Presentation Invest

8/10/2019 Presentation Invest

1/20

September 2014

Macroeconomic Developmentsin Serbia


2/20

Inflation Pressures are Low

Inflation is below the target tolerance band but is expected to return within the band by

the year-end

Inflation is below the target tolerance band mainly due to a

fall in food prices, resulting from lower agriculture prices.

However, disinflationary impact of food prices is waning

(contribution -0.2pp y-o-y in August).

Low core inflation is reflecting relative exchange rate

stability in the previous period and low aggregate demand.

Inflation expectations of the financial sector are anchoring

within the target tolerance band.

Disinflation pressures of food prices are about to dissipate

and contribute to rise in inflation in Q4 2014, along with

expected electricity price hike.

Low aggregate demand additionally suppressed by

additional measures of fiscal consolidation will remain the

strongest disinflationary factor.

Main risks to the projected inflation path are associated

primarily with global and fiscal developments.

Chart 1 CPI Developments

(y-o-y rates, in %)

Chart 2 Inflation Projection (from August 2014 IR)

(y-o-y rates, in %)

1.5

2.0

0

2

4

6

8

10

12

14

16

12009

3 5 7 911 12010

3 5 7 911 12011

3 5 7 911 12012

3 5 7 911 12013

3 5 7 911 12014

3 5 7

CPI InflationCPI excl. Food, Energy, Alcohol and Tobacco

0

2

4

6

8

10

12

14

32012

6 9 12 32013

6 9 12 32014

6 9 12 32015

6 9 12 32016

6

2


3/20

Net Exports and Investments - Main Drivers ofEconomic Activity

Construction activity to push GDP growth in

Q3

In the coming period GDP growth will be

driven by net exports and investments

Economic growth in 2013 was one of the highest in the

region (2.5%), largely driven by agriculture, automobile and

oil industry. Positive trends were recorded in several other

industrial branches - energy, chemical, electronic industry,

etc.

GDP declined by 1.1% s-a in Q2 due to negative effects of

flooding on energy sector and agriculture.

GDP is expected to grow by 0.5% s-a in Q3 supported by

reconstruction in the areas hit by floods.

In 2014 GDP is expected to decline by 0.5% with positive

contribution to GDP movement coming from net exports

and investments (contributions: C -1.6, I +0.2, GC-0.2

GI+0.5, NX +0.5pp).

Determined by the expected set of additional austerity

measures and consequently the decline in final

consumption, it is likely to expect short-term stagnation of

GDP in 2015.

Future growth will depend on the speed of the euro area

recovery and the pace of fiscal consolidation.

Chart 3 GDP Developments

(seasonally adjusted, Q1 2006=100)

Chart 4 GDP Growth Projection (from August 2014 IR)

(y-o-y rates, in %)

100

105

110

115

Q32008

Q1 Q32009

Q1 Q32010

Q1 Q32011

Q1 Q32012

Q1 Q32013

Q1 Q3*2014

*NBS estimate

-3

-2

-1

0

1

2

3

4

5

Q22012

Q4 Q22013

Q4 Q22014

Q4 Q22015

Q4 Q22016

3


4/20

External Imbalances Expected to Narrow Furtherdue to Suppressed Domestic Demand

Mays flooding and slowdown in external

demand due to increased geopolitical

uncertainties led to drop in exports

CAB is expected to improve further with low

domestic demand and recovery of external

demand

In Jan-July 2014 current account balance improved by

12.7% y-o-y, reflecting supply-driven growth of exports.

In the same period, exports grew by 7.7% y-o-y, while

imports grew by 2.5% y-o-y due to weak domestic demand.

In July exports stood 44.3% above their pre-crisis level,

while imports were 6.0% below that mark. Exports-to-

imports ratio stood at 73.9% (12-month moving average).

The highest contribution to improvement of CAD/GDP

ratio in 2013 came from chemical (1.1pp), automobile

(0.9pp), oil industry (0.8pp) and services (0.5pp).

Despite adverse effects of the floods on CAD/GDP ratio

(1.0pp), we expect this yearscurrent account deficit to be

lower than in 2013.

