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Jorgovanka Tabaković, Governor Of The National Bank Of Serbia

We Defend Stability And The Interests Of Citizens And Businesses

We remain determined, even under conditions of increased geopolitical uncertainty, to implement – without delay – all measures necessary with a wide range of regulatory mechanisms, with the aim of protecting the financial stability and interests of citizens and businesses

The development of events at the global level suggest that we’re entering a period of inflationary struggles. After a long period without change, Serbia’s central bank, the National Bank of Serbia (NBS), was recently compelled to raise the key policy rate, within the framework of broader measures taken by the Government of Serbia to curb the effects of inflation.

We asked NBS Governor Jorgovanka Tabaković about the central bank’s forecasts on how long these inflationary pressures will last. “We took the decision to increase the key policy rate in an environment of inflationary pressures on the global and domestic markets that are stronger and more persistent than expected, and here one should bear in mind that we started the moderate tightening of monetary conditions back in October last year,” explains our interlocutor. “When it comes to how long the pressures will persist, they are largely related to the duration of the conflict in Ukraine, but also its outcome and ramifications, so it isn’t possible to predict its full impact on food and energy prices.”

Nevertheless, under the assumption that a solution to the ongoing crisis in Ukraine will be found in the coming months, Tabaković believes that it could be said that inflation will start to fall from the middle of this year, supported by the effects of the previous tightening of monetary conditions and a lower than planned fiscal deficit. The Government’s measures on restricting fuel price hikes will also contribute to reducing inflation, as will the temporary ban on exports of certain cereals and other food products.

What is your opinion on how the expected growth of interest rates on loans on the domestic market will reflect on lending activity as a whole and banks’ operational results?

– We’ve been tightening monetary conditions gradually since October 2021, and to date that hasn’t had a major impact on conditions for financing businesses and citizens in dinars, which have remained favourable. The average interest rate on dinar loans in February stood at 3.2% for loans to businesses and 8.7% for retail loans, which is around the 2021 level.

Although the raising of the key policy rate and the previous tightening of monetary conditions can be expected to cause a slight increase in interest rates, it should be noted that it is often the case that several months pass before the effect of higher interest rates on the money market is reflected in rising interest on loans. Furthermore, due to increased competition in the banking sector, banks can partly compensate for the increase in the key policy rate by reducing their margins, which actually often happens in practise. When it comes to domestic lending activity, we expect it to continue growing and supporting economic growth, though we project growth rates of lending activities to be slightly lower than was the case in previous years, when they hit double digits, also given the high base from the previous period.

Rising inflation usually also causes an increase in interest rates on savings. Will this gradually happen despite banks still having plenty of money that isn’t easy to place at their disposal?

– As I’ve noted already, the NBS has implemented a number of measures to respond to rising inflation in the right way – in a timely and adequate manner. In accordance with that, we also expect a certain increase in interest rates on financial instruments denominated in dinars, including dinar savings. It is advised that impulsive spending and hasty decisions – such as converting dinar savings into foreign currencies – be avoided during times of crisis. Under conditions of increased uncertainty, it is a particularly important fact that the NBS, with its timely and decisive responses, succeeded in preserving stability and securing the operations of all banks in Serbia, as well as preserving citizens’ trust in the banking sector.

The results of a survey on credit activity indicate that loan demand is on the rise and is also being led, among businesses, by the financing of investments, alongside needs for liquid assets, while among retail clients it is being driven by the need to purchase real estate

A significant contribution to that was also provided by activities aimed at maintaining the relative stability of the exchange rate. Likewise, the regular halfyear analysis of the cost-effectiveness of savings for the period from December 2012 to December 2021 confirmed that it pays off more to save in our local currency, both over the long and short term.

We entered the Covid-19 crisis much better prepared than we were during the financial crisis, at least when it comes to the banking sector. What is the situation like now and do you expect certain companies or citizens to be unable to settle their obligations regularly, given that enterprises that work with Russia and Ukraine are suspending production and forcing their employees to take holiday leave?

– Thanks to all NBS activities during the previous period, and despite the pandemic, we have preserved banking sector liquidity, profitability and high capitalisation, while maintaining high lending activity growth rates. The share of non-performing loans has also declined further compared to the pre-crisis period, down to 3.46% at the end of February, so even under the new circumstances, with NBS support, the banking sector is ready and able to respond to all potential challenges. The NBS’s responsible approach, which was also recently confirmed with the swift action taken in response to events with the Sberbank Group, the careful monitoring of challenges and a timely response to risks, always serve the function of preserving macroeconomic stability and the stability of the financial system.

What instruments do the Government of Serbia and the NBS have at their disposal to curb these unfavourable trends, which could have a more lasting impact on social product development?

