At the presentation of the latest issue of the Quarterly Monitor, it was reported that in the second quarter of 2023, the domestic economy borrowed €419 million from foreign sources, marking the highest quarterly figure in the past 15 years. The National Bank of Serbia (NBS) clarified to Biznis.rs that this is preliminary data, with the actual net amount being €397 million.
This trend raises questions about why companies in Serbia are increasingly seeking loans abroad, who can bypass domestic banks, and the underlying reasons for this shift. The NBS explains that the €397 million reflects the net indebtedness of the economy abroad based on financial loans, encompassing both short-term (up to one year) and long-term loans.
The NBS cautioned against drawing conclusions from a single quarter’s data, noting that borrowing patterns are influenced not only by how much the economy borrows but also by how much is repaid in that period. However, a comparison of net debt over the last five and 15 years indicates that domestic companies are increasingly turning to foreign creditors.
When asked about the total borrowing by companies abroad in recent years, the NBS reported that the net amount of financial loans taken was approximately €2.3 billion. Cumulatively, from 2007 to 2023, the economy incurred a net debt of €3.7 billion. Economist Milojko Arsić, editor of the Quarterly Monitor, attributes this trend to differences in loan pricing.
“The primary reason is likely the lower interest rates abroad,” Arsić noted, adding that such borrowing opportunities are primarily available to large domestic and multinational companies operating in Serbia. He also mentioned that domestic banks might refer companies to their parent organizations overseas when they seek substantial loans, suggesting that the state hasn’t significantly “squeezed” the economy through domestic borrowing, as banks still have ample liquidity.
The central bank further indicated that the increased borrowing from abroad this year could be linked to a speeding up of the investment cycle. “Moreover, domestic credit activity in the economy sector has also risen, with loans to the economy increasing by 57 billion dinars in the first eight months of this year,” they stated.
How can domestic companies borrow abroad?
Loan transactions with foreign entities are regulated by the Law on Foreign Exchange Transactions. This includes loans granted by banks or foreign banks and loans between residents and non-residents. According to the NBS, domestic legal entities can borrow abroad in two primary ways:
- Financial credits and loans: These are loans in foreign currency approved by non-resident lenders, where the funds are deposited into the debtor’s account.
- Commercial credits and loans: These relate to foreign trade of goods and services, including deferred or advance payments, either for up to one year with interest or for longer durations.
An exception exists for domestic legal entities, which can also obtain loans in dinars from international financial organizations or development banks whose founders are foreign countries. The resident must report this debt to the NBS before utilizing the loan funds, through the domestic bank processing the transaction, following specific documentation requirements.
This increase in borrowing reflects a complex interplay of domestic and foreign economic factors, emphasizing the evolving landscape of financing in Serbia.
