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Challenges & Achievements of National Bank of Serbia in 2005

This article discusses the operations and challenges faced by the National Bank of Serbia in 2005, including inflation, lending growth, and financial sector improvements. It also highlights the achievements of the bank and the challenges ahead in 2006.

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Challenges & Achievements of National Bank of Serbia in 2005

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  1. Business Operations of the National Bank of Serbia in 2005 and the Challenges to Come in 2006 Radovan Jelašić - Governor 21 December 2005

  2. In 2005 inflation soared beyond the expected level even though both money supply (М1) and reserve money (M2) remained at the level recorded in December 2003*! Money supply (М1) and reserve money (RМ) • Budget • Energy sources • Psychological factors • Loans bn EUR М1 RМ * In euro terms

  3. During 2005, the NBS undertook a number of unpopular measures which had significant effects on the monetary policy August June November December 20% 26% 0.1 bn -7.4 bn -7.3 bn 20% 29% - -6 bn -6 bn 18% 35% 1.7 bn -22.9 bn -21.2 bn • Меasures • Dinar deposits (21%)* • FX deposits (21%)** • Еffects (in CSD) • Dinar deposits • FX deposits • Net effects 18% 38%*** - -5,9 bn -5.9 bn Total 40.4 bn * Reserve requirement rates on 10 January 2005 ** With interest equaling 20% of the benchmark rate, up to June 2005 *** Including new FX savings, with interest equaling 100% of the benchmark rate up to 10 December 2005

  4. NBS also undertook additional measures via open market operations stock of sold securities in billion CSD average weighted rate (%) * Average weighted rate on 14-day maturity securities

  5. 2005 saw the continuation of lending growth Lending growth Total lending* bn CSD bn CSD Lending structure bn CSD 401.2 353.0 Other 315.6 295.4 270.1 Corporate Retail *Banks excluded

  6. The speed of natural persons’ borrowing is much more disquieting than its level Stock of disbursed loans bn CSD • Average indebtedness per employed citizen equals CSD 54,318 or as at this moment – the equivalent of 3 average net monthly salaries! • In 2005 alone, indebtedness increased more than in all the years preceding 31 December 2004! • Banks pass on the currency risk to citizens with no protection whatsoever. Ratio of indebtedness per citizen to GDP per capita

  7. Savings Bills of the National Bank of Serbia – best investment ever • Level of issue: CSD 1 bn; • Maturity: 26 December 2005 – 26 June 2006; • Form: discounted security; • Nominal value: CSD 5,000; • Interest rate: up to 25% per year; • Purchase: in the business units of Komercijalna banka

  8. Exchange rate of the dinar was freely formed, whereas the present appreciation is attributable to the fact that supply is higher than demand NBS sale of euros in December mln EUR exchange rateEUR/CSD 12.6 5.0 0.5

  9. The NBS share in foreign exchange trade has entered a gradual decline Volume of foreign exchange trade 2002-2005 bn EUR 3.8 NBS – banks (IFEM) 3.1 2.6 Banks - banks 1.2 * from 14 May 2002 ** closing with 16 December

  10. Foreign exchange reserves in both currencies experienced robust expansion in the course of 2005 With commercial banks bn EUR With commercial banks bn CSD НБС НБС +51.8% ЕУР 1.6 млрд* • Foreign exchange reserves to money supply ratio equaling 304%! • Foreign exchange reserves ~ 5-month imports! *Increase of EUR 1.6 bn or 51.8% in the period 1 January – 16 December 2005

  11. 2005 witnessed significant improvements in the financial sector • Bank ownership transformation is nearly finished • Banks with majority foreign capital account for 63% of the balance sum; • As consolidation advances, the number of banks dwindles; • Several private banks are in the final phase of sale. • Insurance companies • Increase in the total premium, as well as in the number of employees; • Launching of the privatization process; • Leasing • Amended legislation, supervision of leasing companies assigned to the NBS competence; • Voluntary pension funds • Enactment of the new law on voluntary pension funds, supervision of VPFs falling within the NBS competence.

  12. From 1 February 2006 insurance policies will be issued in a new format

  13. 2005 achievements we pride ourselves on ... • Implementation of the London Club Agreement – consensus of 99.95% of creditors; • Agreement with the IMF and Paris Club of Creditors; • Securities – repo operations; • Confidence in the banking system; • New Law on Banks and Deposit Insurance Law; • Bolstered autonomy of the National Bank of Serbia.

  14. Challenges in 2006 • Curbing the inflation; • New arrangement with the IMF; • Ownership transformation of insurance companies; • Final rounding up of the financial sector supervision.

  15. Merry Christmas and Happy New Year!

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