The government bond market in Serbia functions relatively well, but other segments of the capital market, such as the corporate bond market or the stock market, are currently still negligible. Between 2020 and 2024, only 11 companies issued a total of 32 corporate bonds, with a nominal value of 942 million euros. All but one company did so through private placement, according to the analysis of the law firm BDK advokati.Â
Only one corporate issuer, Energoprojekt Holding ad Beograd, listed its bonds on the Belgrade Stock Exchange for secondary trading.
The corporate bond market in Serbia faces challenges both on the supply side and on the demand side.
On the supply side, only a limited number of companies are now willing to issue corporate bonds mainly due to the complexity of the issuance procedure compared to familiar bank financing.
On the demand side, the investor base is still very shallow due to the limited number of institutional investors, the lack of incentives (such as tax incentives) and the general lack of confidence of retail investors in the capital market. Currently, potential investors in corporate bonds are predominantly banks.
In most countries, growth is driven primarily by investment from private rather than public sources. However, Serbia’s economic growth relies predominantly on public consumption and investments. According to the World Bank, Serbia will have to adapt and diversify its sources of financing if it wants to maintain its economic growth.
Currently, the financing of private sector investments in Serbia is significantly behind the average of the Western Balkans and Central and Eastern Europe.
Capital markets in Serbia are underdeveloped, and companies mainly rely on financing from banks. However, there are strategies and initiatives of the Government of Serbia and the World Bank that aim to stimulate the growth of the capital market and create new opportunities for investment through bond issues of Serbian companies, the report concludes.
Although, as he will assess, the banking sector is in good shape (capital adequacy, liquidity levels and levels of non-performing loans appear to be under control), banks may not be the ideal provider of capital for long-term investments, such as those needed for infrastructure, renewables energy sources and other social projects, because loans with a longer duration create a mismatch with the duration of bank deposits, most of which are short (up to a year).
The advantage of issuing corporate bonds compared to a bank loan is that it diversifies the company’s creditor base (reduces dependence on one or several financial institutions) and provides access to a large number of potential investors.
Also, if there is great interest from investors, the issuer can get better financing conditions. Finally, bond financing typically does not require collateral.
In order to encourage the growth of the capital market, the Government of Serbia adopted the Strategy for the Development of the Capital Market for the period from 2021 to 2026 and the accompanying action plan, which should encourage the development of the corporate bond market.
Also, the World Bank granted Serbia a loan in the amount of 27.7 million euros (30 million dollars) to support the capital market.
This loan will help the Government implement its Capital Market Development Strategy by strengthening relevant capital market institutions and encouraging legal entities to issue bonds, including green and thematic bonds.
