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12/06/2018

The Financial Stability Council held the forty session today, chaired by Mr Radoje Žugić, Governor of the Central Bank and the Chairman of the Council. All other members of the Council were present at the session: Mr Darko Radunović, Minister of Finance, Mr Branko Vujović, Mr President of the Council of the Insurance Supervision Agency, and Mr Zoran Djikanović, President of the Capital Market Commission. Mr Predrag Marković, Director of the Deposit Protection Fund, attends the sessions of the Council upon the invitation.

At today's session, the Report on the Work of the Financial Stability Council for 2017 and the information on the financial stability status for the first quarter of 2018 were discussed, as well as current issues under the competence of the Council.

The Report for 2017 includes a review of the activities of the Council in the previous year, as well as current issues regarding policies related to financial stability. Also, the financial stability risk indicators were set out in the Report, based on which an expert assessment of their level was made. On the basis of these estimates, the systemic risk of financial stability is assessed as moderately stable, with the presence of certain real sector risks that continue to affect the increase in pressures in the fiscal area, as well as the risk of insufficient income of the economy and households that slow down the recovery dynamics.

During 2017, the banking sector was highly liquid with the declining credit risk. The insurance market is stable, while the capital market is still recording a moderate recovery. Fiscal risks are still significant, but due to the implementation of fiscal consolidation measures, their intensity and the influence on financial stability have been reduced from rising to moderate.

The Council concluded that it is necessary to continue with the economic policy aimed at consolidating public expenditure, growth and recovery of the economy, to continue investment expenditure in order to achieve long-term prosperity and economic development. It is necessary to define the improvement of the business environment as a priority objective of all competent authorities in the country. In this direction, it is necessary to implement structural reforms, in the domain of creating revenue policy, health and pension insurance sectors, and to further strengthen the stability through harmonization with the acquis communautaire.

Financial Stability Report for the first quarter of 2018 considered the impacts from the international and domestic macroeconomic environment, as well as from the financial sector, including risks and potential vulnerabilities that could have implications for systemic stability.

It was stated that in the first quarter of this year, positive influence from the international environment continued, especially from the European environment. In the countries of the Euro area economic growth amounted to 2.5%, while the ECB did not change the reference interest rates.

Concerning the domestic macroeconomic environment, during the first quarter of the current year, positive trends were recorded in the area of industrial output (growth of 39%) and retail trade (growth of 4.9%), as well as in the construction and tourism sectors. Namely, the number of tourist arrivals in the first three months of 2018 increased by 28.7% compared to the same period of the previous year, while the value of completed construction works increased by 46.8%.

Positive trends have also been recorded in certain fiscal indicators, so the original budget revenues for the first three months of 2018 are 10% higher than in the same period of the previous year.

When it comes to the situation in the financial sector, the indicators of stability and quality of operations at the banking, insurance and capital markets are positive recording positive trends.

The Council concluded that the trends in the first quarter were positive and that they have an impact on the expected recovery of the economy and, consequently, on the stability of the system.

Discussing the current issue of trade in virtual "currencies", the Council members concluded that these "currencies" are characterized by high volatility and unpredictability, and one should be very careful with investing in them. It was emphasized that transactions with these "currencies" are covered neither by a regulatory framework, nor by supervision, and all risks are assumed by individual investors.