New Measures of the National Bank of Serbia Aimed at the Maintenance of Monetary Stability Radovan Jelašić, Governor Belgrade, February 24, 2006

New NBS measures aimed primarily at slowing down the speedy growth of consumer loans (1/3) Measure 1: When personal share is lower than 20%, or the monthly installment surpasses 30% of the debtor’s monthly income, the loan is classified into the “E” category (100% provisioning); Until now: classification into the “C” category (25% provisioning) Example: Until now, banks earmarked a special reserve of CSD 25,000 for the loan approved in the amount CSD 100,000. In future, the violation of the rule “20% + 30%” will be sanctioned by allocating the reserve in total amount of claim of CSD 100,000.. Мeasure 2: The bank needs to have in its credit documentation a certificate from the Credit Bureau for each physical person who wishes to take a loan – otherwise, this loan will be classified into the “E” category (100% provisioning) Until now: In case banks did not submit the statement from the Credit Bureau, they were obliged to classify the loans in one category below!

Меasure 3: Mortgage used for provisioning does not reduce the base for calculating the reservation sum, except in the following cases: –when approving housing loans to physical persons (for the purchase of an apartment, house and construction land, and for their renovation or repair), –when approving all types of loans to legal persons. Until now: Mortgage as a deductible was applied on all types of loans, with the base for the calculation of provisioning reduced by 50%. Example:A special reserve for cash loan provisioned by the mortgage at the level of CSD 5,000,000 and classified into the category until now in future C CSD 625,000CSD 1,250,000 D CSD 1,250,000CSD 2,500,000 New NBS measures aimed primarily at slowing down the speedy growth of consumer loans (2/3)

Меasure 4: The principle “20%+30%” applies on all loans to physical persons, apart from housing loans, regardless of maturity. Until now: First for a 5-year period, and then for a 10-year period (since November 2005). Measure 5: The following items have to be maintained in banks’ balances, in dinars only, gradually and not later than December 30, 2006: –Capital (~CSD 18 billion) –Claims with regard to the Paris and London Clubs (~CSD 13 billion) Еffect: A greater share of dinar-denominated loans! New NBS measures aimed primarily at slowing down the speedy growth of consumer loans (3/3)

With the aim of sustaining the existing level of sterilization, dinar interest rates have been raised considerably by the NBS and banks Balance of sold repo securities and the average weighted interest rate Movements of BELIBOR interest rate 2-weekly 6-monthly The NBS shall, primarily through market measures (i.e. sterilization and higher interest rates), preclude the further increase in the existing level of money supply; In the event such measures are insufficient, the NBS shall be forced to resort to modifying the required reserve rate; The fiscal instrument through sterilization on the account with the NBS is not only cheaper but also the most efficient one - interest rates are not raised, and thereby economic growth is not adversely affected! CSD bln

Spreads of commercial banks on consumer loans are not high enough to absorb the higher required reserve, i.e. more expensive money Depositor Annual interest rate on deposits 5% 10% 15% Cost of source* 6,05% 12,19% 18,29% 25-30% EIR in CSD Annual spreads even above 15%! 380 0% Annual interest rate on deposits 3.00% 4.00% 5.00% Cost of source* 4.84% 6.45% 8.06%   15-20% EIR in CSD Annual spreads even above 10%! Debtor 82,000 ? 620 ? Source in CSD Depositor 100,000 ? % 1,000 ? % Required reserve 38% Required reserve 18% 18,000 0% * Including only the most significant categorites!

Banks use different methods to hide the real price of the loan 1.By the introduction of the category of monthly reimbursement for the provision of service packs! Advice of NBS: Buy only the things you will use! 2.Retail price growth indexing + spread Advice of NBS: Do not borrow without knowing the real price of the loan! Comment: Marketing ploy only, without justification from the viewpoint of the balance sheet; banks do not offer deposits indexed by retail price growth! 3.Use of different currencies, e.g. the Swiss franc Comment: Marketing ploy mainly, with partial justification only if banks have savings in Swiss francs; In case of incorrect calculation of the EIR, the NBS may/has warned the public, and it has also undertook concrete measures!

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