Banks in Serbia achieved a profit of 865 million euros in the first nine months of 2023, surpassing the entire 2022, which was already a very good year for banks. After several years of record-low interest rates worldwide and in Serbia, resulting in low profits, banks capitalized on the previous year. They earned so much that some countries’ governments decided to impose taxes on excess profits in various forms.
The National Bank of Serbia (NBS) and the government did not opt for such measures, but the central bank limited the interest rate on housing loans indexed in euros. According to the NBS’s assessment, this move will cost around 10% of the estimated profit of the banking sector.
Economist Đorđe Đukić explains that the increase in bank profits last year is due to the rise in interest rates on loans, significantly outpacing the growth in interest on savings.
“The source of bank profits is that interest rates on savings lag behind inflation and the growth rate, while active interest rates that banks charge on loans grow much faster. In other words, banking margins, the difference between passive and active interest rates, are increasing. Regulators in some countries have responded with a tax on excess profits,” Đukić notes.
He adds that this year could also be good for bankers if the European Central Bank (ECB) continues its policy of high interest rates.
“If we have a new wave of rising interest rates from March, bank profits will be even higher. Banks in Central and Eastern Europe achieve a return on capital of over 12%, which is unthinkable in old EU members. Exactly 12% return on capital is considered a strategic goal by many groups in this region,” Đukić points out.
He emphasizes that the very slow increase in savings interest rates has effectively taxed savers.
“Those with large savings flee to real estate or gold, but both are unproductive investments. In Serbia, this is a kind of extortion of savers because they have nowhere to invest. Admittedly, I’m not worried about the wealthiest; there are many investment funds worldwide where they can invest. However, small and medium savers suffer, losing substance for years. Savings interest rates are almost equal to those in the EU, even though Serbia is nowhere near the EU,” says Đukić.
He also draws attention to the fear effect, due to which citizens keep money in the bank, usually on sight, so that they can access it immediately in case of need, even at the cost of receiving almost no return on it. This, as he says, allows even greater profits for banks by reducing the cost of interest.
The price of most loans in Serbia actually depends on the ECB’s policy and the height of its interest rate. Most long-term loans are tied to the Euribor, and the ECB’s policy affects it.
