Serbia’s central bank will change rules to boost lending in the Balkan nation as the flow of funds from abroad dries up amid Europe’s debt crisis, Governor Dejan Soskic said.
The National Bank of Serbia in Belgrade will lower loan- loss provisioning rates to release 57 billion dinars ($736 million) from a total of 447 billion dinars that banks keep in reserves for bad credits, Vice-Governor Mira Eric-Jovic told a news conference today with Soskic in attendance.
The central bank’s analysis of the effects of such a move “concluded that this form of policy relaxation is possible,” Soskic said.
Eastern Europe may face a credit squeeze as neighboring western banks withdraw liquidity because of the euro area’s sovereign debt crisis, Christine Lagarde, managing director of the International Monetary Fund, warned Nov. 7. The region’s financial stability is at risk as western European lenders trim their balance sheets by as much as 2.5 trillion euros ($3.3 trillion) to meet new capital requirements, Morgan Stanley said Nov. 14.
Expected Crunch
European leaders decided last month that the region’s banks must increase core capital reserves to 9 percent by mid-2012 as the sovereign-debt crisis threatens to spread to Italy and Spain. With about three-quarters of eastern Europe’s banking industry owned by lenders including UniCredit SpA and Erste Group Bank AG, local units are likely to receive less support as a result of the new requirements, the European Bank for Reconstruction and Development has warned.
Serbia’s central bank unexpectedly lowered its benchmark interest rate by a quarter-point to 9.75 percent on Dec. 8 for the sixth time since June on concern the crisis will damp export demand and slow economic growth. Serbia’s economy is expected to grow 2 percent this year and 1.5 percent in 2012, according to central bank forecasts.
Soskic met with President Boris Tadic and Prime Minister Mirko Cvetkovic on Dec. 10 with company representatives to work on plans to improve companies’ access to cash.
Loan-loss provisioning rates in Serbia depend on the risk of extended credits. Banks will book between 2 percent and 30 percent for most loans compared with the current 5 percent to 75 percent, Soskic said. There will be no provisioning for risk- free credits, while those carrying the greatest risk will be 100 percent provisioned. Banks will be allowed to take commodities as collateral to spur lending in the industry, Soskic said.
‘Maintain Investor Confidence’
The lower provisioning won’t reduce the central bank’s capacity to further lower interest rates, Soskic said.
Serbia will need to repay or refinance between 5 billion euros and 6 billion euros in 2012, and it “must maintain investor confidence to be able to refinance the debt,” Milojko Arsic, a member of the central bank’s board, told a separate news conference today.
The country has 2 billion euros worth of short-term debt maturing in 2012 and investor confidence “can be built only if the country continues to lower its fiscal deficit,” Arsic said.
The central bank announced the measure after a weekend meeting of the governor, Serbian president and prime minister with company representatives, who had been putting pressure on the Belgrade-based Narodna Banka Srbije to lower the mandatory reserves and release liquidity that banks would turn into cheaper credits to cash-strapped corporate clients.
Soskic also dismissed calls for central bank to make available part of foreign-currency reserves, which stood at 11.5 billion euros as of Dec. 6, for corporate lending as “that would violate the law on the central bank.”
Current foreign-currency reserve levels, along with a stable dinar, have kept Serbia from seeing an increase in the cost of sovereign borrowing as has happened in many other countries in Europe, Soskic said.
