Serbia's consolidated banking system assets, including the central bank, declined for the second straight month in December 2013 inching down 0.9% y/y to RSD 3,944bn ( EUR 34bn ), after retreating 2.1% y/y the month before, as lending activity continued to shrink, central bank (NBS) data showed. The ratio of bank assets to full-year GDP forecast fell to 104.9% at end-December from 117.5% a year ago, according to IntelliNews calculations. Domestic credit, which accounts for 56% of total banking sector assets, shrank 1.9% y/y to RSD 2,207.5bn at end-December, deteriorating slightly from a 1.8% y/y decline at end-November, due to falling corporate lending. Loans to companies contracted 9.5% to RSD 1,013.5bn after a 10.0% y/y decline the month before. Retail loans, on the other hand, went up 3.2% y/y to RSD 674.6bn in December slowing from 3.3% y/y rise in November. The average monthly lending growth slowed to just 0.6% in 2013 from 16.4% a year ago due to falling corporate loans after the end of the government-subsidised lending programme in March. Serbia will likely limit funds allocated for subsidised lending this year in line with the government's fiscal austerity measures. We expect NBS to ease further the monetary policy in the coming period as inflation has been moving below the bank's target tolerance band of 2.5-5.5% since October 2013 . This should help trim borrowing costs and boost private sector credit.
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