NATIONAL BANK OF SERBIA REPORT ON DINARISATION OF THE SERBIAN FINANCIAL SYSTEM June 216
Introductory note A more extensive use of the dinar in the financial system and better currency matching of income and expenses of the non-bank sector will improve the country s financial stability, lessen the risk of exchange rate volatility in the most vulnerable sectors of the economy, and enhance the effectiveness of monetary policy. To support the process of dinarisation, the (NBS) and the Government of the Republic of Serbia signed the Memorandum on the Strategy of Dinarisation of the Serbian Financial System in April 212. Pursuant to the Memorandum, the NBS and the Government have committed to monitoring and analysing the degree of dinarisation and to regularly informing the public about the use of the dinar in the domestic financial system. For that purpose, the NBS prepares and publishes the quarterly Report on Dinarisation of the Serbian Financial System as one of its supporting communication tools. The Report provides information about developments in the dinar market and highlights measures and activities taken or planned by market players and regulatory authorities with a view to supporting the process of dinarisation. Making this information accessible to the wider public will help raise awareness of the need to hedge against risks associated with changes in the exchange rate, as well as understanding of the measures and activities to be taken by the NBS and the Government in order to encourage the process of dinarisation of the Serbian financial system. Reports on Dinarisation of the Serbian Financial System are available on the NBS website (www.nbs.rs).
Dinarisation strategy The dinarisation strategy rests on three inter-connected pillars. The first pillar is the most general, but also the most important one. It envisages measures to strengthen the macroeconomic environment by delivering low and stable inflation, a stable financial system and sustainable economic growth. The second pillar consists of measures to promote dinar-denominated instruments and markets, with a special emphasis on the development of the dinar bond market. The development of the dinar yield curve is an important cornerstone of this pillar. The third pillar aims to promote hedging against the risks associated with foreign exchange rate exposure in the non-bank sector and to discourage further build-up of those risks. The National Bank of Serbia will lead the efforts in this field, working together with the banking sector on introducing and developing basic hedging instruments both for the interbank market and for clients.
ABBREVIATIONS mln million bln billion pp percentage point Q quarter q-o-q quarter-on-quarter Other generally accepted abbreviations are not cited.
Contents I. Dinarisation of the Serbian financial system... 1 1. Corporate and household lending... 1 2. New corporate and household loans... 2 3. Corporate and household deposits... 3 4. Dinar and FX savings... 4 5. Public debt... 5 II. FX hedging instruments... 7 1. FX swap auctions... 7 2. FX hedging instruments... 8 Dinarisation indicators... 9 Methodological notes...1 List of charts and tables...11
Corp. Hous. Corp. Hous. Corp. Hous. Corp. Hous. Report on Dinarisation of the Serbian Financial System I. Dinarisation of the Serbian financial system In Q2 216, loan dinarisation increased owing to the dynamic growth in household lending. Deposit dinarisation recorded further growth, reflecting a rise in dinar savings. The share of the dinar in total public debt went down. 1. Corporate and household lending Measured by the share of dinar loans in total corporate and household lending, in Q2, the degree of dinarisation picked up.5 pp to 29.8%, q-o-q. The increase was however slightly higher if expressed at the constant exchange rate.6 pp to 3.%. 