Capital Markets and Portfolio Investment

Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. The Government removed restrictions on short-term portfolio investments April 2018. Residents of Serbia are now allowed to purchase foreign short-term securities, and foreigners are allowed to purchase short-term securities in Serbia. Payments related to long-term securities have no restriction.

In 2019, Serbia recorded net outflows of USD 200 million in portfolio investment, according to the National Bank of Serbia (NBS). The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached USD 10.8 billion in February 2020, with 67.3 percent in Serbian dinars, 33 percent in euros, and 0.6 percent in U.S. dollars. Serbia also issued a total value of EUR 3 billion of Eurobonds on international market.

Total Serbian government-issued debt instruments on the domestic and international markets stood at USD 14.3 billion in February 2020 (see http://www.javnidug.gov.rs/upload/Bilteni/2020%20Mesecni/Februar/Mesecni%20izvestaj%20Uprave%20za%20javni%20dug%20-%20CIR%20Februar%202020.pdf ).

Serbia’s international credit ratings are improving. In March 2017, Moody’s upgraded the Government of Serbia’s long-term issuer ratings to Ba3, from B1. In December 2019, Standard & Poor’s raised its ratings for Serbia from BB to BB+ with a positive outlook; it maintained the rating on May 1, 2020, while modifying the outlook to stable. Also in September 2019, Fitch raised Serbia’s credit rating from BB to BB+. The improved ratings remain below investment grade.

Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE) www.belex.rs . Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2019 was USD 860 million, which represents an increase of 47 percent. However, trading volumes have declined since 2007, when the total turnover reached USD 2.7 billion.

Established in 1995, the Securities Commission regulates the Serbian securities market. The Commission also supervises investment funds in accordance with the Investment Funds Law. As of April 2020, 18 registered investment funds operate in Serbia-http://www.sec.gov.rs/index.php/en/public-registers-of-information/register-of-investment-funds .

Market terms determine credit allocation. In June 2019, the total volume of issued loans in the financial sector stood at USD 23.3 billion. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 67 percent of all lending is denominated in euros, an additional 0.5 percent in Swiss francs, and 0.6 percent in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers. Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.

Hostile takeovers are extremely rare in Serbia. The Law on Takeover of Shareholding Companies regulates defense mechanisms. Frequently after privatization, the new strategic owners of formerly state-controlled companies have sought to buy out minority shareholders.

Money and Banking System

The NBS regulates the banking sector. Foreign banks are allowed to establish operations in Serbia, and foreigners can freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91 percent of the total assets of the financial sector. As of June 2019, consolidation had reduced the sector to 26 banks with total assets of USD 38 billion (about 80 percent of GDP), with 76.5 percent of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets, are Banca Intesa (Italy, USD 5.9 billion); UniCredit (Italy, USD 4.4 billion); Komercijalna Banka (majority Serbian government-owned, now in the process of being sold to Slovenia’s NLB Bank, USD 4.1 billion); Société Générale (France, USD 3.1 billion); Raiffeisen (Austria, USD 3.0 billion); Erste Bank (Austria, USD 2.2 billion) AIK Banka Nis (Serbia, USD 2.1 billion); Eurobank EFG (Greece, USD 1.6 billion); Vojvodjanska Banka (Hungary, USD 2.0 billion) Postanska Stedionica (Serbian government, USD 1.8 billion). See: https://www.nbs.rs/internet/latinica/55/55_4/kvartalni_izvestaj_II_19.pdf 

Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly USD 1 billion. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. In June 2019, savings deposits in the banking sector reached USD 14 billion, exceeding pre-crisis levels.

