Serbia’s banking sector maintained strong profitability in the first quarter of 2026, supported by expanding lending, interest income and limited credit losses. The rapid growth of bank balance sheets is beginning to reduce capital and liquidity ratios, shifting the sector’s focus from recovery after past crises to management of a new credit cycle. Return on equity reached 18.1% in the first quarter, compared with 20.6% in 2025 and 20.3% in 2024. Return on assets declined to 2.5% from 2.8%.
Despite the moderation, profitability remained high, particularly in a banking environment where non-performing loans accounted for only 2.1% of gross lending. Net interest income continued to dominate bank earnings, generating approximately 61% of gross banking income, compared with 59.6% in 2025. Serbian banks remain strongly dependent on the interest margin between lending and deposit rates.
Interest income remains the main earnings driver
The strong interest-rate environment supported bank profitability in previous periods, but the outlook is becoming more balanced as monetary conditions change. Lower dinar and euro interest rates are expected to improve borrowing conditions and support credit demand, while simultaneously creating pressure on margins as existing loan portfolios gradually reprice.
Operating expenses are also taking a larger share of revenues. Non-interest expenses represented 55.1% of gross income, increasing from 52.8% in 2025. Employee-related costs accounted for 32.1% of non-interest expenses, reflecting continued pressure from wages, technology investment, cybersecurity requirements and regulatory compliance costs despite ongoing digitalisation.
Lending expansion reduces capital ratios
The banking sector remains well capitalised, but regulatory indicators have moved lower as credit growth accelerates. The regulatory capital ratio declined to 19.5% of risk-weighted assets, while Tier 1 capital fell to 18%. Total regulatory capital represented 11.5% of balance-sheet assets.
The decline does not indicate insufficient capital. Instead, it reflects a period in which lending and risk-weighted assets are expanding faster than banks are accumulating retained earnings. The National Bank of Serbia’s positive countercyclical capital buffer is aligned with this stage of the financial cycle. The measure is intended to ensure that banks build additional loss-absorbing capacity during periods of stronger credit growth before potential asset-quality problems emerge.
Deposit funding remains strong but liquidity buffers narrow
Serbian banks continue to rely primarily on deposits for funding. Deposits equalled 120.3% of loans, leaving the banking system with a significant funding surplus. The ratio has nevertheless declined from 136.3% in 2024 and 122.4% at the end of 2025, reflecting faster loan expansion. Liquidity indicators have followed a similar pattern. Liquid assets accounted for 35.3% of total assets, compared with 40.8% in 2024 and 36.1% in 2025.
The narrower liquidity measure declined to 28.5%. Liquid assets covered 44.4% of short-term liabilities, while the narrower liquidity category covered 35.8%. The liquidity coverage ratio remained approximately twice the regulatory minimum, indicating that the reduction reflects greater balance-sheet utilisation rather than financial stress.
Low NPL levels support further credit growth
Asset quality remains one of the strongest elements of Serbia’s banking system. Non-performing loans stayed at 2.1% of total gross lending, while overall loan-loss allowances exceeded the volume of impaired loans. The main risk is therefore concentrated in newly issued credit rather than the existing loan portfolio. Corporate lending exposure is concentrated in several key sectors. Mining and manufacturing accounted for 25.7% of corporate claims, trade represented 22.8%, real estate 13.2%, transport 11.5%, construction 10.9%, and electricity and energy 10.1%. Real estate and construction together represented more than 24% of corporate exposure, while housing loans create an additional connection between bank balance sheets and property-market conditions.
Foreign-currency exposure remains with borrowers
Banks themselves maintain limited direct foreign-exchange exposure. The net open foreign-exchange position stood at 1.6% of regulatory capital. Foreign-currency exposure remains significant among borrowers. 56.1% of loans and 56.6% of liabilities were denominated in or indexed to foreign currencies.
This means banks are largely matched in their currency positions, while households and companies carry much of the economic impact of exchange-rate movements. The profitability outlook remains positive, but the structure of earnings is expected to change. As interest margins become less supportive, banks will rely more heavily on credit growth, fee income, cost management and digital services while ensuring that expansion does not weaken capital strength or liquidity buffers.
