Jorgovanka Tabaković, Governor of the National Bank of Serbia

“The leading of responsible economic policy in previous years enabled us to instantly respond strongly, and in a timely manner, to current challenges,” says National Bank of Serbia (NBS) Governor Jorgovanka Tabaković, explaining the fact that macroeconomic stability was maintained in Serbia during the crisis.

“We entered the crisis in an extremely good position. Here I’m primarily referring to low and stable inflation, which we’ve maintained for seven years at an average level of around 2%, a healthy and resilient financial system, a balanced fiscal position, reduced external imbalances and a labour market characterised by rising employment and wage growth,” explains Tabaković.

The adopted package of measures exceeding 12% of GDP minimised the economic harm caused by the COVID-19 pandemic, at the same time enabling Serbia to achieve a quick economic recovery and sustainable dynamic growth in the medium term, says our interlocutor. “Furthermore, the package of measures didn’t endanger the sustainability of public finances at any point. According to the assessments of international financial institutions, Serbia will this year achieve one of the best results in Europe when it comes to economic activity, and will be one of the few countries that will reach and surpass the pre-crisis level of economic activity next year, with a GDP growth rate of about 6%.”

If we consider key indicators related to Serbia’s external position, how does our country stand in relation to comparable countries?

Key indicators of Serbia’s external position have improved significantly in recent years, thanks to economic policies that replaced the unsustainable growth model, driven mainly by personal and government spending, with a sustainable investment and export growth model, thereby ensuring the essential transformation of the Serbian economy. The current account deficit has averaged 5% of GDP over the past seven years, which we also expect for this year. It is also positive for Serbia that more than full coverage of the current account deficit has been provided by FDI inflows for years. The macroeconomic stabilisation and improvement of the business environment that we’ve achieved have contributed to the growth of FDI, which – in 2019 – reached a record since measures began: 3.8 billion euros. Also representing a guarantee of stability are Serbia’s foreign exchange reserves, which are adequate both in terms of structure and volume.

The trend of high growth in the use of non-cash payment methods in our country in recent years has continued in previous months, and numerous activities carried out by the NBS contributed significantly to this

What characteristic trends from the domain of the NBS do you record as being a result of COVID-19?

Prior to the outbreak of the pandemic, inflation in Serbia had been low and stable for seven consecutive years, and we succeeded in maintaining such a trend during the pandemic, thanks to the maintaining of relative stability in the exchange rate and anchored inflation expectations, along with a full supply of marketable goods. The reducing of the key policy rate by an entire percentage point during the pandemic (to 1.25% since June) influenced a further decline in interest rates on dinar loans, with which the continued growth of lending activity was encouraged. Under the conditions of smaller capital flows towards emerging countries, as a result of the growth of global uncertainty and risk aversion, depreciation pressures emerged and weakened over time. With the aim of preventing greater short-term oscillations, the NBS intervened in the foreign exchange market and secured the relative stability of the dinar exchange rate against the euro, which contributed to general macroeconomic stability and swifter economic recovery.

Alongside the introduction of a moratorium on loan repayments, we have also implemented a number of other measures, such as providing additional liquidity to the banking sector, easing the repayment of certain loans and facilitating access to financing for citizens. As a result of the measures taken, a high level has been maintained in the values of all key indicators of the banking sector in Serbia. Testifying to the resilience of the system is the record low share of non-performing loans at 3.6% in July, the capital adequacy ratio of 22.7% and double the liquidity ratio compared to the regulatory minimum. It is also important to note that the trend of high growth in the use of non-cash payment methods in our country in recent years has continued in previous months, and numerous activities carried out by the NBS contributed significantly to this.

What will be the priorities of your work when it comes to cooperation with the new government?

Good cooperation between the Government of Serbia and the NBS has represented one of the basic preconditions – primarily for the establishment, and subsequently for the preservation – of macroeconomic stability in Serbia over previous years. The crisis caused by the COVID-19 pandemic was accompanied by timely, adequate, but also coordinated measures by the Government of Serbia and the NBS, once again confirming our successful cooperation, which is crucial in providing citizens and the economy with crisis support, but also preserving the acquired trust of foreign investors.

As has been the case to date, the NBS will strive to achieve its legally defined goals and provide support to the government’s economic measures. We will continue to use all monetary policy instruments in order to ensure low and stable inflation in the medium term, and to preserve financial stability, because that is the best way for us to contribute to sustainable economic growth and strengthen resilience to challenges coming from the domestic and international environment.