As domestic demand remains suppressed by the fiscal

consolidation measures, investments in tradables sector

and euro area recovery will lead to further improvement intrade balance.

Chart 5 Exports and Imports

(seasonally adjusted, 2008=100)

Chart 6 Current Account Deficit and Remittances

(% share in GDP)

40%

50%

60%

70%

80%

90%

60

80

100

120

140

160

180

12008

3 5 7 91112009

3 5 7 91112010

3 5 7 91112011

3 5 7 91112012

3 5 7 91112013

3 5 7 91112014

3 5 7

Exports, lhs

Imports, lhs

X/M coverage (12M MA), rhs

10.1

17.7

21.6

6.66.7 9.1

10.7

5.0

7.4 10.5

12.3

6.5 5.9

3.8

10,6

9,06,8

10,8 10,5 8,48,7

8,8 9,1 8,9

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015*

CAD (BPM-5) old methodology

CAD (BPM-6)** new methodology

Remittances

*NBS forecast** higher CAD according to new methodology arised from the statisticaldiscrepancy related to coverage of exports and imports of goods and inclusionof reinvested earnings in income account

4


5/20

he fall of the Serbias risk premium since theyear beginning was the highest in the region

Serbiasrisk premium on historical lows in the

last four months

Serbias external debt decreased due to

private sector deleveraging

Despite the recent increase by app. 40 bp, EMBI spread for

Serbia has seen the largest fall among the observed

countries in the region since the year beginning (by more

than 100 bp).

At the beginning of September it stood at app. 260 bp.

In April S&P confirmed Serbias BB- rating reflecting

government willingness to conduct fiscal consolidation and

expected speed-up in structural reforms. In July, Fitch

confirmed B+ rating for Serbia, with stable outlook.

Total external debt to GDP ratio dropped to 80.0% at the

end of Q2.

The deleveraging process is driven by banks, as

enterprises are increasing their exposure in 2014.

Gradual bank deleveraging is expected to continue in

2014, as declining lending activity is increasingly financed

from domestic savings.

Compared to other CEE countries, bank deleveraging is

modest (8.5% GDP reduction from maximum exposure).

Chart 7 EMBI Risk Premium

(basis points, daily values)

Chart 8 External Debt

(EUR m)

0

200

400

600

800

1000

122009

2 4 6 8 10122010

2 4 6 8 10122011

2 4 6 8 10122012

2 4 6 8 10122013

2 4 6 8

EMBI Global Romania

Hungary Poland

Turkey Serbia

Croatia Bulgaria

0%

10%

20%30%

40%

50%

60%

70%

80%

90%

-950

-700

-450

-200

50

300

550

800

1050

1300

1550

1800

Q22008

Q4 Q22009

Q4 Q22010

Q4 Q22011

Q4 Q22012

Q4 Q22013

Q4 Q22014

Enterprises, lhsBanks, lhsPrivate external debt in GDP, rhsExternal debt in GDP, rhs

*Excluding EUR 672.1 mln growth in corporate external debt which is the result of purchasetransactions between two associated companies and thus cannot be regarded as realcross border borrowing by firms.

5


6/20

Monetary Policy on Cautious Loosening Cycle

Recent depreciation of regional currencies due

to increased global uncertainties

Since June NBS kept key policy rate on hold

reflecting fiscal and external risks

The Dinar weakened by 2.7% in the first eight months of

2014.

Recent weakening of the dinar was driven by global

uncertanties, as well as by domestic factors - fiscal

uncertainty, higher CAD and increased demand for FX by

the energy sector.

In 2014, the NBS intervened in the IFEM by selling EUR

1015m and buying EUR 200m.

Risks of further escalation of geopolitical tensions could

negatively affect international capital flows and the

countrysrisk premium.

Implementation of fiscal consolidation measures will

contribute to the alleviation of external risks and help to

stabilize inflation at a low level, which will enable further

monetary policy easing.

Bank lending rates have been following the key policy

rate. Recent drop in lending rates resulted fromsubsidized loans programme initiated by the government.

