Photo: Udruženje banaka SrbijeInflation in December was at the same level as in November, 15.1 percent, which is interpreted as encouraging data and an indication of its gradual slowdown, especially in light of the fact that the EU, which is our largest partner, has already seen a slowdown. We asked Vladimir Vasić, Secretary General of the Association of Serbian Banks, what the expectations are for further inflation easing and falling, and how this will affect the economy, particularly the construction sector, which fell last year, as well as the policy of housing loans and other types of financing investments and citizens.
What does the inflation slowdown in our country depend on the most, and what could hinder the predictions that it will be returned to the planned framework by the end of the year?
Most of the inflation that we have today in Serbia is of import origin, that is, it was transferred from the world through the jump in energy prices, the jump in food prices, and other effects. In this sense, the first condition for calming inflation is a change in the global situation, which we can say has begun to calm down. In the United States of America, the measures of the central bank have already produced effects, and the same is expected in the eurozone. The second condition is our national monetary policy, and we have seen that by raising the reference interest rate to 5.25%, the National Bank made money more expensive, causing borrowing to become more expensive. Based on these indicators, there is reason to believe in the NBS's assessment of the slowdown in inflation in the first half of this year and its decline in the rest of the year.
Vladimir Vasić, Secretary General of the Association of Serbian Banks / Photo: ABS
Experts estimate that, due to high interest rates, a third of the world’s countries are threatened with recession, and some with a debt crisis. How much is Serbia at risk of recession?
Serbia ended the year 2022 with a growth rate of 2.3%. In that year, we had a significant decline in agriculture due to the dry season, as well as an even greater decline in the construction sector due to an extremely large jump in the prices of construction materials. If prices have calmed down on the construction material market and there are grounds to expect a better year in agricultural production, it seems that there are conditions for Serbia to achieve some, but not great, growth in 2023. After all, such are the estimates of relevant domestic and foreign authorities. The assessment that the crisis in the eurozone will not be as severe as was initially announced should also be added to this. Based on the above, it seems to us that the risk of a recession in Serbia is not high. Last year, Serbia had a record inflow from tourism, exports of ICT services, and foreign direct investment.
The credit reports of the Association of Banks show that twice as few housing loans were approved last year as in 2021—slightly less than 7,000. How do you explain such a sharp decline? Were citizens more cautious, so they submitted fewer loan applications, or were banks more cautious, so they made it harder to get them approved?
A few years ago, we had extremely strong construction activity, including the sale of residential space. The period with which we are now making comparisons represents the peak of activity in the real estate sector. In 2010, we had twice as few housing loans as today, and in 2015, a third less, so this decline you are talking about should also be viewed with cooler heads. It is also true that we had a period of rising interest rates after several years of negative euribor. Such an atmosphere does not motivate long-term investments. If inflation begins to fall, which is highly likely, central banks will ease monetary policy, leading to a more relaxed housing loan policy and increased bank activity in that sector.
Within the total real estate turnover, the percentage of payments from credit funds has not exceeded 15% for years, and in the third quarter of last year it was only 10%. The question is often heard: where does so much money come from in the market? And is it known approximately what percentage of that cash never goes through the banks?
I must point out that we avoid giving ratings on any topic that is not based on the most accurate data available to us. Therefore, what can be said is that, according to data from the credit bureau for the mentioned period, there was an increase in the number of housing loans: as of December 31, 2021, there were 149,054 housing loans, and as of December 31, 2022, there were 156,016 housing loans. The loans also increased in terms of volume, from 546,752 billion dinars as of December 31, 2021, to 615,385 billion dinars as of December 31, 2022.
We can also point out that, through the analysis of certain processes in commercial banks, it was established that a significant portion of the purchase of real estate or other types of investment in the real estate sector is also made from the savings of citizens or from funds that the citizens acquired from the sale of real estate in which they live or inherited, or from realized profits. However, since we do not have precise data on this, we would not be able to comment on the volume of those funds in relation to the realized volumes of the total investment turnover in real estate.