1 In Q2, corporate and household lending rose by RSD 46. bln, reflecting mainly household lending (up by RSD 27.3 bln) which recorded the most dynamic growth over the past four years. In the household sector, growth in dinar lending was particularly robust (RSD 23.3 bln) owing to the still high amount of new cash and refinancing loans. The increase in FX and FX-indexed household loans was smaller (by RSD 4. bln) despite the recovery of housing loans which are predominantly FX-denominated. Hence, the share of the dinar in total household loans continued up in Q2 (by 1.4 pp) to 45.% in late June, or by 1.5 pp to 45.3% at the constant exchange rate. Having declined early in the year, corporate lending witnessed a recovery in Q2 (by RSD 18.7 bln). The decline in corporate lending in Q1 was driven by seasonal factors and the activity of banks aimed at reducing the level of NPLs (write-off and/or assignment of a part of NPLs to non-banking sector entities). Such bank activities in the prior period led to an upturn in lending activity in Q2 and will continue to produce a similar effect in the period ahead as well. Growth in corporate lending was prompted by more intensive lending to companies. Loans were predominantly currency clause-indexed and extended for the purpose of current assets financing. Dinar corporate loans recorded moderate growth (RSD.6 bln), still partly on account of the maturing of subsidised dinar loans extended in 214 under the programme of loan support to the corporate sector. The negative impact on dinar lending gradually weakened in Q2 and wore off altogether in late June as final instalments under this programme fell due. The share of the dinar in total corporate loans equalled 19.1% in late June, down by.3 pp relative to end-q1. At the constant exchange rate, this share fell by.2 pp to 19.3% at end-q2. Chart I.1.1. Share of dinar lending in total corporate and household lending (RSD bln) (%) 2,4 2,1 1,8 1,5 1,2 9 6 3 28.8 212 213 214 215 216 19.6 42.6 Dinar lending (l.s.) FX-indexed and -denominated lending (l.s.) Share of dinar lending in total lending (r.s.) Chart I.1.2. Lending by sector 2,4 2, 1,6 1,2 8 4 28.6 19.4 42.8 29.2 19.3 43.5 29.8 19.1 45. 36 32 28 24 2 16 12 8 4 (RSD bln) (%) 3.9.215 31.12.215 31.3.216 3.6.216 Dinar lending (l.s.) FX-indexed and -denominated lending (l.s.) Share of dinar lending in total lending (r.s.) 5 4 3 2 1 1 Calculated at the RSD/EUR exchange rate as at 31 December 215. 1
2. New corporate and household loans The share of dinar loans continued up in the household and declined in the corporate sector. In Q2, banks approved RSD 316.3 bln worth of corporate and household loans, up by 26.9% from Q1. At the quarter level, this was the highest amount of new loans since end-21. An increase in the volume of new loans was mainly due to a rise in new FX-indexed and FX loans (by 27.2%) following a fall (partly seasonal) in the previous quarter. The amount of new dinar corporate and household loans increased as well, though to a lesser degree (by 26.4%), and their share in total new loans declined slightly (by.1 pp to 37.2%). Lending activity recovered in Q2 notably on account of more robust corporate lending (up by a fourth q-o-q). Around fourfifths of new corporate loans were FX-indexed or FXdenominated those were mainly current assets and investment financing loans. The corporate sector also borrowed in dinars for the same purpose in Q2 these loans made up 2.4% of total new loans. Chart I.2.1. Share of dinar loans in newly granted corporate and household loans (RSD bln) (%) 35 6 3 25 2 15 1 5 212 213 214 215 216 Dinar loans (l.s.) FX-indexed and -denominated loans (l.s.) Share of dinar loans in total loans (r.s.) 5 4 3 2 1 The amount of new household loans also increased. As dinar household loans grew at more than double the pace of FXindexed loans, the degree of dinarisation of new loans continued up. In Q2, this share reached 76.1%, up by 2.7 pp from Q1. Like in the previous period, cash loans, as a rule extended in dinars, made up the bulk of household loans (62%). Housing loans, predominantly FX-indexed, also went up in Q2, but retained a relatively modest share (14%). 2