The IMF assessed in their July 2019 report on Serbia that since the 2017 Article IV Consultation, the financial sector has shown improved resilience. As of February 2019, banks’ capital adequacy was stable at 22.3 percent, well above the regulatory minimum, while asset quality is improving. Banks’ profitability remains robust with return on assets and return on equity ratios of 1.9 percent and 10.6 percent respectively in February 2019. The IMF assessed in 2018 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 22.2 to 4.1 percent of the total loan portfolio as of February 2020. NPLs remain fully provisioned. In addition, there are significant foreign-exchange risks, as 74 percent of all outstanding loans are indexed to foreign currencies (primarily the euro). In April 2019, the government adopted a law that protected consumers who had taken mortgage loans denominated in Swiss francs by converting them into euros. Banks and the state shared losses resulting from a reduction of outstanding principal and interest balances. This law enabled borrowers to continue servicing debt at more favorable terms.

The NBS, as chief regulator of the financial system, has announced that cryptocurrencies are not money, and thus are not regulated by law in Serbia. Cryptocurrencies are only mentioned in Serbian legislation in the Law on Preventing of Money Laundering and Terrorist Financing. NBS is not currently preparing cryptocurrency regulations. NBS said it does not have the authority to issue licenses for trading in cryptocurrencies or for setting up cryptocurrency ATMs. Nor are cryptocurrency traders or internet platforms subject to NBS oversight. NBS stressed that those engaging in cryptocurrency transactions or activities are the sole carriers of risk. However, the Serbian Administration for Prevention of Money Laundering and Terrorist Financing oversees every transaction in cryptocurrencies performed on ATMs or online in Serbia.

Despite the lack of regulation, trading in cryptocurrencies in Serbia does occur. The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, Ethereum ETH, Dash, and Bitcoin Cash) at https://ecd.rs/ . The company claims to have over 20,000 registered users of the platform. ECD Group has also installed 10 ATMs for cryptocurrencies in Serbia, most of which are in Belgrade but also in Novi Sad, Nis, and Subotica. EDC claims that it has executed over 100,000 transactions since it was established in 2012. As of June 2019, Xcalibra established a new digital platform (Xcalibra.com) to trade cryptocurrencies in Serbian dinars without mediator currencies, which will avoid currency exchange loss. There is also a Bitcoin Association of Serbia.- http://www.bitcoinasocijacija.org .

Foreign Exchange and Remittances

Foreign Exchange

Serbia’s Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia, and foreign exchange is available. Serbia permits the free flow of capital, including for investment, such as the acquisition of real estate and equipment. Non-residents may maintain both foreign-currency and dinar-denominated bank accounts without restrictions. Investors may use these accounts to make or receive payments in foreign currency. The government amended the Foreign Exchange Law in December 2014 to authorize Serbian citizens to conclude transactions abroad through internet payment systems such as PayPal.

Many companies have raised concerns that the NBS uses excessive enforcement of the Foreign Exchange Law to individually examine all cross-currency financial transactions – including intra-company transfers between foreign headquarters and local subsidiaries, as well as loan disbursements to international firms – thus raising the cost and bureaucratic burden of transactions and inhibiting the development of e-commerce within Serbia. For this reason, international financial institutions and the business community have urged revision of the law. The NBS has defended the measure as necessary to prevent money laundering and other financial crimes.

The NBS targets inflation in its monetary policy, and regularly intervenes in the foreign-exchange market to that end. In 2019, the NBS made net purchases of EUR 2.7 billion on the interbank currency market in order to prevent sharp fluctuations of the dinar. In 2019, the dinar appreciated 0.5 percent against the euro and depreciated 1.5 percent against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad. JP Morgan assessed in December 2019 that the Serbian dinar is one of the two most realistically valued currencies among 25 emerging markets globally.

Remittance Policies

Personal remittances constitute a significant source of income for Serbian households. In 2019, total remittances from abroad reached USD 2.7 billion, or approximately 7 percent of GDP.

The Law on Foreign Exchange Operations regulates investment remittances, which can occur freely and without limits. The Investment Law allows foreign investors to freely and without delay transfer all financial and other assets related to the investment to a foreign country, including profit, assets, dividends, royalties, interest, earnings share sales, proceeds from sale of capital and other receivables. The Foreign Investors’ Council, a business association of foreign investors, confirms that there are no limitations on investment remittances in Serbia.

Sovereign Wealth Funds

Serbia does not have a sovereign wealth fund.