On the other hand, your question is an excellent opportunity for me to emphasize that banks apply the relevant provisions of the Law on the Prevention of Money Laundering and the Financing of Terrorism in a very systematic manner in their daily operations. The banks' application of that law is one of the basic, everyday activities that have had an impact on a significant number of work procedures, both for all other transactions and for these particular ones. Banks strictly ensure that legal obligations are respected in this segment as well. From a legal point of view, I must point out the fact that real estate investment transactions are allowed both in dinars and in foreign currency, but also that in both cases it is legally mandatory to make transactions through an account and never in cash. Also, the application of the relevant provisions of the Law on the Prevention of Money Laundering and the Financing of Terrorism must be taken care of, controlled, and implemented by all other relevant obligees of the aforementioned law, including real estate brokers, payment institutions, electronic money institutions, attorneys, and notaries public, without whom the process of legally buying or investing in real estate should simply not be possible.
What are the projections for the euribor's future movement, which has, after many years, dramatically raised the monthly repayment installments of house loans in euros? Are there any signs that some loan recipients may not be able to continue making mortgage payments due to rising interest rates and the cost of living?
The euribor's movement is determined by the success of the fight against inflation. If it starts to fall, the central bank has no reason to keep the reference interest rates high. There is already evidence that inflation is slowing, so there is reason to believe that it will begin to fall and thus return to the target range. There are no hints of difficult payments for now, as the share of non-performing loans is still at a record low level. As per individual loans, it is around 2.4%.
The construction boom in Serbia, despite signs of a slight slowdown in recent months, is still going on. How much do investors use the project financing opportunities that most banks provide as a service?
Some of the most important construction projects in Serbia are implemented through project financing, so this way of lending is by no means unknown in our market. Banks are ready to follow their clients in this way, but of course, it is necessary to meet certain criteria, which depend on each specific case.
Sustainable construction and energy efficiency will be the backbone of the transformation of the construction industry and the real estate sector in Serbia in the coming years. In this light, so-called "green loans" are being mentioned more and more often. What do the banks in Serbia currently offer investors and citizens when it comes to green financing?
Today, it is difficult to imagine a socially responsible company that does not pay attention to climate change and the impact of its activities on the environment. That is why sustainable construction and energy efficiency are two of the strongest trends today, which are supported not only by the construction industry but also by citizens, local governments, cities, and the state itself.
Low energy prices are a thing of the past, and energy must now be consumed rationally. There must be no waste of energy; on the contrary, energy savings are necessary. With green loans, banks strive to reduce the harmful impact on the environment and reduce energy consumption, but also to make our planet healthier for all.
For years, the banking sector of Serbia, independently, not only from its own sources but also from credit lines of the EBRD and various European funds, has been approving loans for corporate financing or retail loans at relatively favorable interest rates and for longer terms in order to have, as much as possible, an increase not only in the construction of energy-efficient residential buildings but also in the renovation and reconstruction of already built residential and office buildings. This primarily refers to the production of energy-efficient facades, the replacement of carpentry, the installation of solar panels, and the like. State and local governments are also active participants in this process because a certain amount of funds are allocated each year to citizens and corporations in the form of various subsidies and grants.
Banks' green loan offerings include green housing loans and green car loans, in addition to green loans used to improve energy efficiency. With green housing loans, banks help create conditions for a healthier environment and support sustainable development. They are approved under slightly more favorable conditions for the purchase of energy-class A and B real estate, which is proven by the building’s energy passport and a clearly defined energy class.
Green car loans are a real opportunity to start healthy changes in traffic by increasing the use of electric and hybrid vehicles and reducing the use of vehicles with internal combustion engines, which have a significantly higher consumption of fossil fuels and therefore a significantly higher emission of harmful gases.
In the public, it can be heard that the current exchange rate of the euro is unrealistic, but there are also comments that maintaining a strong dinar may not be the best tool in the fight against inflation. What are your thoughts on this?
A stable exchange rate of the domestic currency is one of the best things that has happened to the Serbian economy in a long time. Business predictability is one of the key elements in company planning; it is an indicator of stability and a positive signal to both domestic and foreign investors. It is difficult to imagine how the standard of living of citizens and the life of the majority of our population in general would look if, in the periods we have gone through, such as COVID, the post-pandemic crisis, and the crisis due to the conflict in Ukraine, they also had to fight with the unpredictable exchange rate of the dinar. I respect the opinion of those who talk about an unrealistic exchange rate, but I belong to the group of those who give credit to the National Bank of Serbia for the way it defended the exchange rate of the domestic currency, believing that it is in the interest of all of us.
By: Gordana Knežević Monašević
Photo: ASB
