Serbia’s banking sector entered the final part of 2026 with strong capitalisation, high liquidity and sustained profitability, supported by a decade-long reduction in non-performing loans and a funding structure dominated by domestic deposits.
The gross non-performing loan (NPL) ratio fell to 1.97% in August 2026, compared with a peak of 23.18% in May 2015. The improvement reflects years of loan write-offs, portfolio sales, debt collection, regulatory reforms and balance-sheet restructuring, significantly reducing one of the banking system’s main historical vulnerabilities.
Assets and Deposits Support Banking Liquidity
Total banking-sector assets reached EUR63.8 billion in August 2026, while gross loans amounted to EUR40.4 billion and deposits stood at EUR49.0 billion. Domestic deposits accounted for 76.8% of total bank funding, reducing institutions’ exposure to fluctuations in wholesale financial markets. The loan-to-deposit ratio for the non-financial sector was approximately 84%, indicating that banks retained a substantial liquidity reserve relative to their lending portfolios.
Capital indicators also remained strong. The sector’s capital adequacy ratio stood at approximately 20% at the end of June, while common equity tier 1 capital represented 92.7% of regulatory capital. The leverage ratio was 10.35%, and the liquidity coverage ratio reached nearly 199% in August, almost twice the regulatory minimum.
Banking Profitability Remains High
Serbia’s banks continued to generate substantial earnings, recording approximately EUR988 million in pre-tax profit through August 2026. Return on equity reached 18.1%, while return on assets stood at 2.4%, reflecting strong profitability across the sector.
Meanwhile, the net interest margin declined to 3.4%, compared with 4.1% in 2024. The reduction indicates some normalisation following the period of elevated interest rates, although earnings remained substantial.
Credit Expansion Increases the Importance of Risk Controls
The combination of historically low NPL levels, abundant capital and rising credit demand creates favourable conditions for further lending. Strong financial indicators can also encourage banks and borrowers to take on additional risks.
As lending expands, maintaining prudent underwriting standards, assessing borrowers’ repayment capacity and monitoring exposure concentrations become increasingly important. The historically low level of bad loans does not eliminate the possibility of future deterioration in asset quality.
Countercyclical Capital Buffer to Take Effect in December
Serbia’s regulatory authorities are addressing potential risks through the pre-emptive use of capital buffers, with a countercyclical capital buffer scheduled to take effect in December 2026.
The measure is intended to strengthen the system’s capacity to withstand potential financial pressures as lending activity develops. The banking sector’s existing capital and liquidity positions provide financial institutions with room to absorb potential shocks while maintaining their lending operations.
