BELGRADE – Serbia’s central bank warned yesterday against excessive credit expansion and said it would limit loan activity growth to 14 percent in 2003 to make sure new loans translate into growth rather than fueling import demand. To meet one of the key demands placed by the International Monetary Fund, the central bank will, on its part, stop lending to Serbia’s government, which was allowed to borrow from the bank an equivalent of 0.5 percent of gross domestic product in 2002. Serbia’s 2002 GDP was expected at some $14.5 billion. International and local economists have advised Serbia to carefully maintain its hard-won macroeconomic and monetary stability amid growing trade and budget deficits, weak industry, rising unemployment and an expanding black economy. New bank loans to corporate clients and households posted an almost 60 percent growth in 2002 without stimulating economic growth, the central bank governor, Mladjan Dinkic, told a news conference. The National Bank of Serbia, renamed after Yugoslavia became the Union of Serbia and Montenegro last week, said it would probe into a burgeoning bank liquidity and probably hike reserve requirement, now at 20 percent, to pre-empt possible risks. Average daily bank surplus liquidity hit 11.0 billion dinars ($189.9 million) in February – double the average in 2002. The bank has already hiked rates on its 30- and 60-day bills, used to drain surplus liquidity. The 30-day paper sells at an annual 10.5 percent up from 9.3 percent in January. The discount rate will, however, remain unchanged at 9 percent. «We saw a massive bank credit expansion in 2002. It exceeded all our expectations. Banks extended a total of 42.3 billion dinars’ ($730.4 million) worth of loans,» Dinkic said, adding the bank would step up control of banks’ credit portfolios. The higher bank lending activity in 2002 came with a rise in private savings to some 900 million euros ($968.8 million) from 200 million euros and an inflow of foreign direct investment and privatization receipts totaling $560 million. «A credit expansion is good to help the industry recover if it is accompanied by restructuring measures. But Serbia’s industry grew only 1.7 percent in 2002 and most of the credit growth resulted in higher import demand instead,» Dinkic said. He said policymakers would have to limit new loan growth to 14 percent to account for an expected 5 percent GDP growth and 9 percent inflation. To show its financial restraint and meet another IMF requirement, Serbia has vowed to cut its 2003 budget gap to 4.3 percent of GDP from 5 percent in 2002. It is due to start tapping the local market with T-bills by early March.