Serbian banks generated around €863 million in pre-tax profit during the first seven months of 2026, while profitability indicators continued to ease from recent peaks as the impact of elevated interest rates diminished.
Profitability Indicators Moderate
Banking-sector return on equity stood at 18.2% in July 2026, compared with 20.1% in 2025 and 20.3% in 2024. Return on assets also declined to 2.4%, from 2.8% in each of the previous two years. The change has been accompanied by a decline in banks’ net interest margin, which fell to 3.4% in July, compared with 3.7% in 2025 and a peak of 4.1% in 2024.
Higher Rates Lifted Interest Income
Serbian banks benefited from the increase in interest rates across Europe and Serbia from 2022 onwards. Lending rates adjusted relatively quickly, while large deposit bases initially repriced more slowly. This widened the gap between banks’ interest income and their funding costs, supporting earnings during the period of rising rates.
That contribution is now becoming less pronounced as deposit competition increases, borrowing costs decline from their previous highs and existing loans are progressively refinanced at lower interest rates.
Loan Growth Gains Importance
With margins narrowing, loan expansion is becoming increasingly important for bank earnings. Gross banking-sector loans reached almost €40 billion by July, compared with €36.7 billion at the end of 2025, while total domestic credit was expanding at double-digit rates. Corporate investment lending is also recording strong growth, providing banks with additional opportunities to increase lending volumes as interest-rate spreads become less supportive.
Credit Quality Supports Earnings
Asset quality remains an important factor for banking-sector profitability. The gross non-performing loan ratio was around 2%, compared with 4.1% in 2019 and substantially higher levels earlier in the previous decade. The lower level of non-performing loans keeps provisioning costs comparatively low and provides support to bank earnings as net interest margins moderate. As margins narrow, profitability becomes increasingly dependent on attracting new borrowers, maintaining fee income, controlling operating costs and preserving credit quality.
The Serbian banking sector is therefore moving from an earnings environment driven heavily by margin expansion toward one in which loan-volume growth plays a larger role. Banks are entering this phase with strong profitability and balance sheets, while the period of unusually high earnings associated with rapidly rising interest rates is gradually giving way to more normal conditions. The next stage will place greater emphasis on deploying deposits into corporate investment, mortgages and other lending while maintaining underwriting standards.
