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Introduction
The National Bank of Serbia presents its third edition of the Financial Stability report for the period December 2008 – May 2009.
The first chapter is the summary of the basic findings.
The second chapter shows global macroeconomic and financial trends. The consequences of the global financial crisis are still in the centre of attention, in addition to which a particular significance is given to its effects not only on the regional financial stability, but also on the financial stability in Serbia. The chronological overview of the crisis is accompanied with a detailed review of the specificities of the form its takes in the highly developed European countries and the ways of its transfer to the region of Central, Eastern and south-eastern Europe. The influence of the crisis on Serbia is given here in sketches, while more detailed considerations are provided in the rest of the chapters.
The third chapter lays down the trends of the basic domestic macroeconomic indicators. Taking into account their significance regarding the Business operations of financial institutions, we have pointed at the possible risks which, owing to an evident deterioration of these indicators during the observed period, can reflect negatively on the stability of financial institutions.
In the next two chapters, the trends relevant for the state of financial stability in Serbia are analysed separately for the first time, in the household and real sectors respectively. As the confidence of the general population in the financial system is one of the mail pillars of its stability, the fourth chapter considers the effects of financial turbulences on the financial assets and commitments of the general population, and points at the basic financial risks this sector is exposed to. In the centre of the attention of the fifth chapter there is the financial position of enterprises in Serbia, with the analysis of the real sector Business operations’ aspects the sensitivity of which would enable the appearance of certain risks of importance for the system. In this, it is not only the direct exposure of banks that is being analysed, but also the international exposure of domestic enterprises to the credit and currency risks that could, indirectly, weaken the stability of the banking sector.
The sixth chapter points at the trends in the financial markets and financial infrastructure of Serbia: in addition to the review of the development aspect of the financial system, this chapter is also used to consider the risks that may appear at the stock exchange and money markets, and it also provides an insight into the most significant trends in the payment system of the country and assesses its ability to absorb the risks.
The following chapters provide more detailed analyses of individual segments of the financial system. In particular, here is where we considered the ability of financial institutions to resist consequences of the global financial crisis and assessed the focal points of the risks in the forthcoming period. The biggest attention is paid to the banking sector because of one obvious characteristic of the domestic financial system which is that it revolves around banks. On the other hand, as opposed to the previous editions, here the stress is put on the analysis of the banking sector’s liquidity and the quality of the assets sources, as well as to the effects of the spill-over of the crisis to this segment of banks’ operations. In addition, potential risks of decelerating credit activity and the effects of the recent turbulences on the quality of banks’ portfolios are identified. Despite the relatively low share of the insurance, financial leasing and voluntary pension fund sectors, respectively, in the overall system of financial mediation, a special chapter is dedicated to them – because of their significance for the maintaining and strengthening of confidence in the overall financial system.
Since this report monitors and analyses the trends of the relevant indicators during the period December 2008 – May 2009, we studied the situation as of 30th April or as of some later date, if the data existed, and when we did not have the data for the observed period, we used the previous available data. The National Bank of Serbia does not take the responsibility for the accuracy of the data the source of which are not its organizational units.
The Financial Stability report has been approved by the Governor of the National Bank of Serbia and it is also available on the National Bank of Serbia’s website – www.nbs.rs.
CONTENTS
I. Summary
II. International Environment
1. International Macroeconomic Environment
2. Global Liquidity and the Conditions in the International financial markets
- Text-box: Capital Flight from Central and south-eastern Europe, and Foreign Financing
III. Domestic Macroeconomic Environment
1. Economic Activity
2. Balance of Payments Trends
3. Inflation
4. exchange Rate
IV. Household Sector
V. Corporate Sector
VI. Markets and Financial Infrastructure
1. Money market
2. Capital market
3. Payment System
VII. Banking Sector
1. Liquidity Risk
2. credit Risk
- Text-box: Measures of the Government of the RS for alleviating negative effects of the global financial crisis in Serbia
3. Capital Adequacy
4. market Risk
VIII. Non-Banking Financial institutions
1. Insurance Sector
2. Financial Leasing Sector
3. Voluntary Pension Funds
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