Strong credit growth in Serbia has started eroding financial stability, IMF said in a report that assesses the country's financial system. The Fund underlined the high level of "euro-isation" and the fact that almost all credits extended are in euro's, which exposes borrowers (and thus indirectly lenders) to considerable foreign exchange risk. In addition it was noted that the share of non-performing loans of foreign banks was on the rise. The IMF also pointed to the vulnerability of the remaining state banks to inefficient governance. To minimize risk in the financial system, the Fund recommended implementing the recently adopted law on banks, improving institutional capacity and management practices, and continuing with privatisation. The measures of the central bank to limit credit growth last year were not successful, the IMF noted. Thus it recommended much tighter fiscal, income and monetary polices, coupled with reforms of the Central Bank itself. On the positive side, the IMF noted the entry of a number of foreign banks in the last 18 months, improving financial intermediation and economic growth.
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