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Serb c-bank says subdued corporate demand, low credit collectability weigh on lending growth

February 24, 2014

Subdued demand from businesses and low credit collectability are weighing on Serbia's lending activity, which has been declining since July 2013, the central bank (NBS) said in its February inflation report. NBS published the first results of its bank lending survey which aims to identify and analyze supply and demand side restrictions in bank lending. The survey concluded that both supply and demand side factors are constraining lending growth in Serbia.

On the supply side, credit growth is also negatively impacted by worsened expectations for the overall economic activity and the risk associated with required collateral, the report read. These factors will continue to negatively affect credit supply in the near-term, the bank added. On the other hand, sources of bank financing tend to become more accessible as banks are increasingly relying on local household and corporate deposits and on international financial institutions to finance their operations, NBS also said.

Loan demand, which has been weakening in Serbia and in the region as a whole, is mostly driven by the retail sector, NBS underscored. Corporate loan demand remains depressed as a fall in capital investment loans is offsetting stronger interest in current assets and debt restructuring loans.

The central bank also said that credit demand is recovering faster than loan supply as banks are currently restructuring their balance sheets and adjusting their financing strategies to rely more on the local sources of funding.

The average monthly lending growth in the country 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 months 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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Source: IntelliNews - Weekly Reports

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