This information is derived from the State Department's Office of Investment Affairs Investment Climate Statement. Any questions on the ICS can be directed to EB-ICS-DL@state.gov
Last Published: 2/26/2018

Capital Markets and Portfolio Investment

Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. However, there are restrictions on short-term portfolio investments – residents of Serbia are not allowed to purchase foreign short-term securities, and foreigners are not allowed to purchase short-term securities in Serbia. Payments related to long-term securities have no restriction.

In 2016 Serbia recorded net outflow of $1 billion 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 $8.8 billion in January 2017, with 63 percent in RSD and 37 percent in euros.

Total Serbian government-issued debt instruments on the domestic and international markets stood at $14 billion in January 2017. See here for more information.

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 2016, Standard&Poor’s raised its outlook for Serbia from stable to positive, while keeping its rating at BB-. In June 2016, Fitch raised Serbia’s credit rating from B+ 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). 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 2016 was $400 million, which is double the volume of 2015. However, trading volumes have declined since 2007, when the total turnover reached $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 March 2017, 13 registered investment funds operate in Serbia. For more information, visit the website of the Republic of Serbia's Securities Commission. 

Market terms determine credit allocation. In December 2016, the total volume of issued loans in the financial sector stood at $16.5 billion. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing as impediments to business expansion. Around 69 percent of all lending is denominated in euros, which provides lower rates to borrowers and minimizes exchange-rate risks to lenders. 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.

Money and Banking System

Serbian companies often do not access credit, and look to friends, family or commercial banks when they need investment and operational funds. Only a few corporate and municipal bonds have been issued so far, and the financial market is not well developed.

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 September 2016, consolidation had reduced the sector to 30 banks with total assets of $27 billion (about 77 percent of GDP), with 76 percent of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets are Banca Intesa (Italy, $4.1 billion); Komercijalna Banka (Serbian government, $3.4 billion); UniCredit (Italy, $2.6 billion); Raiffeisen (Austria, $2.0 billion); Société Générale (France, $1.9 billion); AIK Banka Nis (Serbia, $1.5 billion); Eurobank EFG (Greece, $1.2 billion); Vojvodjanska Banka (Greece, $1.1 billion); Postanska Stedionica (Serbian government, $1 billion); and Erste Bank (Austria, $0.9 billion). Visit here for more information.

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 $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. By January 2017, savings deposits in the banking sector reached $9.9 billion, exceeding pre-crisis levels.

In November 2016, the IMF assessed that Serbia’s banking sector was well-capitalized and liquid, and that Serbian authorities are “making noteworthy progress in implementing financial sector reforms to enhance its resilience and maintain stability.” The IMF said it supports NBS efforts to enhance prudential policies in the context of implementing the Basel III framework. In a recent review, the IMF pointed to the “continued resilience” of the banking sector, with an average capital ratio exceeding 21 percent and a gradual improvement in asset quality. Banking sector profitability continues to improve.

A major challenge for the banking sector, however, is a high rate of non-performing loans (NPLs). The NPL rate reached 22 percent in September 2015. Banking industry representatives claimed at the time that the real figure was closer to 40 percent, as banks used creative loan classifications to conceal the true extent of the problem. In addition, there are significant foreign exchanges risks, as 74 percent of all outstanding loans are indexed to foreign currencies (primarily the euro). The government and the NBS have adopted a plan to resolve NPLs. The IMF assessed in 2016 that authorities had made important progress, with the aggregate stock of NPLs falling both in nominal terms and relative to total loans. As of January 2017, the NPL rate dropped to 17 percent. Still, “more decisive action is needed to reduce bad loans, including in state-owned banks,” concluded the IMF. With a high NPL rate and risk-averse banks, liquidity remains an issue in Serbia and companies are hungry for working capital.

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

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 a 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.

The NBS targets inflation in its monetary policy, and regularly intervenes in the foreign exchange market to that end. In 2016, the NBS sold a total of $1.1 billion on the interbank currency market and bought $0.9 billion to prevent sharp fluctuations of the dinar. In the one-year period ending March 2017, the dinar depreciated one percent against the euro and five percent against the U.S. dollar. There is no evidence that Serbia engages in currency manipulation.

Remittance Policies

Personal remittances constitute a significant source of income for Serbian households. In 2016, total remittances from abroad reached $3 billion, or approximately nine 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.

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