Corp. Hous. Corp. Hous. Corp. Hous. Corp. Hous. Report on Dinarisation of the Serbian Financial System 3. Corporate and household deposits Measured by the share of the dinar in total corporate and household deposits, the degree of dinarisation equalled 25.8% at end-q2, up by.5 pp from end-q1. This reflects primarily the increase in the degree of dinarisation of household deposits. Corporate and household deposits went up by RSD 62.7 bln in Q2 to RSD 1,792.2 bln in late June. Dinar deposits grew at a somewhat brisker pace than FX deposits, which positively affected the degree of dinarisation. Broken down by sector, corporate deposits picked up somewhat more than household deposits (RSD 32.6 bln vs. RSD 3.1 bln respectively). Thanks to positive export results, enterprises in the sectors of industry, transport and tourism recorded solid inflows to their FX accounts with banks. As a result, the share of their deposits in total corporate deposits went up. Against the backdrop of economic recovery, dinar deposits also increased, though to a lesser extent, and their share in total corporate deposits declined (by.4 pp to 51.1%). In terms of household deposits, Q2 saw a rise in both dinar and FX components. Low and stable inflation, relative stability of the exchange rate, more favourable interest rates and more favourable tax treatment of dinar compared to FX savings, contributed to further growth in dinar savings and household transaction deposits. FX deposits recorded somewhat less vigorous growth, driven largely by the maturing of the last series of frozen FX savings bonds in May. Owing to such movements, the share of dinar deposits in total household deposits rose by.4 pp to 14.2% in late June. Chart I.3.1. Share of dinar deposits in total corporate and household deposits (RSD bln) (%) 1,8 3 1,5 1,2 9 6 3 25. 212 213 214 215 216 52.7 12.9 Dinar deposits (l.s.) FX-indexed and -denominated deposits (l.s.) Share of dinar deposits in total deposits (r.s.) Chart I.3.2. Deposits by sector (RSD bln) 2, 1,75 1,5 1,25 1, 75 5 25 27.2 55.6 13.9 25.4 51.5 13.8 25.8 51.1 14.2 3.9.215 31.12.215 31.3.216 3.6.216 Dinar deposits (l.s.) FX-indexed and -denominated deposits (l.s.) Share of dinar deposits in total deposits (r.s.) (%) 7 6 5 4 3 2 1 25 2 15 1 5 3
4. Dinar and FX savings As dinar and FX savings rose at a similar pace in Q2, the share of the dinar in total savings remained largely unchanged (4.3%). An extended period of low and stable inflation and relative stability of the dinar, including higher interest rates on dinar savings and a more favourable treatment relative to FX savings, resulted in a further rise in dinar savings in Q2. At end-june, dinar savings reached RSD 47.7 bln, up by RSD.9 bln (1.9%) from end-march. Savings termed for less than a year increased (by RSD 1.9 bln), while those termed for a longer period declined. The share of up-to-one-year savings in total dinar savings rose by 2.6 pp to 78.1% at the quarter-end. FX savings posted more vigorous growth in Q2, following the redemption of the last series of frozen FX savings bonds in late May. 2 Household savings stood at EUR 8,499.8 mln in late June, up by EUR 141.5 mln (1.7%) from end-q1. The rise in FX savings was prompted by rising deposits termed up to a year (by EUR 339.7 mln). Within these deposits, demand savings deposits and deposits termed for the period from six months to one year increased the most by EUR 314.4 mln and EUR 55.2 mln, respectively. The amount of longermaturity deposits declined (by EUR 198.2 mln) on account of a smaller amount of savings deposits termed for the period from one to five years. These movements led to a change in the maturity structure of FX savings in Q2 at end-june, savings deposits with over one-year maturity made up 27.4% of total FX savings, down by 2.8 pp from end-q1. Chart I.4.1. Dinar and FX savings (RSD bln) 5 4 3 2 1 (EUR bln) 1 8 6 4 2 212 213 214 215 216 Dinar savings 212 213 214 215 216 FX savings Chart I.4.2. Maturity structure of dinar savings (3 June 216) 1-2 years; 14.1% 6 months- 1 year; 3.1% Over 2 years; 7.8% 3-6 months; 11.9% Up to 3 months; 36.1% Chart I.4.3. Maturity structure of FX savings (3 June 216) Over 2 years; 13.9% 1-2 years; 13.5% Up to 3 months; 48.% 6 months- 1 year; 21.2% 3-6 months; 3.4% 2 Excluding non-residents savings. 4
