The National Bank of Serbia (NBS) is set to implement changes to two crucial laws governing the banking sector, which are expected to strain the relationship with banks. The first law, aimed at protecting consumers, is anticipated by clients but not welcomed by bankers. The second law focuses on the business side, promising a bit more stability for shareholders and creditors of banks. Public debate on the amendments to the Law on the Protection of Financial Services Users started yesterday, with a 10-day window for submissions of proposals and suggestions, ending on September 20.
If enacted in its current form, the application of capped interest rates could begin on May 15 of the following year, marking the most significant innovation introduced.
The Draft Law on Banks, scheduled for implementation from July 1 next year, has also been finalized. It introduces stricter oversight of bank operations and establishes a Restructuring Fund. Instead of relying on Republic of Serbia funds for bank restructuring, banks will now be rescued using funds accumulated from their own deposits.
Forbes Serbia investigated whether these new regulations signal a stricter NBS policy towards banks or if the changes are more promising on paper than in practice.
Experts suggest that dramatic changes are unlikely. Both regulations can be seen as preparations for adverse scenarios. The first law partially shields debtors from financial market shocks, while the second aims to protect shareholders and creditors in case of a bank collapse in the domestic market. “The general impression is that the Law on Banks strengthens the NBS’s prudential control from a supervisory perspective, fulfilling its prudential duties,” Nikola Stakić, a professor at Singidunum University, told Forbes Serbia.
“The introduction of the Restructuring Fund, which will be financed by one percent of the insured deposits from all banks, is a significant development. Other aspects of the law are mostly normative and technical.”
The Draft Law specifies that the fund’s resources can be used to guarantee the assets or liabilities of a bank undergoing restructuring, provide loans to such banks, purchase their assets, or manage their operations. This funding allows for assistance to banks rather than writing off or converting liabilities. “The fund plays a crucial role in mitigating risks during restructuring and likely signals further consolidation of the banking sector,” Stakić adds.
“It is a method of protecting the owner from adverse events. We’ve seen such events multiple times in the past 10 to 15 years. Its introduction is a notable development aimed at ensuring financial system stability.”
From the perspective of Vladimir Vasić, a financial consultant and former general secretary of the Association of Banks, the fund complements the Deposit Insurance Agency. “This rounds off the jurisdiction. Previously, we had insured deposits up to 50,000 euros per savings account.”
The new draft also allows the NBS to limit the distribution of bank profits to preserve capital if a bank fails to maintain liquidity and capital according to NBS regulations. Previously, acquiring more than five percent of a bank’s ownership required NBS approval. Now, buyers must seek approval for acquiring more than 10 percent of shares, while banks must inform the NBS about any new co-owner acquiring five to 10 percent of voting rights, including details on ownership identity, the assessment of acquired voting rights, and the date of acquisition.
The requirement for the bank’s business monitoring committee to meet at least once a month has been revised. Meetings are now required at least once every three months, either at the bank’s headquarters or organizational units within Serbia.
Recent public attention has focused more on the proposed changes to the Law on the Protection of Financial Services Users. The NBS draft outlines limits on interest rates for housing and cash loans, overdrafts, and credit cards.
Nikola Stakić notes, “There is comparative practice in several EU countries regarding user protection and interest rate limits.” He describes these changes as a cautious administrative step, creating reference values like weighted average interest rates.
According to Stakić, stricter administration and state intervention have occurred in the EU, including taxes on excessive profits from banks. However, these measures are not taxes but are intended to leave more income with the public and stimulate demand, rather than generating additional budget revenue.
Vladimir Vasić believes the change aligns with EU regulations. “This move aims to enhance transparency and limit the maximum amount of interest paid, which is crucial in business. The role of the central bank is to react during such disruptions, and this is a step in that direction.”
Banks may be unhappy with the restrictions, but Vasić points out that such measures, though often unwelcome, are sometimes necessary. He mentions that while banks might voice concerns, they are unlikely to publicly criticize the NBS, which serves both as regulator and controller.
Vasić cautions that this legal solution is not a market mechanism and highlights the need for greater competition and alternative investment opportunities. “Citizens should have options beyond savings and real estate investments. It’s challenging to develop the capital market, but we need alternatives for those who can invest smaller amounts.”
He warns against potential issues similar to past price controls, expressing hope that the situation will not mirror the problems seen with meat price regulations. “When prices were limited, people found ways to circumvent the system. A well-functioning market should balance supply and demand. Currently, 92 percent of the market is bank-centric, and improving competition is key,” concludes Vasić.
