Impact of the Economic Crisis to the Serbian Banking Sector Svetlana Gospic National Bank of Serbia Bank Supervision Department

Macro-economic environment has deteriorated due to the spill-over effects Common manifestations of several unfavourable pressures: Fall in global and domestic demand Slump in retail trade, which exerts additional pressure in Serbia given that this branch, along with financial intermediation, telecommunications, and transport, represents the key component of economic growth Slowing down of inflow of foreign capital both in respect of foreign direct investments and in respect of FX credits due to their increased prices Reduced availability of long-term resources for banks at the international capital market resulted in lower domestic credit supply, especially when it comes to retail placements The impact of the crisis on the region and Serbia was reflected in the higher risk premium and capital flight, along with the consequential depreciatory pressures Serbia, just as the other countries in the region, quickly succumbed to the spill-over effect due to its problematic position of international liquidity

Savings, FX Reserves, FX Rate…1/2

Savings, FX Reserves, FX Rate…2/2

GDP, Capital Inflow…

Credit Activity Trends

Absolute Growth of Credit Activity and NPLs (index, XII06=100) Growth of NPLs September 2008 – citizens 2.7%, economic sector 5.8% March 2009 – citizens 3.6% economic sector 11.6% (total 8.1%) Absolute Growth of Credit Activity and NPLs (index, XII06=100)

Legal Entities: Stock Growth Index; September 2007=100 Significant growth of the NPL90 index in respect of credits extended to legal entities is recorded in December 2008; this trend continued in March too, since the nominal growth of NPL stock amounted to 75%, out of which over 13% referred to this growth in March! In addition, the accelerated extension of the gap between the NPL stock and the stock of credits to legal entities continued – in the same period legal entities recorded the nominal growth amounting to 4.9 Credit Stock Growth NPLs Stock Growth Source of Data – ASB Извор података УБС

Natural Persons: Stock Growth Index; September 2007=100 As in the case of legal entities, significant growth of the NPL90 index was recorded in December; the trend continued in March too – nominal NPL stock growth in the first three months amounted to almost 50! Also, the gap between the NPL stock and the stock of credits to natural persons is extended – credits extended to natural persons in the same period recorded the nominal growth of 4.4 Credit Stock Growth NPLs Stock Growth Source of Data – ASB Извор података УБС

Cash Credits: Stock Growth Index; September 2007=100 In comparison with September 2007, when the prudential measures primarily aimed at cash credits came into effect, the gap between the growth of cash credits stock and NPL stock occurred already at the beginning of the monitoring period – in December 2007; The accelerated growth of NPLs in respect of cash credits started much earlier – in February 2008 and continued in March 2009; Decrease in stock of cash credits of 14 in the first three months of 2009, and growth of NPLs of 44 in the same period, triggered the trend of accelerated gap extension. Credit Stock Growth NPLs Stock Growth Source of Data – ASB Извор података УБС

Housing Credits: Stock Growth Index; September 2007=100 The index of NPL90 in respect of housing credits slowed down in March 2009, in comparison with the previous two months, in which the significant growth was recorded; Regardless of the almost unaltered nominal level of placements, we still cannot consider this to be the slump in credit activity, given the depreciation of dinar in relation to euro of about 1, and the appreciation in relation to the Swiss franc of about 1.2. Index, June 2007=100 Credit Stock Growth NPLs Stock Growth Source of Data – ASB Извор података УБС

Consumer Credits: Stock Growth Index; September 2007=100 The NPLs in respect of consumer credits continued the considerable trend of growth from the beginning of 2009, which, combined with the stagnation in the level of credit activity, indicates the deterioration of credit portfolio quality. In March, for the first time, the NPL stock grew in comparison with the stock from September 2007. Credit Stock Growth NPLs Stock Growth Source of Data – ASB Извор података УБС

