Serbia’s banking sector began the latest phase of credit growth from a position of strong funding, capital and liquidity, supported by a predominantly domestic deposit base and low levels of non-performing loans. As lending accelerates, the focus is shifting from resolving legacy problem assets to maintaining credit quality in newly originated loans.
At the end of May 2026, customer deposits accounted for 76.4% of total bank funding, while balance-sheet capital represented 12.9%. Household deposits made up 51.2% of total deposits and corporate deposits accounted for 35.2%, providing banks with a diversified domestic funding structure.
Deposit Base Supports Lending Capacity
The banking system continued to maintain a conservative funding profile. The ratio of loans to deposits in the non-financial sector stood at 83.44%, remaining below the 100% threshold. A loans-to-deposits ratio below 100% indicates that banks are financing lending primarily through their core deposit base rather than relying on wholesale funding, reducing refinancing risk and providing flexibility if deposit patterns change.
Non-Performing Loans Remain at Historic Lows
Asset quality continued to improve. Non-performing loans accounted for 2.09% of total lending in May 2026, compared with a peak of 23.18% recorded in May 2015. The decline followed several years of loan recovery measures, including debt collection, write-offs, portfolio sales to third parties and the implementation of dedicated strategies and regulations aimed at reducing non-performing loans.
Capital and Liquidity Ratios Remain Well Above Regulatory Requirements
Capital indicators continued to provide substantial financial buffers. In March 2026, the banking sector’s total capital adequacy ratio stood at 19.49%, while the Common Equity Tier 1 (CET1) ratio reached 17.97%. Common equity represented 92.2% of total regulatory capital, indicating that the majority of capital consisted of the highest-quality loss-absorbing resources. The banking sector’s leverage ratio stood at 9.84%.
Liquidity indicators also remained significantly above minimum regulatory requirements. The liquidity coverage ratio (LCR) reached 162.02%, exceeding the 100% regulatory minimum, while the net stable funding ratio (NSFR) stood at 164.05%. These indicators demonstrate that banks maintained sufficient liquid assets to withstand short-term funding pressures while preserving a stable funding profile for longer-term operations.
Credit Expansion Shifts Attention to New Lending Standards
Although current financial indicators remain strong, they primarily reflect the existing loan portfolio rather than the quality of recently issued credit. Rapid expansion in lending, particularly through household cash loans and housing finance, means that newly originated loans have not yet been tested through a complete economic or repayment cycle. Faster balance-sheet growth can also temporarily reduce the reported non-performing loan ratio by increasing the overall volume of outstanding credit.
As lending continues to expand, banks will increasingly focus on underwriting standards, including borrower affordability under less favorable income and interest-rate conditions, monitoring highly leveraged customers and maintaining lending discipline despite competition for market share. The sector’s strong capital position, ample liquidity and stable funding provide resilience as credit growth accelerates, while preserving these strengths will depend on maintaining prudent risk management during the current expansion cycle.
