Negative deposit rates not justified in Serbia according to NBS

The National Bank of Serbia (NBS) estimated on July 11 that it was economically unjustified to consider the application of negative deposit rates in monetary operations in commercial banks.

It was pointed out in the announcement by the NBS that the central bank didn't apply any negative deposit rates and that there was no basis for the commercial banks to consider applying negative deposit rates.

The fact is that in Serbia there's a positive, relatively attractive interest spread as the difference between lending and deposit rates, in dinars and foreign currency alike, which enables banks to operate with profit. In this context, the relationship between the cost of funding and earnings cannot be a justified cause for considering negative deposit rates either – the announcement says.

The NBS pointed out that even in countries whose central banks had been pursuing a negative interest rate policy over an extended period of time, commercial banks had refrained from introducing negative deposit rates to their retail and corporate customers, so as not to jeopardize the sustainability of their operations.

Examples of banks that did introduce negative deposit rates are rare and isolated cases. And even so, negative interest rates are applied in specific circumstances only – in transactions with large corporate clients for deposits above specific, very high values, the NBS said.

The central bank believes that building and improving good relations with customers and increasing the domestic deposit base is of vital importance for financial stability in Serbia, which, given the characteristics of the local financial system, is even more pronounced relative to countries whose central banks pursue a negative interest rate policy.

Therefore, in the estimate of the NBS, certain specific phenomena in the international surroundings are in no way appropriate and justified in Serbia, nor may they serve as examples to local banks.