Chart 9 Exchange Rate Developments

(Q2 2010=100)

Chart 10 Interest Rates

(y-o-y rates, in %)

50

55

60

65

70

75

80

8590

95

100

105

110

115

120

122009

2 4 6 8 10122010

2 4 6 8 10122011

2 4 6 8 10122012

2 4 6 8 10122013

2 4 6 8

Serbia Romania

Poland Hungary

Turkey

13.6

8.5

5

10

15

20

25

30

12009

3 5 7 911 12010

3 5 7 911 12011

3 5 7 9 11 12012

3 5 7 9 1112013

3 5 7 91112014

3 5 7 9

Private Sector* (3 months moving average)

Policy Rate

*weighted interest rate on non-indexed RSD loans (up to September 2010the data was exclusively used for research purposes of NBS)

6


7/20

Recovery of FDI Inflows is Expected

EU accession process, government stability

and structural reforms will stimulate FDIs

FDI inflows are well-diversified, with

increasing share directed at tradables sector

FDI recovered in 2013 as a result of projects in the

manufacturing sector, followed by finance and construction.

In the first seven months of 2014 FDI inflow of EUR 0.7bn

was recorded. Majority of the inflows targets energy sector

(45% of total), manufacturing (24%) and retail trade (7%).

Despite geopolitical tensions, significant inflow in the

medium term is expected from the South Stream gas

pipeline. Bilateral agreements will result in increased inflows

from UAE and China.

Before the crisis, dominant share of FDI inflows was

directed at financial services and real estate.

Share of investments directed at tradables sector is

increasing, and is expected to contribute to future exports

growth.

Chart 11 Net FDI

(EUR bn)

Chart 12 FDI Composition by sector

(% of gross inflow)

1.250

3.323

1.821

1.824

1.373 1.040

2.1970.669

1.229

1.250

1.400

0

2

4

6

8

10

12

14

16

18

2005 2006 2007 2008 2009 2010 2011 2012 2013 Total 2014* 2015*

FDI (BPM-6)**

FDI (BPM-5)

14.3%

6.4%

5.6%

4.7%

3.7%

7.0%

* NBS forecast **as of 2010, includes intercompany loans and reinvested earnings

2.3%

14.726

3.8%

4.3%

3.9%

6.2% of GDP

0

20

40

60

80

100

2007 2008 2009 2010 2011 2012 2013

Other Construction & real estate

Finance Trade & repairs

Manufacturing Tradable sector share*

*includes manufacturing, agricultre, transport, accomodation, food services

7


8/20

Fiscal ConsolidationMain Challenge for the Government

Set of additional austerity measures is to be

implemented by the government

which will stabilize public debt-to-GDP in

the medium-term

In H1 general govt. deficit amounted to 7.6% of GDP (incl.

below-the-line items) mainly due to high interest payments

(3.7% of GDP). Fiscal deficit is expected to reach 8% GDP

in 2014 partly due to flooding.

The austerity measures adopted earlier this year include the

preferential VAT rate increase, introduction of the solidarity

tax on wages in public sector and employment freeze.

Consolidation measures to be implemented in Q4 mainly

include cuts in public wage and pension bills, speed-up publicsector reforms and should result in stand-by arrangement

with IMF.

Public debt amounted to 20.9bn (67.0% of GDP) at the

end of July 2014.

In order to stabilize public debt in medium-term (by 2017),

a fiscal adjustment of app. 5pp of GDP is required over

2014-2017 period.

Reduction in below-the-line items (projected at 1.7% of

GDP in 2014) including loan guarantees to public sector

and bank recapitalizations is essential to stabilize public

debt.

Reform of public enterprises will contribute to this process.

