BELGRADE, May 14 (Reuters) - Serbia must tighten up its tax and regulatory framework to help tackle the mountain of non-performing loans weighing on its banking sector, an International Monetary Fund official said on Thursday.
Bad loans account for 23 percent of all lending in Serbia, where foreign banks account for 75 percent of the market. So far, four Serbian banks have collapsed under the weight of bad loans, at a cost of 800 million euros to the state.
But with its large budget deficits and high public debt levels, the government cannot keep picking up the tab for bank failures.
Daehaeng Kim, the IMF representative in Serbia, said there "was no space in public finances" to help tackle the bad loans, which in the corporate sector account for one-third of all lending.
"There is room for improvement which is not costly, removing tax impediment, removing regulatory impediment," he said when answering questions after a presentation on the Fund's regional annual report.
As part of a 1.2 billion euro loan deal with the IMF, Serbia has agreed to draw up a strategy to resolve its bad loan problems to keep its financial sector stable.
Last month central bank said the private sector should bear the cost of resolving the problem.
Kim said the IMF and Serbian authorities are working together to find ways to resolve the issue and provide a boost to credit growth.
"We hope we can deliver some result in a short time," Kim said. (Reporting by Ivana Sekularac; Writing by Aleksandar Vasovic; Editing by Hugh Lawson)