S&P affirms Serbia at BB+, outlook stable
October 2023 – Standard & Poor’s (S&P) said it has affirmed Serbia’s long- and short-term foreign and local currency sovereign credit rating at BB+, with a stable outlook.
Net foreign direct investment (FDI) flows overfund the current account deficit, bolstering the central’s banks foreign exchange reserve position, but euroisation of the financial sector remains elevated, the global ratings agency said in a statement last week.
The stable outlook reflects the balance between challenges from weaker external demand in Serbia’s key trading partners in the EU, like Germany and Italy, its heavy dependence on Russian gas supplies, and, to a lesser degree, the economic uncertainties from the Russia-Ukraine war, against the country’s long-term growth prospects and prudent fiscal management.
The banking sector in Serbia is well capitalized, profitable, and liquid. In June, the system’s reported capital adequacy ratio was at a strong 22.3%, while the nonperforming loans ratio reached a historical low of 3.0%. However, given the present economic downturn and rising interest rates, we anticipate a short-term rise in the nonperforming loans ratio. Additionally, the issue of high euroization persists, with euro-denominated deposits and loans accounting for more than 50% of total stocks.”