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Buy-Ups Shake Up Serbia’s Banking Sector - Serbia Business

Buy-Ups Shake Up Serbia’s Banking Sector

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Serbia’s banking sector is facing major changes, including mergers and takeovers, but bank clients are unlikely to feel many benefits, experts say.

Recent acquisitions of international banks by local buyers look like the first steps towards a long-awaited consolidation of Serbia’s banking sector.

However, most experts believe that despite the significant restructuring and regrouping that has started and is expected to continue in the banking sector, significant changes in the performance of this sector are unlikely.

“The potential for organic growth is quite limited,” Ismail Musabegovic, from the Belgrade Banking Academy, told BIRN.

MK Group, controlled by Serbian businessman Miodrag Kostic, on January 31 said its subsidiary, AIK bank, had agreed the takeover of Greek Alfa bank.

With around €1.5 billion in assets and 5.5 per cent of the market share, AIK is the sixth largest bank in Serbia already and now has a chance to improve its position.

Also at the end of January, Direktna Banka Kragujevac, owned by Serbian businessmen Andrej Jovanovic and Boris Milovanovic, bought 100 per cent of the shares in Findomestic, a subsidiary of BNP Paribas.

Previously, last July, the same two Serbian businessmen bought the subsidiary of Slovenian NKBM bank in Serbia, KBM Kragujevac, which now operates as Direktna Banka Kragujevac.

In both cases, the new owners have a successful history outside the banking world.

MK Group’s portfolio includes, among others, three sugar refineries in Serbia, the meat producer Carnex, hotels in the resort of Kopaonik, farmland in Serbia and Ukraine, the broker’s house M&W Investments and, since 2014, a controlling stake in AIK bank.

Jovanovic and Milovanovic were famous for successfully managing a chips factory Marbo, which they sold to Pepsi in 2008 for more than €200 million.

Jovanovic was also known as the manager of the holding Moji Brendovi, which integrated several known companies in the food industry, such as Imlek dairy, snack factory Bambi, and mineral water producer Knjaz Milos.

The acquisition of the two banks was only the latest in a series of important deals in Serbia’s banking sector in recent years.

In 2016, Czech Expobank, owned by Russian businessman Igor Vladimirovich Kim, bought Marfin Bank in Serbia from Cyprus Popular Bank.

Earlier, in 2015, the investment fund Advent and the European Bank for Reconstruction and Development, EBRD, took over the Austrian Hypo Group Alpe Adria, which now operates under a different name, Addiko.

The consolidation of banks through sales and merges is expected to continue, with the expected sales of other three Greek banks operating in Serbia – Piraeus, Eurobank EFG and Vojvodjanska Banka – the latter a subsidiary of National Bank of Greece Group, NBG – as well as the expected privatisation of Komercijalna Banka, in which Serbian government is the largest shareholder.

According to Serbia’s national bank, Narodna Banka Srbije, NBS, in the third quarter of 2016, the total assets of banks in Serbia was 3.172bn dinars, equal to €25.6bn.

Banks owned by foreign entities control three-quarter of these assets, with a dominating share, 64.4 per cent, belonging to banks originating from Italy, Austria, France and Greece.


Experts are not surprised by recent moves in the market, which they see as the long-awaited repercussion of the global financial crisis.

Musabegovic said that sales of Greek banks in the region forms part of a Greek agreement with the European Commission, European Central Bank and the International Monetary Fund, IMF.

“The Alfa [bank] is first to be sold and it is now subject to regulatory procedures and others are likely to follow,” Musabegovic said, adding that Piraeus Bank would likely be next in the queue.

Radovan Jelasic, former governor of National Bank of Serbia, now a member of the Hellenic Financial Stability Fund in Greece, confirmed in an interview for the daily Danas on January 28 that all Greek banks in Serbia are up for sale.

The process of consolidation had started but would take time, he said, reminding that the due diligence process alone, which precedes a takeover, takes months.

“Serbia now has 30 banks and we can expect this number to reduce to 20-to-25, through mergers and consolidation,” he noted.

