In 2023, Serbian companies reported a combined profit of 972.4 billion dinars, marking a 12.3% improvement compared to the previous year. This data, derived from the Annual Bulletin of Financial Reports by the Agency for Economic Registers, indicates a positive trend in profitability despite facing financial challenges. The primary contributor to this profit was their core business activities, although financial losses significantly impacted the overall balance.
Profit from core operations
For the ninth consecutive year, Serbian companies experienced profitability from their core business operations. Business revenues increased by 2.7% to 18,126 billion dinars, while business expenses rose by 2.2% to 16,867 billion dinars. Additionally, a positive outcome from other activities, such as asset adjustments and written-off receivables, resulted in a profit of 17.7 billion dinars, reversing a previous year’s negative result of 46.5 billion dinars.
Rising financial costs
The financial landscape for Serbian businesses in 2023 was marked by a substantial increase in financing costs. The overall loss from financing more than doubled, reaching 101.9 billion dinars. The most significant component of these costs was interest expenses, which surged by 66.4%, from 104 billion dinars in 2022 to 173 billion dinars in 2023. Despite some entities benefiting from higher interest rates, evidenced by the doubling of interest income from 28.3 billion to 55.7 billion dinars, the overall impact of rising interest rates was detrimental to most companies.
Regulatory framework and legal distinctions
The regulatory environment in Serbia distinguishes between loans and credit agreements. According to the National Bank of Serbia (NBS), only banks and legally authorized entities can issue credit. Non-bank entities can lend money, but this must not constitute a regular activity, as engaging in money lending as a business is illegal and punishable.
Sector-specific financial impact
The financial burden varied significantly across different sectors. The manufacturing industry faced the most substantial financial losses, totaling 48.8 billion dinars, with interest expenses alone amounting to 33.5 billion dinars. The communications and information sector experienced the highest growth in financing losses, reaching 25.3 billion dinars, a 177.9% increase from the previous year.
Wholesale and retail trade sectors also faced significant financial challenges, with financing losses of 35.2 billion dinars and interest expenses rising to 30.4 billion dinars, a 72% increase from the previous year.
Preference for cash loans
The year 2023 saw a notable shift towards cash loans, which exceeded housing loans in terms of volume. Businesses, facing liquidity challenges, increasingly relied on these more expensive loan products. The sharp rise in interest rates and the resultant financial strain led many firms to delay taking long-term loans, opting instead for short-term solutions to navigate the challenging economic environment.
Positive developments in mining and utilities
Despite the overall financial strain, certain sectors managed to turn their situations around. The mining sector significantly reduced its financing losses from 15 billion dinars in 2022 to 1.5 billion dinars in 2023. By achieving a profit from financing of 7.6 billion dinars, the mining industry ended the year with a net gain of 6.1 billion dinars in this segment.
Similarly, companies in the utilities sector (electricity, water, and natural gas) reported a profit from financing of 1.4 billion dinars, indicating a positive financial outcome despite broader economic challenges.
Future prospects and interest rate trends
Looking ahead, the recent reductions in reference interest rates by both the European Central Bank (ECB) and the NBS are expected to gradually alleviate the financial burden on businesses. Experts predict that these rate cuts will have a more noticeable impact on business balance sheets by the end of 2025, providing a more favorable environment for long-term investment and financial planning.
Conclusion
In summary, while Serbian companies ended 2023 with a notable profit from core business activities, the rising cost of financing posed significant challenges. The year was marked by a shift towards cash loans and an increase in interest expenses, which varied widely across different sectors. Moving forward, the gradual easing of monetary policy is expected to provide some relief, fostering a more stable financial environment for businesses to navigate future economic conditions.
