Record high bank savings in Serbia

After years of reforms, the public is regaining their trust in banks and are no longer stuffing mattresses with their hard-earned money. The country’s banks currently hold about 3.2 billion euros in savings accounts. This is a 44.6 % increase in just one year, amounting to as much as 2.9 billion euro more than at the end of 2001.

The rise is a sign that the National Bank of Serbia’s (NBS) financial sector reforms are having an effect. Only five years ago, Serbia had some 80 or so quasi-state-owned banks that did not offer credit to the general public. Money was only available to privileged companies and those close to the Milosevic regime.

Today, Serbia has about 30 national banks. With the arrival of foreign banks, competition is brisk, as each vies to offer the best services and interest rates.

Through consumer loans, Serbs can finally afford a new fridge or a television, although a car or an apartment is still out of reach for many. Interest rates are still high due to Serbia’s credit risk, which is considerably higher than in the neighbouring countries, not to mention the EU.

Generally speaking, interest rates remain high across the Balkans due to political uncertainties. As Alexandar Piquert, chairman of the Executive Board of HVB Bank in Belgrade, explained for the Serbian economics magazine Business and Finance, the interest being charged in Serbia on money from abroad effectively amounts to 10%, as opposed to the current EU average of 3.9%.

The NBS, however, is not worried about high interest rates. In its view, the real problem is that the public has more confidence in foreign currencies than in the dinar — for both savings and loans.

Domestic currency savings are up to 35 times lower than foreign currency savings. Since the 1993 hyperinflation, Serbs have a deep fear of losing all their savings. As a result, they are not attracted by far higher interest rates on dinar savings deposits or savings bonds.

Serbia is by no means the only country where this is true. In Croatia, 65% of all savings deposits are in euros, while in Macedonia foreign currency savings deposits are twice as high as dinar savings deposits.

A few have taken the advice of NBS Governor Radovan Jelasic, who insists, “savings should be in the same currency as your salary”. Those who have reverted to dinar savings accounts over the past two years earn up to five times what they would if they deposited euros in the bank.