Thanks to the Anti-Cyclical Policy…1/2

Thanks to the Anti-Cyclical Policy…2/2 30.11.2008 31.12.2008 31.1.2009 28.2.2009 31.3.2009 Total Sight Deposits 1.13 1.07 1.02 1.00 1.06 Total Sight Deposits + Short-term 0.58 0.55 0.52 0.50 0.51 Citizens’ Deposits (Sight) 3.54 3.25 2.78 2.83 3.08 Citizens’ Deposits (Sight + Short-term) 1.35 1.27 1.15 1.09 0.92 Total Citizens’ Deposits 1.25 1.18

Banking Sector – Liquidity Shock in October 2008 Psychologically induced withdrawal of FX savings affected the foreign exchange liquidity of banks, but the stability remained preserved due to the considerable liquidity reserves and easier foreign borrowing as a result of the regulatory relaxation. Net inflow and outflow of the new FX savings (in EUR million) Portfolio of repo securities of the NBS (in RSD billion) Foreign sources of banking sector funds (in EUR billion) Daily indicator of liquidity (regulatory minimum = 1)

Solvency…1/2

Solvency…2/2 Comparative review of the share of NPLs in the total credits, 2005-2008 (in %) in RSD billion Mar 09 Feb 09 Jan 09 Dec 09 Sep 09 Reserves 165.7 142.4 132.3 Transferred special reserve from income 67.0 61.6 53.8 Lacking amount of special reserve from income 98.7 80.8 78.5 NPLs Net 89.1 71.4 64.6 56.1 39.6 % of coverage 186.0 199.4 220.4 253.8 334.1 MAK* ROM* CRO* SER BIH ALB* MNT* HUN* *Data available as of 30.9.2008 Note: Due to the differences in tax, accounting and supervisory regimes, the total comparability between the countries is impossible. Source: IMF

Anti-Cyclical Policy Continues… FSSP (Financial Sector Support Program) Objective – preserving confidence of the public in the banking sector, and preserving the financial and macro-economical stability! Special support measures are aimed at: Providing a continuous accessibility to the sources of liquidity (dinar and FX) Stabilization of the foreign exchange market Preventive action in respect of preserving the quality of banks’ assets, by means of the following: Providing a framework for the changes in credit repayment conditions for the banks’ clients; Reduction in foreign exchange sources outflow; and Reduction in depreciatory pressures. The banks have confirmed the expected interest in the participation in this program, so that out of 34 banks operating in Serbia 31 banks have confirmed their interest in the participation in the National Bank of Serbia’s program.

Special support measures FSSP Special support measures Conditions of Use Dinar liquidity credits with maturity up to 12 months Foreign exchange swap transactions Default in collection of claims is determined on the basis of the newly-agreed maturity date + Exemption of the new foreign credits from the required reserves from October to the end of 2010, by the end of their repayment period Integrating the subordinate liabilities in the capital up to 75% of the core capital Raise the indicator of foreign exchange risk from 10 to 20% of the capital Written statement of the bank Conversion of FX and indexed credits into dinar credits Alteration of conditions for receivables repayment (extension of repayment period, or other ways which reduce the monthly obligations) Reporting on the exposure level IN ACCORDANCE WITH ONE’S OWN PROCEDURES FOR RISK MANAGEMENT! Written statement of the majority shareholders Maintaining exposures at the 2008 level during 2009 and 2010 Maintaining liquidity and solvency of a bank, and “quick action” Considering preventive increase of capital stock During the course of the program – fulfilling the taken obligations, coordinating the exposures

Future Activities Coordination of exposures – coordination deadline July 7th 2009 Diagnostic examinations of the 12 largest banks + 4 banks with the majority state ownership by the end of September 2009, by the end of 2009 for the remaining banks Objective – credit risk assessment and influence on capital adequacy Uniform methodology Stress testing Objective – assessment of adequate solvency sustainability in case of negative macro-economic trends Methodology coordinated with the IMF IFRS will be taken into consideration Informing banks on the methodology Conducting stress-testing Examination of results with the bank