Musabegovic added that both Alfa and Findomestic bank had failed to take the market share they were expected to grasp.

This had resulted in a reduced selling price, which worked to the advantage of the buyers. One of the key motives prompting domestic businessmen to buy Greek banks is the favourable price and potential for resale, Milan Culibrk, economic analyst and editor-in-chief of NIN weekly, said.

He said further consolidation was only a matter of time, given that some banks in question had failed to increase their market share above 1 per cent.

“Ten years ago, banks were being sold for two or even three times higher than the book price,” he recalled. “Now, the selling price is a half the book price or even cheaper.”

Another possible motive for the buy-ups, according to Culibrk, was a belief that banks’ operations could be improved, and they could become more profitable, which would allow the buyers to return the investment after a time.

Media reports have speculated that another reason for takeovers is to enable buyers to secure more loan potential to support their other businesses.

Culibrk, however, noted that regulations allow only a certain percentage of exposure to one client.

Musabegovic said buying up a bank at a lower than expected price was both an opportunity and a risk for the purchaser.

“The banks could have items in their balance sheets which can be seen only through in-depth analysis, which is why due diligence is so important,” he said. “A bank could also have on-going litigation which is only visible in the appendices to the financial reports,” he added.


Whereas Greece’s strategy for its banking sector is clear, the Serbian government’s strategy for partially or fully state-owned banks remains unclear.

Komercijalna Banka, in which the government holds 42 per cent of stocks, is expected to be put up for sale as part of an agreement with EBRD, its largest foreign partner.

The future of smaller state-owned banks is less clear, as many past ideas for merging several banks into one were never realised.

Merging small banks into one would likely “attract the interest of a respectable partner; if they are taken separately, this is unlikely to happen,” Culibrk said.

The only exception, he noted, was Cacanska Banka which was taken over by Turkey’s Halkbank. Besides business reasons, however, this purchase was motivated also by Turkey’s strategic goal of strengthening its position in Serbia and the rest of the Balkans.

Despite the recent takeover of the two foreign banks by local businessmen, the share of Serbian individuals and companies in Serbia’s total bank assets is likely to decrease, experts believe.

“If Komercijalna Banka, the second largest in the market, is put up for sale, the bidder is unlikely to be someone from Serbia, as it would require much larger capital than in previous cases,” Musabegovic said.

He also warned that one of the first consequences of market consolidation could be further reduction of the labour force.

“One of the first measures when the bank goes into restructuring is to reassess the bank’s network of branches as well as the labour force,” he noted. “A number of employees would probably lose their jobs in this process,” he added.

On the other hand, he expects no significant changes for bank clients or a dramatic change in the top five banks, namely Intesa, the market leader, Komercijalna Banka, Unicredit Bank, Raiffeisen Bank and Societe Generale.

He said AIK may be able to break into the top five, but otherwise, the current market order will not change significantly.

“There are not many good clients in the market and they are already well distributed,” he added.


Musabegovic also said that as banks find it “difficult to earn on big margins … it wouldn’t be a surprise if they try to compensate this by increasing the costs of other services, such as account maintenance, credit cards, etc,” he added.

Culibrk also does not expect mergers and increased competition to result in big improvements for bank clients, as the recent history shows. “Nothing dramatic will change, as we have seen it all before,” he said.

“When foreign banks first came to Serbia, it was expected that they would bring European rules of business, but it never happened,” he added.

“As one previous bank governor had said, they quickly gained Balkan manners and adapted to local practices,” he warned.

Interest rates in the past three years dropped significantly but Culibrk argues that external factors are the main reason for that.

The average interest rates on loans in 2016 fell to 4.4 per cent for loans in euros and to 8.8 per cent for loans in the local dinar, which was 10.1 and 2.8 per cent lower than the 2013 rates respectively.

“But it was only global trends that made them reduce the interest rates,” he said. “Record low interest rates on the global level and low inflation, also caused by external factors, made this possible,” he concluded.