5. Public debt In the course of Q2, the dinar part of public debt declined, whereas its foreign currency portion increased. The share of the dinar in total public debt contracted by 1. pp from Q1 to 2.8%. At end-q2, public debt amounted to RSD 2,981.9 bln, down by RSD 22.5 bln from the quarter before. The decrease is attributable to government repayments under the dinar portion of public debt (by RSD 36.1 bln), whereas the FX portion went up, largerly due to cross-currency changes (strengthening of the dollar relative to the euro). The reduction in the dinar portion of public debt is almost entirely due to government debt repayment in the local capital market, following the redemption of dinar securities. Another, though smaller contribution to reduction of dinar debt was the settling of dinar obligations to the Development Fund and the Pension and Disability Fund. In contrast to the dinar share, the FX portion of public debt increased. In terms of the currency structure, the dollar portion of public debt increased the most (by USD 24.8 mln), notably in respect of loans under bilateral credit arrangements with the Government of the Russian Federation and the China Development Bank, in the field of energy development and infrastructure. The euro portion of public debt declined moderately (by EUR 12.9 mln) as the debt reduction on account of the redemption of the final series of frozen FX savings bonds (EUR 263.8 mln) was largely offset by the issue of euro securities in the domestic financial market (EUR 223.9 mln). Reflecting such movements, both the dinar and the euro portions of public debt declined (by 1. pp and.1 pp, to 2.8% and 4.8%, respectively), while the dollar portion increased (by 1.1 pp to 33.3%). Public debt in respect of securities issued in the domestic market amounted to RSD 955.3 bln in late Q2, down by RSD 7. bln from Q1. The government lowered its debt in respect of dinar securities, with the bulk relating to securities over one year (by RSD 26. bln). Debt in respect of securities with shorter maturities was also reduced (by RSD 9.6 bln) and their share in the total portfolio of dinar government securities became almost negligible (RSD 2.9 bln.5%). Chart I.5.1. Share of dinar debt in total RS public debt (RSD bln) 3,5 3, 2,5 2, 1,5 1, 5 212 213 214 215 216 Dinar debt (l.s.) FX debt (l.s.) Share of dinar debt in total RS public debt (r.s.) Source: Ministry of Finance. Chart I.5.2. Currency structure of RS public debt (3 June 216) EUR; 4.8% USD; 33.3% * GBP, JPY, DKK, SEK, NOK Source: Ministry of Finance. CHF;.7% RSD; 2.8% Chart I.5.3. Maturity structure of government securities issued on the domestic market (end-quarter data) (RSD bln) 1, 8 6 4 2 SDR; 3.8% other currencies *;.6% 212 213 214 215 216 Short-term dinar denominated securities (T-bills) Long-term dinar denominated securities Long-term euro denominated securities Source: Ministry of Finance. (%) 24 2 16 12 8 4 Public debt increased in respect of FX government securities issued in the domestic market by EUR 223.9 mln to EUR 2,88.5 mln in late Q2. This is almost entirely due to higher borrowing in respect of securities with the original maturities 5
