Corporate credit demand in Serbia has shown notable signs of softening as businesses reassess their investment strategies due to elevated borrowing costs and uncertainties in external demand. This trend reflects a broader shift within the economy towards more cautious and selective growth, rather than outright contraction.
Historically, corporate borrowing in Serbia has been closely tied to cycles of foreign direct investment, export demand, and public infrastructure developments. However, in 2025, these factors appeared less aligned. There was a significant decline in foreign investment inflows compared to the previous year, while export activity slowed down, particularly due to reduced industrial demand from the European Union. Additionally, several large infrastructure projects faced delays, resulting in a decrease in new corporate loan requests, especially for long-term financing.
Interest rates have played a crucial role in this dynamic. With the benchmark rate set at 5.75%, the cost of dinar-denominated corporate loans has remained considerably higher than during the low-rate environment of the early 2020s. As a result, even firms with robust financial positions found it challenging to justify new investments, as the required internal rate of return increased. Consequently, projects that were previously viable under lower rates became less appealing, prompting companies to focus on maintaining balance-sheet strength rather than pursuing expansion.
This trend was particularly evident among mid-sized domestically owned firms that do not have access to offshore funding or the liquidity benefits enjoyed by multinational companies. In contrast, larger foreign-owned manufacturers continued to invest selectively, often relying on loans from their parent companies or using retained earnings instead of domestic bank financing. Smaller businesses tended to delay expansion plans, opting instead to enhance operational efficiency and conserve cash.
The decline in credit demand has directly impacted Serbia’s gross fixed capital formation growth, which remained below 1% in real terms for 2025. This lackluster investment performance stemmed not from insufficient financing availability but rather from a scarcity of viable projects under current economic conditions. In response, banks have tightened their underwriting standards and shifted focus towards shorter loan maturities, prioritizing liquidity over leverage.
From a macroeconomic standpoint, the reduction in credit demand presents both stabilizing and constraining effects. On one hand, it mitigates risks related to over-leveraging and asset-price inflation, thereby supporting financial stability as inflationary pressures ease. Conversely, it hampers productivity improvements and capacity growth necessary for sustaining wage increases and enhancing export competitiveness over the longer term.
Looking ahead to 2026, the key factor will be whether postponed investments can be revived. A gradual easing of interest rates coupled with stabilization in external demand could lead many deferred projects back onto banks’ balance sheets. However, this revival hinges on clear policy direction, visibility regarding energy costs, and effective execution of infrastructure initiatives. Credit demand is unlikely to rebound solely based on reduced interest rates; it will require renewed confidence among firms that long-term returns will justify their long-term commitments.
In this context, Serbia’s current credit landscape reflects not just monetary constraints but also an underlying issue of investment confidence. While banks remain profitable and liquid and companies solvent, a stronger connection between them is essential for fostering growth signals. Until those signals improve, credit may continue to be available yet underutilized, indicating an economy that is poised for action but not yet fully engaged.
