Serbia entered 2026 with a financial system that is fundamentally stronger than it was during the previous decade. Low non-performing loans, substantial capital buffers, high bank profitability and strong foreign-exchange reserves have reduced the traditional sources of systemic vulnerability. The risk profile is now shifting towards faster credit growth, greater large-borrower concentration and continued reliance on foreign-currency financing.
The banking-sector regulatory capital ratio stood at 19.5% at the end of the first quarter, compared with 20.2% at the end of 2025 and 21.3% in 2024. Tier 1 capital declined to 18% of risk-weighted assets. Both ratios remained comfortably above regulatory requirements, but their direction shows that credit and risk-weighted assets are expanding faster than capital.
The decline does not signal a capital shortage. Serbian banks remain capable of absorbing significant losses, and most institutions maintain capital ratios well above the combined minimum and applicable buffers. The more relevant question is whether strong profitability will be retained as capital or distributed while lending continues to grow.
Large exposures increased from 84% to 95.1% of regulatory capital. The indicator captures aggregate exposures to larger counterparties and groups rather than one individual concentration. Its rise nevertheless means that a smaller number of major borrowers, sovereign entities or corporate groups account for a greater share of bank risk.
Asset quality remains the system’s strongest achievement. Non-performing loans represented only 2.1% of gross lending, unchanged from the end of 2025 and far below the 21.6% recorded in 2015. Net NPLs equalled 4.5% of regulatory capital, limiting the possibility that existing problem loans could destabilise the sector.
Total loan-loss allowances covered 109.2% of gross NPLs, while specific NPL value adjustments provided coverage of 60.3%. Banks therefore hold provisions beyond the total reported stock of impaired credit when all allowances are considered.
The financial system remains overwhelmingly bank-based. Total financial-sector assets reached RSD7.92tn, equivalent to 75.2% of GDP, with banks controlling RSD7.17tn, or 90.5%. Insurance, pension funds and leasing together accounted for less than one-tenth.
Serbia had 19 operating banks, compared with 30 in 2015. Consolidation has reduced institutional fragmentation while balance-sheet assets have more than doubled. Foreign-owned banks controlled 70.3% of assets, domestic private banks 11.6%, and state-owned banks 8.6%.
Italian banking groups held 23.5% of sector assets, Austrian institutions 17.3%, Hungarian-owned banks 12.7%, and Slovenian-owned institutions 9.6%. The diversified ownership structure limits dependence on one foreign jurisdiction, but it leaves Serbian credit conditions connected to the strategic decisions and capital policies of regional parent groups.
Serbia’s S&P sovereign rating remained BBB-, retaining investment-grade status, while Fitch rated it BB+ and Moody’s Ba2. The split rating reflects a credit profile that has improved materially but retains institutional, fiscal and external vulnerabilities.
Gross foreign-exchange reserves covered 6.6 months of imports at the end of the first quarter, while net reserves covered 5.5 months. These levels were well above the conventional three-month adequacy threshold. The buffer subsequently strengthened to €29.61bn and 6.8 months of imports by June.
The macroprudential focus should no longer be dominated by the legacy NPL problem. The more relevant risks are rapid household and corporate lending, concentration in real estate and large counterparties, declining liquidity ratios from previously elevated levels and foreign-currency exposure transferred from banks to borrowers.
Serbia’s financial system is operating from a position of strength, but that strength is increasingly being used to finance a new credit cycle. The test will be whether lending growth produces productive investment and sustainable household borrowing without eroding capital, liquidity and underwriting standards.