Chart 13 Fiscal Revenues, Expenditures and Result

(% share in GDP)

Chart 14 Public Debt

(EUR bn)

-10

-8

-6

-4

-2

0

2

4

6

8

10

30

35

40

45

50

55

60

2006 2007 2008 2009 2010 2011 2012 2013 Q12014

Q2

Fiscal balance, rhs Primary balance, rhs

Revenues, lhs Expenditures, lhs

0

10

20

30

40

50

60

70

-1

1

3

5

7

9

11

13

Q22010

Q4 Q22011

Q4 Q22012

Q4 Q22013

Q4 Q22014

External, lhs

Internal, lhs

% of GDP, rhs

8


9/20

The Pace of Contraction in Bank Lending isSlowing Down

High banking sector capitalisation due to

restrictive monetary policy and strong

prudential measures (in pre-crisis period)

Improvement in lending activity resulted from

government`s subsidized loan programme to

the coorporate sector

In 2014 banks kept high level of CAR from 2013, ending

une 2014 with 20.4%, mainly due to recapitalizations and

lower credit risk-weighted assets.

Stress tests show that Serbian banking sector is resilient to

potential negative shocks.

After a more than a year, the pace of contraction in bank

lending has softened.

Subsidized loans contributed to a mild recovery in bank

lending to enterprises (liquidity loans and loans for

financing of durable working capital). From mid May to

mid August RSD 78.2bn worth of subsidized loans was

extended.

The y-o-y growth in credit to households picked up slightly

to 4.4% in July.

Chart 15 Capitalization of the Serbian banking sector

(CAR, in %)

Chart 16 Bank Lending to Enterprises and Households

(y-o-y rates, excluding exchange rate effects, in %)

20.4

0

5

10

15

20

25

30

Q1Q22009

Q3Q4Q1Q22010

Q3Q4Q1Q22011

Q3Q4Q1Q22012

Q3Q4Q1 Q22013

Q3Q4Q1Q22014

Basel Standard (8%)

Regulatory Minimum (12%)

Introduction of Basel II

-7.6

4.4

-3.1

-0.9

-15

-10

-5

0

5

10

15

20

25

12010

3 5 7 9 11 12011

3 5 7 9 11 12012

3 5 7 9 11 12013

3 5 7 9 11 12014

3 5 7

Enterprises Households

Total Total*

*With the exclusion of four delicensed banks' receivables

9


10/20

Banking Sector Credibility Sustained

Household FX savings grew by more than

3.5bn since 2008

Reserve requirement policy is set to stimulate

dinar and longer-term bank funding

After a drop in Q4 2008, FX savings has been increasing. At

the end of July 2014 it stood at 8.5bn.

Good memory from 2008 (unhampered withdrawals of

savings after Lehmans collapse) contributed to rise in

savings afterwards.

Savings were unaffected by delicensing of the four banks

over last two years.

Although still low, RSD savings have doubled compared to

2012-end.

As of June 2012, RR ratios are as follows:

FX: 29% for < 2y, 22% for > 2y;

FX indexed deposits: 50% regardless of funds maturity;

RSD: 5% for < 2y, 0% for > 2y.

During January 2011 August 2014, RR allocated in FX

decreased by 967.6m, while RR allocated in dinars

increased by RSD 84.7bn.

Chart 17 Household FX Savings

(EUR bn, e.o.p.)

Chart 18 Reserve Requirement Ratios

(in %)

0

5

10

15

20

25

30

35

40

45

0

1

2

3

4

5

6

7

8

9

12008

4 7 10 12009

4 7 10 12010

4 7 10 12011

4 7 10 12012

4 7 10 12013

4 7 10 12014

4 7

FX savings, bn EUR, l.h.s.

LC savings, bn RSD, r.h.s.

29.0

30.0

50.0

5.0

25.0

22.0

0.00

10

20

30

40

50

12011

3 5 7 9 11 12012

3 5 7 9 11 12013

3 5 7 9 11 12014

3 5 7

FX 2y

10


11/20

Although Non-Performing Loans Are High,Banking Sector is Stable

Non-performing loans are high ...but potential losses are fully covered

Main drivers of total NPL are companies in manufacturing,

trade and construction sectors and entities in bankruptcy

procedure (included in othersectors).

NPL in the households sector are significantly below the

average (10.4% in July 2014).

NBS has adopted certain regulatory measures aimed at

resolving NPL, but economic recovery dynamics and

effectiveness of legal framework will be equally important.

Gross NPLsare fully covered by balance sheet loan loss

reserves, i.e. regulatory provisions (112.0% in July 2014).

IFRS provisions cover more than half of NPL (54.3% in

July 2014).