of ten and three years (by EUR 12. mln and EUR 117.4 mln, respectively). The portfolio of government FX securities consists only of securities with the original maturities of over one year. Trading volumes in the secondary market of dinar government securities touched their six-year high, coming at RSD 131.2 bln, up by RSD 51.8 bln (65.2%) from Q1. The share of trading on the Belgrade Stock Exchange (BSE) was RSD 6.7 bln, up by RSD 4.3 bln from Q1. Secondary trading increased due to elevated trading in bonds of the original maturity of three years (by RSD 51.9 bln). Securities with original maturities over one year were still traded exclusively in the secondary market. As before, the bulk concerned three-year (65.3%) and two-year securities (18.4%). The volume of secondary trading in dinar securities following the settlement of primary trading was insignificant given the smaller number of auctions and the low volume of long-term government dinar securities on offer. In Q2, such trading amounted to RSD.2 bln (.1%), and related exclusively to post-auction trading. Secondary trading worth RSD 7.1 bln was recorded after the auction of three-year dinar securities of 28 April (re-opening of the issue of 18 February). Chart I.5.4. Secondary trading in dinar government securities (RSD bln) 14 12 1 8 6 4 2 212 213 214 215 216 3-m 6-m 12-m 53-w 18-m 2-y 3-y 5-y 7-y 1-y Source: Ministry of Finance and CSD. Chart I.5.5. Secondary trading in dinar government securities excluding transactions effected up to two business days from the primary settlement date (RSD bln) 14 12 1 8 6 4 2 212 213 214 215 216 trading in dinar securities Trading excluding transactions executed up to two business days from the primary settlement date Source: Ministry of Finance and CSD. 6
II. FX hedging instruments 1. FX swap auctions In Q2 216, the NBS continued with regular three-month and two-week FX swap auctions. At 24 regular three-month FX swap auctions organised in Q2, the NBS swap sold and bought EUR 34. mln. The NBS held 24 regular two-week auctions, when it swap sold and bought EUR 74. mln, EUR 15. mln less than in the previous quarter (EUR 89. mln). The highest volume of swaps was recorded in May, when the NBS sold and bought EUR 26. mln. At all auctions held, the NBS swap bought and sold the same amount, but with a positive difference in swap points, which indicates interest in developing interbank swap trading, i.e. domestic interbank swap market. For the purpose of liquidity management, in Q2 banks entered into six interbank swap transactions of purchase and sale of FX for dinars, worth EUR 2.6 mln. The average weighted maturity of these transactions was four days. Table II.1.1. NBS sw ap transactions, quarterly data (EUR mln) Quarter Sw ap FX sale Sw ap FX purchase 215 Q1 146.5 146.5 Q2 53. 53. Q3 181. 181. Q4 132. 132. Тotal in 215 512.5 512.5 216 Q1 119. 119. Q2 18. 18. in 216 227. 227. Table II.1.2. NBS sw ap transactions in 216, monthly data (EUR mln) Month Sw ap FX sale Sw ap FX purchase 3M 2W 3M 2W January 4. 75. 4. 75. February 13. 8. 13. 8. March 13. 6. 13. 6. in Q1 3. 89. 3. 89. April 16. 23. 16. 23. May 7. 26. 7. 26. June 11. 25. 11. 25. in Q2 34. 74. 34. 74. in 216 64. 163. 64. 163. 7
2. FX hedging instruments Resident transactions with banks in Q2 mainly related to forward purchases of foreign currency for dinars (a total of EUR 152.9 mln, or EUR 19.2 mln more than in Q1). The share of forward FX purchases by residents from banks in total FX purchases equalled 5.2% in Q2 (1.7% in Q1), and was the highest in June 9.2%. Seventeen domestic enterprises hedged against FX risks by entering into this type of transaction with banks. The weighted average maturity of forward FX purchases was 18 days, while the longest weighted average maturity was recorded in June 19 days. The value of forward FX purchase contracts averaged EUR.8 mln. The currency structure of forward deals was dominated by the US dollar 52%. The euro accounted for 48%. There were no forward FX sales by residents in Q2 (Q1 saw three forward FX sales by residents, with the total value of EUR 2.7 mln and average maturity of 133 days). Table II.2.1. FX forw ard transactions betw een residents and banks, quarterly data Quarter 215 Amount in EUR mln Weighted av erage maturity in day s % share in total purchase Amount in EUR mln Weighted av erage maturity in days % share in total sale Q1 12. 13 4.1.4 54. Q2 14.3 19 3.8.7 14. Q3 135.6 18 4.9.2 84. Q4 189.1 16 6.1.2 4. in 215 531. 16 4.8 1.5 77. 