The domestic financial sector welcomed the pandemic well-prepared, with capital and liquidity that allowed financial organizations to react immediately to ensure financial stability in the market. As in the whole world, the final effects of the current crisis on financial operations can be seen only when the overall consequences for the real sector are known, ie how fast the rest of the economy will begin to recover, says Katarina Ocokoljic from the Association of Financial Institutions of the Serbian Chamber of Commerce.
The financial sector of Serbia has welcomed the coronavirus pandemic in the black. According to the data of the Agency for Business Registers (APR), the entire sector operated positively in 2019, but with less profit. Banks recorded a 9% drop in profitability, financial leasing by 42.7%, and broker-dealer companies by 20% compared to the year before. In contrast, the growth of profitability was achieved by insurance companies by 28.2%, and the same source states that the profit was increased by voluntary pension funds and investment funds.
Analyzing the measures taken by governments and central banks in the world to mitigate the effects of Covid-19 on the economy and what will be the further repercussions on global financial stability in a situation of huge economic turmoil, the International Monetary Fund (IMF) pointed out in its latest report from the rare good news the fact that banks faced this crisis better capitalized than when the global financial crisis occurred in 2008.
This is largely the result of regulatory changes that followed precisely with the aim of making banks better prepared for possible future market disruptions, the report concludes.
Banks in Serbia, which make up 90% of the domestic financial sector, are also ready for a pandemic, because in the previous period they significantly strengthened capital adequacy and liquidity, said Katarina Ocokoljic, secretary of the Association of Financial Institutions of the Serbian Chamber of Commerce.
According to her, the National Bank of Serbia (NBS) timely adopted a series of preventive measures that significantly ease the financial position of citizens and the economy during the state of emergency, reducing the reference interest rate by 50 basis points to 1.75%. Decisions on a 90-day credit moratorium were also adopted.
“Nearly 95% of citizens and over 90% of companies that have obligations to banks have decided to accept the moratorium. This has reduced the possibility of creating insolvency chains, which is proven by the fact that there has been no significant increase in the activation of collateral, nor an increase in the number of companies and entrepreneurs in the blockade,” Ocokoljic emphasizes.
The Central Bank has also taken measures to provide banks with additional liquidity through participation in the capital market, primarily through the mass issuance of corporate bonds. This will enable banks to more easily overcome the lack of expected income based on the inflow of funds from the collection of interest and principal for loans they have placed to citizens and the economy,” she said.
An additional incentive for the banking sector, but also for the economy, is the continuation of the support program for small and medium enterprises of the Ministry of Economy, which will co-finance the purchase of equipment in the amount of 25% of its value. Of that, 70% of procurement costs are financed from loans from banks or leasing companies, while the remaining 5% is the participation of the entrepreneur himself.
On the other hand, banks are ready to meet the needs of their clients, as in the case of granting liquidity loans during the moratorium, but also during the recovery after its expiration. About 50% to 60% of small and medium enterprises and almost 80% of micro clients have expressed the need for such loans, according to Ocokoljic.
When it comes to the domestic insurance market, the data of the Association of Financial Institutions PKS for the first quarter of this year show that a total of 220.8 million euros of own insurance premium was realized. That, along with 3.3 million euros of premium received from co-insurance, represents an increase of 17.5 million euros or 8.5% compared to the same period last year.
The growth was realized in the value of 12.5 million euros in non-life and 5 million euros in life insurance.
In non-life insurance, a dynamic growth of voluntary health insurance, crop and fruit insurance, general liability and casco insurance was observed, and the double-digit growth of life insurance premiums is particularly encouraging. The most intensive growth was recorded in the tariff “Other property insurance”, mostly in the type “Insurance of facilities under construction”.
Trends in the leasing industry also indicate moderate optimism, says Katarina Ocokoljic. Some branches of the economy, such as tourism and transport, did less during the pandemic and therefore tried to reduce costs. However, economic entities that had increased activity during the state of emergency procured commercial and passenger vehicles and equipment, which also ensured the conclusion of new leasing financing agreements.
Pension and investment funds operating in Serbia can preserve business stability, despite the consequences of the pandemic, Ocokoljic believes, and adds: “Experience from the past period shows that they are able to assess risks well when making investment decisions.” The fund industries are liquid enough to be able to meet their obligations even with slightly higher payments, with reduced payments.
According to the B&F interlocutor, our market is specific in that customers continue to invest in less risky products. This is also the reason why, for example, 90% of open-end investment funds are money market funds, which carry the lowest degree of risk and which have been the least affected by the current crisis.
“True, at the beginning of the pandemic, a withdrawal of funds was noticed, but soon there was a calming and stabilization in this sector,” explains Ocokljic, noting that monitoring and risk assessments are done on a weekly basis, so that any change can be responded to quickly.
Estimates of the impact of the crisis caused by the pandemic on stock exchange operations show that the Belgrade Stock Exchange has stagnated in turnover and prices, while on the other hand, the interest of domestic portfolio investors in trading on international stock exchanges has increased.
Analyzing the overall trends in the domestic financial market during the state of emergency, it can be concluded that the financial sector reacted very quickly, timely identifying industries and clients most affected by the consequences of the pandemic and most in need of appropriate support, says Katarina Ocokljic.
However, as in the whole world, the final effects of the current crisis on the operations of the domestic financial sector will be able to be seen only when the overall consequences for the real sector are known, ie how fast the rest of the economy will begin to recover, BiF reports.
