Banks operating in Serbia are currently safe and resistant to the spillover of the crisis from two banks from the USA and Switzerland, since the level of capital and liquidity in Serbia is far above the legal minimum and the minimum valid in the Eurozone, Milan Nedeljković, professor, said today for financial markets and monetary policy and dean of the Belgrade Faculty FEFA.
He told Beta that the spillover of the crisis from the Swiss bank Credit Suisse and the Silicon Valley Bank (SVB)cannot shake the banks in Serbia, but that the decline of confidence in the banks can cause a crisis.
“It is crucial that the National Bank of Serbia comes out with a credible position that the banking sector is sufficiently capitalized, liquid and that there is no reason for mistrust and withdrawal of money, which would be dangerous for banks,” said Nedeljković.
SVB and Switzerland’s Credit Suisse Bank became insolvent overnight last week due to a series of bad investment decisions and the fear of clients who withdrew their savings in a panic. SVB Bank is the 16th largest bank and has lent money to start-ups, and Credit Suisse is the strongest bank in Switzerland.
Nedeljković said that this is the situation at the moment, but that the situation should be monitored. Today, as he said, the prices of bank shares are stabilizing – Credit Suisse shares have returned 21 percent, the prices of Unikredit, Inteza and other European banks are in the plus after yesterday’s losses, which means that tensions on the financial market are calming down.
“The question is what will happen in the next six months to a year, if there is a deterioration in those European banks that operate in Serbia. This will cause, not a direct effect on the banks on the domestic market because they are regulated by Serbian legislation, but there may be potential pressures on their funding sources as in 2011 and 2012,” said Nedeljković.
The crisis in the banks can be caused, according to him, by the imbalance of assets and liabilities in the banks’ balance sheets and by fear, as well as by the “psychology of clients”.
The sources of the bank’s financial resources, as he explained, are deposits on which the banks gave interest of one to two percent, and if someone wants to earn more in conditions of high inflation by investing in, for example, real estate, he can withdraw money from the bank.
In order, as Nedeljković said, to settle the requests for withdrawing money, banks must provide money from current liquidity, and if they do not have enough, they must sell part of the assets, that is, bonds at a lower price than the one at which they bought them, which creates ” unrealized loss”.
SVB got into a problem, as he said, because the clients’ requests for payments appeared, and the bank had two options: either to provide additional money, with which they will pay the depositors, or to sell bonds, which will bring them a negative financial result.
The unfortunate circumstance for SVB, according to him, is that it announced that it needs five billion dollars in cash, which “turned on the lights” among depositors who believed that something was wrong, and then there was fear and withdrawal of money.
“In order to improve the liquidity of Credit Suisse Bank, the Swiss Central Bank intervened with a loan of up to 50 billion francs because it is the second largest bank.
That bank is in a specific situation because it has had problems in the last two or three years with money laundering scandals, portfolio losses and it was the weakest link among banks in Europe, and that’s why when the crisis of distrust among investors arose, it was the first to be hit,” Nedeljković said.
He added that when a “negative sentiment” is created in the market, clients may cause a crisis due to panic or speculation.
As he assessed, the type of speculation is that if, for example, someone bought shares of Credit Suisse Bank yesterday, he made a huge amount of money today because the value of the shares that fell yesterday, due to the intervention of the American Federal Reserve (FED), returned 20 percent, so if yesterday invested 100 million euros in the purchase of shares, today he earned 20 million.
“What the FED and the Central Bank of Switzerland are doing is unusual and has never been practiced before. The FED, together with the Federal Deposit Insurance Corporation, presented emergency measures guaranteeing the deposits of the SVB bank and the crypto-lender Signature Bank, which was not valid until now,” Nedeljković said.
He added that the FED will approve that the bank can get unlimited financing, cash with the collateral of government bonds that will be valued at nominal value, which is a huge advantage for banks that have bonds in their portfolio whose price has fallen.
It is interesting, he said, how it will affect inflation and efforts to suppress it. In this way, according to him, a huge amount of money is injected into the system, and at the same time the interest rate is tightened in order to suppress inflation.
“And the Swiss central bank is a bit out of step with what is currently the goal of monetary policy, and we will see if and how much the European Central Bank will increase interest rates in the fight against inflation,” said Nedeljković.
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