216 Q1 43.7 39 1.7 2.7 133.1 Q2 152.9 18 5.2. -. in 216 196.6 22 3.6 2.7 133.1 Forward purchase by residents Forward sale by residents Table II.2.2. FX forw ard transactions betw een residents and banks in 216, monthly data Month Forward purchase by residents Amount in EUR mln Weighted av erage maturity in day s % share in total purchase Amount in EUR mln Forward sale by residents Weighted av erage maturity in days % share in total sale January 11.3 41 1.4. -. February 25.7 24 3.4. -. March 6.7 94.7 2.7 133.4 in Q1 43.7 39 1.7 2.7 133..1 April 24.4 17 2.6. -. May 32.3 15 3.4. -. June 96.2 19 9.2. -. in Q2 152.9 18 5.2. -. in 216 196.6 22 3.6 2.7 133.1 Chart II.2.1. Currency structure of FX forward transactions between residents and banks in Q2 216 EUR 47,9% USD 52,1% 8
Table А. Dinarisation indicators (in %) Period* Share of dinar in total lending, outstanding amounts Corporates Househ olds Share of dinar in total lending, new business** Corporates Househ olds Share of dinar in total deposits, outstanding amounts Corporates Househ olds Share of dinar in total household savings Share of dinar in total public debt 28 33.8 22.2 29.2... 5.3 12.5 27.6 2.5 2.6 29 26.2 22.1 24.7... 52.5 1.9 25.6 2.1 12.8 21 32.2 27.6 3.5 41.8 5.5 43.4 45. 8.5 19.8 1.8 14.6 211 27.3 32.6 29.2 33.3 44. 36. 44.9 1.1 21.5 2.4 16.1 212 24.2 35.1 28. 31. 59.6 36.5 43.9 8.8 19.3 1.9 19.1 213 2. 37.9 26.8 24.7 63.6 35. 52.4 11.5 23.1 3.5 2.3 214 25. 41. 31.2 33.2 71.7 44.2 53.6 12.3 24.5 3.7 21.4 215 19.3 42.8 28.6 16.8 67.8 3.3 55.6 13.9 27.2 4.3 22.2 216 I 19.3 43.5 29.2 22.4 73.4 37.4 51.5 13.8 25.4 4.4 21.9 II 19.1 45. 29.8 2.4 76.1 37.2 51.1 14.2 25.8 4.3 2.8 * Unless otherw ise stated, indicators show data at end-period. ** Indicators are construed based on data on the amount of new ly approved loans during the period. For the year 21, indicators relate to the period September-December. 9
Methodological notes 1. Lending includes dinar and FX (including FX-indexed) loans, advances, securities, corporate shares, receivables from interest and charges. Dinar loans are loans extended in dinars without an FX-clause. An FX-clause is a currency clause as defined by the Law on Foreign Exchange Operations and any other clause stipulating hedge against the risk of dinar exchange rate volatility. 2. Lending is expressed by the gross principle, i.e. it is not reduced by value adjustment. When excluding the exchange rate effects, the exchange rate of the dinar against the euro, Swiss franc and US dollar is taken into account. 3. In line with the ECB methodology, the category of newly granted loans also includes re-scheduled loans. 4. In line with the ECB methodology, the household sector includes entrepreneurs and non-profit institutions serving households. 5. Deposits include dinar and FX (including FX-indexed) deposits. 1
List of charts and tables Charts I.1.1 Share of dinar lending in total corporate and household lending 1 I.1.2 Lending by sector 1 I.2.1 Share of dinar loans in newly granted corporate and household loans 2 I.3.1 Share of dinar deposits in total corporate and household deposits 3 I.3.2 Deposits by sector 3 I.4.1 Dinar and FX savings 4 I.4.2 Maturity structure of dinar savings (3 June 216) 4 I.4.3 Maturity structure of FX savings (3 June 216) 4 I.5.1 Share of dinar debt in total RS public debt 5 I.5.2 Currency structure of RS public debt (3 June 216) 5 I.5.3 Maturity structure of government securities (end-of-quarter data) 5 I.5.4 Secondary trading in dinar government securities 6 I.5.5 Secondary trading in dinar government securities excluding transactions effected up to two business days from the primary settlement date 6 II.2.1 Currency structure of FX forward transactions between residents and banks in Q2 216 8 Tables II.1.1 NBS swap transactions, quarterly data 7 II.1.2 NBS swap transactions in 216, monthly data 7 II.2.1 FX forward transactions between residents and banks, quarterly data 8 II.2.2 FX forward transactions between residents and banks in 216, monthly data 8 А Dinarisation indicators 9 11