How did the pandemic and the current market situation impact on banks’ lending activity, and the structure of that lending activity?

The favourable trends in lending activity that were recorded in the first quarter continued even after the outbreak of the pandemic. In July – excluding the effect of exchange rate shifts – the year-on-year growth of lending activity in Serbia amounted to 13.6% and was the highest in the region.

  Such movements were influenced by the proactive activities of the NBS, which continued to ease monetary policy and adopt other measures in order to mitigate the position of the economy and citizens impacted negatively by the pandemic.

Since May, loans from the Guarantee Scheme, as part of state support measures, also contributed to the growth of lending activities. The structure of loans remained favourable from the perspective of their contribution to the growth of economic activity. The greatest contribution to the growth of lending activity, as in the previous period, is provided by loans to corporates, the year-on-year growth of which accelerated from 14.5% in March to 15.3% in July. Investment credits continue to contribute to this growth to a greater extent.

And year-on-year growth in retail loans also accelerated from 9.7% in March to 12.5% in July.

What is the key difference when it comes to this crisis and the one in 2008, in terms of the banking and insurance sector?

When it comes to the banking sector during 2008, measures were primarily directed towards reviving the financial sector and lending activities, while the biggest problem was insolvent banks. In this crisis, banks should form part of the solution, and not part of the problem, because – thanks to more intensive regulation and supervision – they have been strengthened in such a way that they can provide support to economic activity through unhindered lending. Given that insurance is an activity orientated towards providing protection against uncertainty, including those uncertainties arising from problems of a healthcare nature, this crisis creates completely new requirements for users of insurance services and, in that sense, creates new opportunities for the insurance sector, which can – to a certain extent – provide security when it is most needed with new products and services.

We are finalising the creation of a website and database of start-up companies intended for the general informing of the public about the start-up ecosystem in Serbia and promoting domestic start-up companies

A lively public discussion is developing with regard to the NBS’s decision to include corporate bonds in its monetary operations. What were your objectives with this? Has enough time passed to evaluate the initial effects?

The inclusion of corporate bonds in monetary operations is one of a series of measures with which we’ve supported the domestic economy, in order to overcome the crisis caused by the COVID-19 pandemic in the shortest possible time and with minimal negative consequences. At the same time, our aim was also to provide an initial incentive to the development of the domestic corporate bond market. Raising funds through the issuance of corporate bonds is an additional source of financing for companies, which – as an alternative and supplement to bank loans – could encourage competitive interplay and reduce the costs of financing our economy significantly. The NBS’s decision has a strategic character and we expect it to provide an impetus for launching a long-term process. With a view to the experiences of other countries, the route to a high level of development of this market is gradual, which is why we will only feel the full effects in the medium and long term.

The NBS has been very active in enabling increased digitalisation and digital transformation in Serbia. Could you please highlight the key effects of NBS measures in this domain to date?

In the previous period we directed great attention to innovations and digitalisation, implementing a series of measures and activities in that field. At our initiative, a set of laws was adopted in 2018 that regulates payment card operations, giving an impetus to the greater transparency of fees for payment service providers, but also the possibility of concluding financial contracts remotely. In terms of the improvement of infrastructure, we should emphasise in particular our system for instant payments, which started functioning in October 2018, a month ahead of the European solution for instant payments.

In February of this year, we also enabled instant payments to be made at points of sale, which is a project that’s just getting underway in the EU. To date, with the approval of the NBS, 17 banks have enabled their payment service users to make instant payments at retailers’ points of sale, with 15 of those banks also enabling payment by scanning the NBS IPS QR code printed on invoices that are issued by businesses and public companies throughout Serbia.

What steps will you take next when it comes to further incentives in this area?

We are working on a regulation that will govern group financing in Serbia, so-called crowdfunding, as one of the alternative forms of financing businesses. That future regulation will lay down the conditions and manner of providing crowdfunding services in our country, or the conditions for the establishing and operating of service providers, conducting supervision, as well as the protection of the users of crowdfunding services. The NBS will thereby contribute to the further improvement of the business environment and help businesses in our country to have another way to access required capital. Moreover, we are finalising the creation of a website and database of start-up companies intended for the general informing of the public about the start-up ecosystem in Serbia and the promoting of domestic start-up companies