Latest data on the banking sector operations in Serbia show that corporate lending activity is weakening, which could indicate that business owners are finding it increasingly difficult to cope with rising labour costs, inflation, borrowing costs and falling expectations regarding further income growth.
Newly approved loans to the corporate sector in Serbia fell over the three months from August to October compared with the same period last year, with investment loans down by 20 per cent and working capital loans recording a milder decrease of six per cent, banking and finance expert Dejan Ćirković told Biznis.rs.
Lending activity in the corporate sector, that is new borrowing to finance and develop business operations, can be one of the signals of business expectations for the coming period, he said. When income growth is expected, investment in fixed assets and working capital and inventories typically rises first, followed by the anticipated income growth. However, current data show a decline in demand for investment and working capital loans, which further points to more modest expectations among business owners regarding future income growth.
When these data are combined with modest VAT collection, which is estimated to grow by three per cent this year, and significantly higher collection of taxes and contributions on salaries that is growing by around 13 per cent, the picture becomes even clearer, he said, adding that all this supports forecasts that growth will be harder to achieve, even though it is necessary because of faster-rising costs.
Data from the National Bank of Serbia show that in the third quarter the volume of newly approved loans to corporates was 326.8 billion dinars, which is 3.6 per cent less than in the same period last year. Businesses borrowed somewhat more through euro-denominated loans, probably driven by lower costs since loans in that currency have become slightly cheaper, while loans in dinars have become slightly more expensive.
The average weighted interest rate on newly approved dinar loans to the corporate sector rose by 0.1 percentage points from July to September, to 6.6 per cent, contributed to by a rise in interest rates on liquidity and working capital loans to 6.6 per cent from 6.3 per cent in the second quarter. On the other hand, interest rates on investment loans were reduced by 0.2 percentage points to 7.1 per cent, and on other uncategorised loans by 0.4 percentage points to 6.6 per cent.
In the same period the average weighted interest rate on new euro and euro-indexed loans to corporates fell by 0.2 percentage points to 4.7 per cent, with reductions in interest rates on loans of all purposes.
Last week, the National Bank of Serbia decided to leave the reference interest rate unchanged at 5.75 per cent, where it has been since September last year, so it is not realistic to expect a reduction in borrowing costs for businesses on that basis. Banks could potentially make moves in that direction by making internal savings that would create room for slightly more favourable loan offers to corporates.
Data from the National Bank of Serbia’s October survey on bank lending activity show that banks eased credit standards for corporates in the third quarter of this year. Standards were eased for dinar loans of both longer and shorter maturities, as well as for long-term foreign currency-indexed loans. Lower costs of funds for loans and special campaigns at some banks contributed to the easing of standards, and banks expect similar easing in the final quarter of this year.
Dejan Ćirković believes that pressure on company profits will increase in the coming period and that systematic financial management will become increasingly important, with better results for those with a strategic approach to cost control and reward for performance. Firms without clear performance measurement and contribution to final results will continue to lose money through numerous small gaps that will become more frequent and bigger, and will be increasingly difficult to cover with income growth. Problems are also very likely to spill over into cash flows.
The country’s GDP growth directly depends on the performance of the corporate sector, so weaker performance by companies would be reflected directly in economic growth. According to the latest projections of the National Bank of Serbia, economic growth is expected to be 2.1 per cent this year, while the central bank predicts GDP growth of 3.5 per cent for next year. However, there are risks that are likely to carry over into the next year.
(Biznis.rs, 16.12.2025)