Serbia’s financial system has moved into a new phase in 2026, with banks operating from a position of stronger capitalisation, lower problem-loan levels and improved external liquidity. The focus of financial stability is shifting away from legacy crisis risks and towards managing faster credit expansion, borrower concentration and foreign-currency exposure. The banking sector’s regulatory capital ratio stood at 19.5% at the end of the first quarter of 2026, down from 20.2% at the end of 2025 and 21.3% in 2024. Tier 1 capital declined to 18% of risk-weighted assets.
Although both indicators remained comfortably above regulatory requirements, the decline reflects a faster increase in lending and risk-weighted assets compared with capital growth. Serbian banks continue to maintain the ability to absorb losses, with most institutions holding capital levels above minimum requirements and applicable buffers.
Credit expansion changes the structure of banking risks
The main challenge for the sector is no longer insufficient capital or poor asset quality, but the pace and composition of new lending. The question is whether banks will continue strengthening capital through retained earnings while expanding credit, or whether profitability will increasingly be distributed.
Large exposures increased from 84% to 95.1% of regulatory capital, indicating a greater concentration of risk among major borrowers, corporate groups or sovereign-related counterparties. The measure does not represent exposure to a single borrower, but its increase shows that a smaller number of large clients now account for a larger share of banking-sector risk. Asset quality remains one of the strongest features of Serbia’s financial system. Non-performing loans accounted for only 2.1% of gross lending, unchanged from the end of 2025 and significantly below the 21.6% recorded in 2015.
Net non-performing loans represented 4.5% of regulatory capital, limiting the potential impact of existing impaired assets on bank stability. Banks’ total loan-loss allowances covered 109.2% of gross NPLs, while specific value adjustments covered 60.3% of impaired loans. The level of provisioning provides additional protection against potential losses.
Banking dominance continues despite sector consolidation
Serbia’s financial system remains heavily centred on commercial banks. Total financial-sector assets reached RSD7.92 trillion, equivalent to 75.2% of GDP, with banks accounting for RSD7.17 trillion, or 90.5% of total assets. Insurance companies, pension funds and leasing companies together represented less than one-tenth of the financial system.
The number of operating banks declined to 19 institutions in 2026, compared with 30 in 2015, while total banking assets more than doubled over the same period. The consolidation reduced fragmentation and increased the scale of individual banking groups operating in the market. Foreign-owned banks controlled 70.3% of banking-sector assets, followed by domestic private banks with 11.6% and state-owned banks with 8.6%.
Italian banking groups accounted for 23.5% of sector assets, Austrian institutions held 17.3%, Hungarian-owned banks controlled 12.7%, and Slovenian-owned institutions represented 9.6%. The ownership structure provides diversification across several foreign banking systems, but Serbian lending conditions remain linked to the strategic decisions, capital allocation policies and risk appetite of regional parent groups.
External liquidity supports financial stability
Serbia’s sovereign and external financial position continues to provide support for the banking system. The country maintained an S&P sovereign rating of BBB-, preserving investment-grade status, while Fitch rated Serbia BB+ and Moody’s Ba2. The differing ratings reflect a stronger credit profile compared with previous years, while also reflecting remaining institutional, fiscal and external vulnerabilities.
At the end of the first quarter, gross foreign-exchange reserves covered 6.6 months of imports, while net reserves covered 5.5 months. Both levels remained well above the commonly used three-month reserve adequacy benchmark. By June, Serbia’s gross foreign-exchange reserves had increased to €29.61 billion, equivalent to 6.8 months of imports, further strengthening the country’s external liquidity position.
Foreign-currency exposure remains a structural issue
With traditional banking-sector vulnerabilities reduced, policymakers are increasingly focused on risks linked to the expansion of credit activity. The main areas of attention include faster household and corporate borrowing, concentration in real estate and large counterparties, declining liquidity ratios from previously elevated levels, and foreign-currency risks transferred from banks to borrowers.
Serbia’s financial system is entering a period in which credit growth is becoming a central driver of economic activity. The impact of this expansion will depend on whether new lending supports productive investment and sustainable household financing while maintaining capital strength, liquidity and lending standards.
