After coming out of the recession the credit activity will increase, and the price of loans in the world market will hardly return to the previous level – Bojan Markovic, Vice-Governor of the National Bank of Serbia, said today at a round table on crediting citizens and industry in 2010, organized by the Bankar magazine.

When compared with the EU countries and most countries of Central and East Europe, Serbia has a lower share of loans in the gross domestic product – Markovic said.

“The share of loans to economic entities accounts for about 25 percent, while loans to citizens account for 14 percent of the GDP. This means that the total share of loans in Serbian GDP is about 40 percent,” he said.

A real growth of loans from 2003 till 2009 in Serbia was about 33 percent a year – about 17 percent with economic entities and about 17 percent with citizens. Markovic underlines that the currency structure of loans and deposits in Serbia shows that there is a high level of loans and savings placed with a currency clause.

“Loans of economic entities cover 62 percent of foreign currency loans, while loans to citizens account for 78 percent of foreign currency loans. A result is a high foreign currency risk in the country, which affects high interest rates on loans,” Markovic says.

A decrease in the reference interest rate is not sufficient

Although the reference interest rate has been reduced to 10 percent, interest rates on Dinar loans remain unchanged, since a decrease in the reference rate is not the only thing influencing reduction of interest rates on loans. “The interest rate on loans depends on the risk premium, which increases in a crisis period, and it increases because debtors’ risks are higher and potential risks of banks increase as well,” he says.

He expects the interest rate on Dinar loans to decrease not only due to a decrease in the reference rate, but also due to reduction of the risk premium of potential loan users, which will be influenced by the country’s economic recovery.

Another factor will be the country’s risk premium, which will, according to his estimations, continue decreasing, especially after the successful negotiations with the IMF.

Markovic also underlines that freezing pensions and salaries in the public sector, high illiquidity of the economy and low investment activity may result in a slower credit activity growth.

The aim of NBS for 2010 is to maintain the inflation at the level of six plus-minus two percent. At the beginning of next year the inflation is expected to be around the lower target value, while in the middle of the year it is expected to return to the medium level of the planned value.

There is room for mitigation of the monetary policy, having in mind that the aggregate demand is still low, and salaries in the public sector and pensions are frozen. Besides, a reason for potential mitigation of the monetary policy is the fact that the state has considerably slowed down the regulated prices growth, as well as the fact that the foreign currency exchange rate is stable – Markovic said. He added that the reference interest rate in the Euro-zone is currently one percent and it can only increase.

Slavko Carić, President of Erste Bank Executive Board, underlines that bankers are eagerly waiting for a release of the credit line from the European Investment Bank, with which a contract was concluded as far back as May this year, and which will provide for entrepreneurs to obtain loans more easily.

Mirko Španović, a Member of Hypo Alpe Adria Executive Board, mentioned that, according to the Credit Bureau’s report, total placement of economic entities hadn’t decreased, but they increased instead, especially having in mind the harder operating conditions in which bankers had approved those loans. He also says that the structure of placements has changed significantly, adding that banks are focused on short-term loans, aimed at improving liquidity of the economy.