– Since the outbreak of the crisis in Ukraine, all state institutions have been working to help companies resolve certain operational problems that they have encountered. The key policy rate is being increased in order, among other things, to gradually impact on domestic demand and discourage excessive lending, thereby reducing inflation, which is a prerequisite for us to have sustainable and high rates of economic growth over the medium term.

Jorgovanka Tabaković

The decision for us to increase the interest rate also eases inflationary expectations, which is particularly important from the perspective of preserving price stability over the medium term.

You had to intervene a month ago when lunacy over the crisis caused the euro to strengthen sharply against the dinar. How far can the NBS go in making interventions from foreign exchange reserves, given the major instability on the global market?

– We have spent more than ten years successfully maintaining the relative stability of the dinar exchange rate against the euro. Even under the conditions of the ongoing geopolitical crisis and growing uncertainty on the international financial market, neither the relative stability of the exchange rate, nor the smooth functioning of the foreign exchange market, have been imperilled for an instant. Contributing to this has been the macroeconomic stability achieved, as well as the high level of foreign exchange reserves, which have been further strengthened in recent years with our purchasing of foreign currency amid appreciation pressures.

The NBS will thus continue, with such strengthened funds, to act continuously to preserve stability. Moreover, as of the second half of February, we began implementing additional operations and activities through which we’ve provided banks with a sufficient level of dinar and foreign currency liquidity. The NBS intensified its supplying of banks with foreign cash, without delay, in order to overcome the problem of supplying citizens with cash, which prevented panic from spreading further. In addition to this, we have instructed banks that there must be absolutely no interruption in supplying exchange offices with cash, in order for them to be able to respond to the increased demand of citizens quickly and efficiently. This need has also led to the NBS strengthening its control over the operations of exchange offices.

Some insurance companies have announced that, following the end of the pandemic, they expect more intensive work on the further development of the “soft infrastructure” of the financial market among regulators, insurance companies and the Association of Serbian Insurers, as well as the Government. What is on your agenda when it comes to this area?

– We cooperate actively with all insurance market participants, as well as with the Association of Serbian Insurers [UOS], in order to protect the rights and interests of the users of insurance services.

We are committed to contributing to improving market stability, and thus the quality of insurance services, by exchanging opinions and experiences on all issues of importance to insurance market participants

One area in which we cooperate is the drafting of regulations in the field of insurance, where public debates are organised and include the main participants of the insurance industry who provide suggestions and proposals for draft regulations, in accordance with best practices in insurance oversight. The UOS is also a participant in the working group for drafting a new regulation on compulsory transport insurance, and we expect full cooperation when it comes to amending regulations related to financial reporting.

The volume of e-services, online payments and digitalisation in general increased sharply during the Covid-19 pandemic, both among players on the financial market and among citizens. Which direction should further modernisation in this area take?

– The number of non-cash transactions increased during the pandemic, as did the use of digital services generally, but this isn’t about a sudden leap, rather constant and high growth. For instance, over the course of the past ten years, the number of transactions we perform on a quarterly basis using mobile banking has increased 100-fold. This is, of course, a result of the development of technology and the altered habits of users, but it is also a result of our dedicated work. We pay particular attention to the digitalisation of financial services, especially non-cash payments, through our normative activities and by providing citizens and businesses with the latest payment infrastructure. The pandemic only made more visible that which we’ve already done in this area and directed users towards communicating with financial institutions exclusively through digital services, including through the use of video identification, which we’ve enabled in a regulatory sense.

The start of the process of using artificial intelligence (AI) among banks and insurance companies is being monitored with great attention by regulators in many countries around the world, as well as efforts to prevent possible misuses of AI. Under the conditions that we have, who should be tasked with monitoring the ethical use of AI in the banking and insurance sectors?

– Regulators and supervisors have a responsible role to play when it comes to finding a balance between protecting users of financial services and ensuring fair competition, on the one hand, and removing regulatory barriers and actively stimulating the development of technology, on the other. Protecting the clients of banks and insurance policyholders from possible misuse, as well as protecting their data, is one of our priorities, and the NBS, in its role as a supervisor of financial institutions, also influences the implementing of adequate measures and controls to ensure that financial institutions apply protection measures when using modern technological solutions. It is very important for consumers to receive financial education, which we are also working on continuously.


Under the assumption that a solution to the ongoing crisis in Ukraine will be found in the coming months, we could say that inflation will start to fall from the middle of this year


The ongoing geopolitical crisis and growing uncertainty on the international financial market haven’t impacted on the relative stability of the exchange rate or the smooth functioning of the foreign exchange market


Since the outbreak of the crisis in Ukraine, all state institutions have been working to help companies resolve certain operational problems that they have encountered