Serbian companies sharply increased borrowing in the second quarter, with investment lending accelerating alongside working-capital finance, suggesting that a broader corporate investment cycle may be taking shape despite relatively expensive credit and tighter bank lending standards.
Banks extended RSD 436.4 billion ($4.3 billion) of new corporate loans between April and June, 27.2% more than a year earlier, according to National Bank of Serbia data. New corporate lending reached RSD 725.5 billion in the first half, up 14.4% year on year.
The second quarter represented a marked acceleration from the start of the year. Banks issued RSD 289.1 billion of new corporate loans in the first quarter, slightly below the previous year’s level, meaning more than 60% of all new first-half lending was concentrated between April and June.
Outstanding corporate loans were 11.7% higher year on year in June, while the stock increased by RSD 67.5 billion during the second quarter alone. The increase was entirely generated by corporate enterprises, whose borrowing rose by RSD 89.8 billion.
The composition of that borrowing is potentially more important than the headline growth rate.
Liquidity and working-capital loans increased by RSD 39.9 billion during the quarter, while investment loans rose by almost as much, at RSD 38.4 billion. Investment lending was 14.6% higher year on year, compared with 12.5% growth in loans for liquidity and working capital.
Working-capital loans still accounted for the largest share of corporate bank exposure at 48.3% in June, against 43.2% for investment loans, but the mix of new lending moved more clearly towards investment during the second quarter.
Investment loans accounted for around 28% of new corporate lending between April and June, compared with about 21% in the first quarter, while the share going to liquidity and working capital fell to around 58% from roughly two-thirds.
That distinction matters for assessing the health of Serbia’s credit expansion.
Rapid growth in working-capital borrowing can signal companies are filling cash-flow gaps caused by higher costs, slower customer payments or weak internal liquidity. Investment borrowing is more likely to finance equipment, buildings, automation and additional production capacity, making it a stronger indicator of expectations about future demand.
The latest figures show both forms of borrowing expanding almost simultaneously.
That suggests Serbia’s companies are not simply borrowing more to maintain existing operations. A significant part of the corporate sector appears willing to take on longer-term debt to expand.
The strongest signal comes from smaller businesses.
Micro, small and medium-sized enterprises accounted for almost two-thirds of the second-quarter increase in corporate lending, and their share of total corporate loans reached 60.7% in June. SME borrowing was 12.6% higher year on year.
Smaller companies were particularly prominent in investment finance, receiving around three-fifths of newly approved investment loans during the quarter.
That broadens the economic significance of the credit cycle.
Serbia’s investment narrative has often been dominated by government infrastructure programmes, foreign direct investment and large industrial projects supported by multinational companies. Stronger borrowing among domestic SMEs would indicate that capital expenditure is spreading further into the locally owned corporate economy.
It could also strengthen the transmission of economic growth into equipment purchases, construction activity, business services and employment.
But the sectoral distribution of the borrowing warrants closer attention.
The largest increases were recorded among companies involved in real estate, construction and trade, while outstanding borrowing declined in transport and energy.
That makes the quality of the credit expansion more difficult to interpret.
More investment lending is generally supportive of future productive capacity, but investment concentrated heavily in property development, commercial construction and trade does not have the same effect on export capacity or productivity as financing for manufacturing equipment, technology or industrial expansion.
Serbia is already experiencing a powerful construction cycle driven by government infrastructure, Expo 2027-related development, residential investment and commercial property.
Additional private-sector credit could amplify that cycle.
The risk is not currently visible in bank asset quality. Corporate non-performing loans remain at historically low levels, while the Serbian banking sector is highly profitable and liquid.
But a credit cycle concentrated in construction and real estate can become more sensitive to property valuations, project delays and changes in financing costs than one driven predominantly by export-oriented industrial investment.
The borrowing acceleration is also notable because banks have not been making credit materially easier to obtain.
The NBS’s second-quarter lending survey showed banks tightened corporate lending standards, even as companies increased demand for both dinar and foreign-currency-linked loans. The central bank’s survey, which has close to full banking-sector participation, is designed to track changes in lending standards, demand and financing conditions.
Borrowing costs also remain well above the ultra-low levels available before the inflation and interest-rate cycle that followed 2022.
The weighted average rate on newly approved dinar corporate loans stood at 7.1% in June, including 6.8% for working-capital loans. Euro and euro-indexed corporate lending averaged 5.1%. Rates have fallen significantly from their earlier peaks, with the average dinar corporate rate down 1 percentage point from June 2024 and euro-linked borrowing down 1.6 points, but financing remains expensive enough to impose a meaningful hurdle on new investment.
The NBS has kept its benchmark rate at 5.75%, balancing easing inflation against external and domestic risks.
Companies are therefore expanding borrowing even before financing conditions have returned to the low-rate environment that preceded the recent monetary tightening cycle.
That can be read in two ways.
One is that businesses have sufficiently strong expectations for sales and investment returns to absorb borrowing costs above 5%-7%.
The other is that companies have limited alternatives.
Serbia remains a heavily bank-dependent corporate financing market. Although domestic companies can theoretically raise capital through bonds, equity and other market instruments, bank loans remain overwhelmingly dominant, leaving businesses with relatively few scalable alternatives when they want to expand.
That dependence increases the importance of banks in determining the pace and composition of Serbia’s investment cycle.
It also means the current credit acceleration could support strong bank earnings if loan growth remains accompanied by low defaults.
Higher corporate volumes provide additional interest income, while the continued low level of problem loans limits provisioning pressure. The combination has helped make Serbia’s banking system one of the stronger-performing parts of the economy.
For companies, however, the test will be whether the new borrowing generates enough additional cash flow to justify its cost.
An investment financed at close to 9% in dinars requires substantially stronger returns than projects approved during the era of exceptionally cheap money.
That increases pressure on businesses to select projects capable of improving productivity or increasing revenues rather than simply adding capacity into already crowded markets.
The concentration of lending among SMEs makes that question particularly important.
Smaller businesses generally have fewer financing alternatives, weaker bargaining power with banks and less ability to absorb prolonged periods of underperformance than large corporations.
At the same time, their willingness to invest can be an important signal that confidence in domestic demand has moved beyond Serbia’s largest companies and foreign investors.
The second-quarter numbers therefore mark a potentially important change in Serbia’s growth structure.
Corporate borrowing is no longer rising mainly because companies need more working capital. Investment lending is accelerating at almost the same pace, SMEs are responsible for most of the incremental credit, and companies are taking on that debt despite banks tightening standards.
Whether that becomes a productive investment cycle will depend increasingly on where the money goes.
If lending spreads into manufacturing, technology, automation and export capacity, the credit expansion could strengthen Serbia’s medium-term productive base.
If the increase remains concentrated in real estate, construction and trade, Serbia may instead be adding another layer of leverage to sectors already benefiting most from the country’s current investment and consumption cycle.
For banks and investors, that composition is now a more important indicator than the headline pace of credit growth itself.
