the Dinar, recently fell in value, the payment on these loans hurt the borrowers because it became more expensive.

Economist Goran Nikolic argues that banks in Serbia are deliberately manipulating with the Dinar and notes that the value of Dinar drastically falls at the end of each month, right at the time when banks set the new payment schedule.

“Five leading banks in Serbia could hypothetically always reduce the supply and thus increase the demand at the end of the month and with that increase the spread. Even though I cannot with certainty claim that banks do that, it is highly possible,” says Nikolic.

Five leading banks in Serbia are Italian Banca Intesa and Unicredit, Austrian Raiffeisen and Erste Group Bank, French Societe Generale, and Greek Alpha Bank.

These banks, on the other hand, blame Serbia’s companies which conduct regular payments at the end of the month and suddenly drain available money for loans.

“That is the result of too many transactions in the market in the same direction, that is foreign currency is being bought because firms massively pay off their debts to the foreigners and pay for their imports,” says chief economist with the Hipo Bank.

Central Bank said that borrowing slowed in last 3 months and more loans were made for investment purposes then liquidity needs.

Central bank also said that it it may restrict Serbia’s monetary policy even more as it expects less winter pressure on the dinar currency.

“Based on the current inflation projection and its underlying risks, the executive board of the National Bank of Serbia judges that further upward revision of the key policy rate is likely in the coming period as well as an increase in monetary policy restrictiveness through the use of other instruments,” the bank said.

In its monthly inflation report, the central bank said that the pressure on dinar will not be as strong as usual during this time of year because of the Bank’s efforts to reduce the use of the Euro as well as more secure winter gas supplies.

November 17, 2010
SERBIANNA
Reuters

• A Permanent Economic Emergency