NPL net of IFRS provisions to capital reached 34.4% in

July 2014.

Chart 19 Gross NPL ratio by sectors

(in %)

Chart 20 Gross NPL coverage ratio

(in %)

10.4

22.8

27.1

0

5

10

15

20

25

30

35

40

12009

3 5 7 911 12010

3 5 7 911 12011

3 5 7 911 12012

3 5 7 911 12013

3 5 7 911 12014

3 5 7

Households

Total NPL

Corporates

Other sectors

34.9

112.0

54.3

40

60

80

100

120

140

160

Q1Q2Q32009

Q4Q1 Q2Q32010

Q4Q1Q2Q32011

Q4Q1Q2Q32012

Q4Q1Q2Q32013

Q4Q1Q2 7 2014

Regulatory provisions

(balance only) to gross NPLIFRS provisions of total loansto gross NPL

11


12/20

Banking Sector Profitability Recovered in 2014

Serbian banking sector is highly liquid Profitability is still negatively affected by high

write-offs

Liquidity ratio is far above the regulatory limit (in July 2014 it

stood at 2.6).

High share of liquid assets to total assets (37.5% in July

2014).

The loan-to-deposit ratio for the banking sector is on

conservative level (1.1 in July 2014).

In 2013 negative profitability of banking sector was driven

by 2 banks (which contributed to 50% of all banking

sector losses), one of which withdrew from the market

through the firesaleof assets.

Pre-tax profit is 159 m for the first seven months of

2014 (ROE is 5.3 and ROA is 1.1).

Net interest income and net fees are key components and

drivers of operating income. Net interest margin to

average assets is stable (cca 4%).

Chart 21 Liquidity Chart 22 Profitability

(in %)

20%

25%

30%

35%

40%

45%

50%

55%

60%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Q1Q2Q32009

Q4Q1Q2Q32010

Q4Q1Q2Q32011

Q4 Q1Q2Q32012

Q4Q1Q2Q32013

Q4Q1Q2July 2014

Loans / Deposits (lhs)

Liuidity ratio (lhs)

Liquid assets to total assets (rhs)

1.1

2.6

37.5%

50

55

60

65

70

75

80

-2

0

2

4

6

8

10

2009 2010 2011 2012 2013 July2014

ROE (lhs)

ROA (lhs)

Cost to income (rhs)

* Data for ROA and ROE without Agrobanka (2011) and Razvojna bankaVojvodine (2012)

12


13/20

Large Share of Newly Extended Loans is inDomestic Currency

Coorporate sector is relying more on domestic

bank loans

The new program of government subsidies

gave a boost to corporate loan dinarisation

from June

The outstanding amount of cross border loans is lower than

in 2010, albeit a small increase is registered in H1 2014.

A slight growth of domestic bank loans to enterprises and

stable household borrowing resulted in a small rise of the

share of coorporate and household debt in GDP.

In July 78.3% and 48.6% of new loans to households and

enterprises, respectively, were denominated in local

currency.

Still high interest rate differential contributed to the

increase in the deposit dinarization.

The Government favors local currency savings through its

tax policy and promotes the development of dinar

securities market by issuing longer-term dinar bonds.

NBS supports dinarization through its required reservespolicy.

Chart 23 Private Sector Debt in GDP*

(share in GDP)

Chart 24 Loan and Deposit Dinarisation

(share in total)

4.17.2

11.0 10.4 9.69.0 8.8 8.6 8.8

4.6

6.2

7.27.9 9.1

9.79.8

8.8 8.92.6

3.9

4.9

4.95.4

5.85.8

5.9 5.9

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010 2011 2012 2013 Q22014

Loans to households

Domestic loans to enterprises

Cross-borders**

* Values in white are in EUR bn** Starting from 2012. EUR 672.1 mln and EUR 680.6mln as of March 2014 is excluded

from corporate external debt as a result of purchase transactions between two associated

29%

24%24%

15%

20%

25%

30%

35%

12010

3 5 7 9 11 12011

3 5 7 9 11 12012

3 5 7 9 11 12013

3 5 7 9 11 12014

3 5 7

Loans to enterprises and households

Deposits of enterprises and households

25%

13


14/2014

Structural slides


15/20

Compared to Pre-Crisis Period GDP Growth isMore Sustainable

Consumption-led GDP growth averaged 4.6%

in the period 2005-2008, but the trend reversed

during the crisis

GDP composition has shifted towards less

consumption and more net exports and

investments

Prior to the crisis, high capital inflows led to consumption-

based growth which resulted in increased vulnerabilities and

external imbalances.

