Serbia’s banking sector is recording faster credit growth while maintaining historically low levels of problem loans, with total domestic lending increasing 16.5% year on year. The expansion covered both corporate and household borrowing. At the same time, non-performing loans (NPLs) accounted for just 1.98% of total loans, the lowest recorded share. The combination of accelerating credit and subdued problem-loan levels gives banks room to expand financing while entering the new lending cycle from a comparatively strong asset-quality position.
Domestic deposits remain the main funding source
Domestic deposits accounted for 76.9% of total bank funding at the end of July, making them the sector’s primary financing source. Balance-sheet capital represented a further 12.8%. Households provided 51.8% of total deposits, while companies accounted for 34.6%, creating a broad domestic deposit base across the two main depositor groups.
On the asset side, loans and other receivables represented 67.8% of banking-sector net assets. Cash and balances held with the central bank accounted for 18.5%, while securities represented 11.1%. This balance-sheet structure limits the sector’s dependence on wholesale international funding compared with banking systems that rely more heavily on external refinancing.
Investment lending drives corporate credit growth
Corporate borrowing is also contributing to the expansion, with investment loans to companies rising 16.5% year on year in July.
Investment lending grew faster than overall corporate credit, indicating that part of the increase in bank financing is directed toward productive assets rather than being concentrated exclusively in consumption or short-term liquidity needs. The expansion is taking place alongside rising credit demand from both businesses and households.
Asset quality remains below 2%
The current NPL ratio remains low despite the acceleration in lending. Low non-performing loan levels do not eliminate future credit risks. Asset-quality indicators can react to economic deterioration with a delay, while faster credit expansion requires banks to maintain lending standards as competition for borrowers increases. Serbia’s banking sector is entering the current credit cycle from a stronger position than a decade ago, when banks were still addressing a substantial stock of legacy non-performing loans.
With deposit funding at 76.9%, NPLs below 2% and corporate and household borrowing expanding, banks have increased capacity to finance the next stage of the investment cycle. The development of the newly issued loan portfolio will determine whether the sector can maintain its historically low 1.98% NPL ratio as credit continues to expand.