With the first wave of the crisis, this trend reversed and

growth became slower, but more sustainable and driven by

net exports and investments.

Large scale investments in automobile and oil industry

(2011 2012) will contribute to rebalancing in the upcoming

years.

As a consequence of the crisis, the share of private

consumption in GDP is declining, bringing painful

adjustments.

Continuation of EU accession process and euro area

recovery will lead to an increase in tradable sectors FDIs,

contributing to more favorable GDP composition.

Fiscal consolidation measures and structural reforms, will

unlock growth potential by removing bottlenecks and

constraints to future growth.

Chart 25 Contributions to Real GDP Growth

(y-o-y rates, pp)

Chart 26 GDP Composition

(share in GDP)

5.4

3.6

5.4

3.8

-3.5

1.0

1.6

-1.5

2.5

-0.5

0.0

-16

-12

-8

-4

0

4

8

12

16

20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015*

NX G

I C

CII GDP

* NBS forecast

81.2% 81.7% 80.2%78.0%77.8% 74.8% 73.6%70.1%

-28.9%-20.4%

-17.1%-19.3%

-20.0%-14.5%

-14.1%-11.3%

-40%

-20%

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*2015*

C I G CII NX

* NBS forecast

15


16/20

Serbias Main Trading Partner is the EU

Serbiasmajor export partners are the EU and

CEFTA

More than half of Serbiasimports come from

the EU

Share of exports to EU-28 amounted to 66.6% of total.

Within the EU main export partners in H1 were Italy and

Germany (share of 18.9% and 12.5% of total exports,

respectively).

Serbia is a net exporter to CEFTA countries. Over two thirds

of Serbias CEFTA-bound exports go to Bosnia and

Herzegovina and Montenegro (8.2% and 4.9% of total,

respectively).

Russia is also an important export destination (6.5% oftotal).

In H1, major import partners from the EU-28 were

Germany and Italy (12.1% and 12.0% of imports,

respectively).

Share of imports from EU-28 amounted to 64.0% of total.

Outside of the EU, Serbia was importing most from

Russia (10.9%) and China (7.5%).

Chart 27 Exports by Country in H1 2014

(EUR m)

Chart 28 Imports by Country in H1 2014

(EUR m)

0

200

400

600

800

1000

1200

ITA GER BH RUS ROM MNE MKD SLO0

100

200

300

400

500

600

700

800

900

1000

GER ITA RUS CHN POL HUN AUT

16


17/20

17

Appendix


18/20

18

Chart 29 Contributions of CPI Components to y-o-y Inflation

(y-o-y rates, pp)

In the last year y-o-y inflation fell by 5.8pp of which -2.2pp (around 37%) is attributable to food prices.

Core inflation, which is the persistent part of the inflation, shows low inflationary pressures since the beginning

of the year.

Waning Disinflationary Impact of Food Prices

0.2

0.8

0.70.0

-0.2

1.5

-4

0

4

8

12

16

12010

2 3 4 5 6 7 8 9 101112 12011

2 3 4 5 6 7 8 9 101112 12012

2 3 4 5 6 7 8 9 10 1112 12013

2 3 4 5 6 7 8 9 101112 12014

2 3 4 5 6 7 8

Energy Services Industrial products excl. food and energyProcessed food Unprosessed food CPI InflationTolerance Band Inflation Target


19/20

19

Serbias Economic Outlook

2008 2009 2010 2011 2012 2013 2014 2015Real GDP, y-o-y % 3.8 -3.5 1.0 1.6 -1.5 2.5 -0.5 0.0

Consumption, y-o-y % 6.7 -2.8 -0.9 -1.1 -1.8 -1.5 -2.1 -4.7

Investment,1y-o-y % 16.1 -23.3 -6.8 12.6 15.8 -2.2 1.5 8.0

Government, y-o-y % -0.2 -4.6 0.3 -0.4 2.6 -6.9 1.7 -3.2

Exports, y-o-y % 9.8 -8.0 15.3 3.4 1.8 16.6 5.8 7.5

Imports, y-o-y % 9.6 -19.1 3.1 7.0 1.9 2.0 3.5 1.1

Unemployment Rate, %4 13.6 16.1 19.2 23.0 23.9 22.1 21.0 21.5

Real Wages, y-o-y % 5.6 0.8 1.0 0.2 1.1 -0.6 -1.0 -2.9Money Supply (M3), y-o-y % 9.8 21.5 12.9 10.3 9.4 4.6 - -

CPI,2y-o-y % 8.6 6.6 10.3 7.0 12.2 2.2

National Bank of Serbia Repo Rate,3% 17.8 9.5 11.5 9.75 11.25 9.5 n/a n/a

Current Account Deficit BPM-5 (% of GDP) 21.6 6.6 6.7 9.1 10.7 5.0 - -

Current Account Deficit BPM-6 (% of GDP) - - 7.4 10.5 12.3 6.5 5.9 3.8

General Government Deficit (% of GDP) 2.6 4.5 4.7 4.9 6.5 5.0 5.55

4.25

Augmented Fiscal Deficit6(% of GDP) - - - - 7.5 5.9 7.1

55.2

5

4Labor Force Survey5MoF Fiscal Strategy (2013)6Includes below -the- line items, MoF data

Excluding the eff ect of change in inventories

Inflation figures in the table represent Dec on Dec inflation: (Pt/Pt-12)*100-100

End of period data

Chart 2

SerbiaNBS Forecast


20/20

20

Banking Sector Overview

2008 2009 2010 2011

Number of banks 34 34 33 33 32 * 30* 29*

Employees 32,342 31,182 29,887 29,228 28,394 26,380 25,502

Branches 2,734 2,635 2,487 2,383 2,243 1,989 1,850

HHI Assets 627 636 629 664 678 741 776

Share of foreign banks, % 75.3 74.3 73.5 74.1 75.2 74.3 74.9

Assets (net), EUR m 20,056 22,530 24,015 25,211 25,322 24,827 24,704

Capital, EUR m 4,740 4,667 4,720 5,104 5,198 5,186 5,249

Loans (gross),EUR m 13,071 13,404 15,324 17,204 17,273 16,140 16,144

Of which gross NPL,EUR m 1,474 2,103 2,592 3,275 3,217 3,448 3,681

Gross NPL ratio, % 11.3 15.7 16.9 19.0 18.6 21.4 22.8

Deposits, EUR m 11,565 13,570 14,263 14,584 14,936 15,067 15,125

Pretax Income, EUR m 392 209 241 296** 230*** -18 159

CAR, % 21.9 21.4 19.9 19.1 19.9 20.9 20.4****

Liquidity Ratio 1.8 1.9 2.0 2.2 2.1 2.4 2.6

FX ratio, % 7.4 3.6 3.9 6.2 5.5 4.4 2.6

ROA, % 2.08 1.02 1.08 1.23** 0.97*** -0.07 1.12

ROE, % 9.27 4.62 5.37 6.04** 4.65*** -0.36 5.29

NIM1, % 5.4 5.1 4.6 4.6 4.3 4.2 4.2

1NIM to average total asset

***** last available data June 2014

** w ith Agrobanka: Pretax Income 12.0m , ROA 0.05, ROE 0.24

*** w ith Razvojna banka Vojvodina: Pretax Income 102.5m, ROA 0.43, ROE 2.05

Serbia2012 2013

July

2014

* the National Bank of Serbia revoked Nova Agrobanka's operating licence on 27 October 2012, on 6 April 2013 the National Bank of Serbia revoked operating licence to Razvojna

banka Vojvodine , to Privredna banka Beograd on 26 October 2013 and Univerzal banka Beograd in January 2014

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