Serbia’s banking sector resisted recession in the face of global economic difficulties, and financial analysts said its stability could play an important role in economic recovery.
Dejan Jovovic, a former financial adviser at the Serbian Chamber of Commerce, said the Serbian market faces issues such as the lack of foreign investments and a huge insolvency rate.
Although the banks function under EU standards and have funds available to lend, the reference rate — the rate the central bank uses to set other interest rates — remains high.
“[The banks’] role in stability of the whole sector is very important. They have the capacity to simply connect businesses, credit them and speed up the development,” Jovovic told SETimes.
“Reduction of the reference rate, which is among the highest in the Europe, is one of the main measures that contributes to bank sector development, and in this way, to the whole market development,” Jovovic said.
Even with a reduction of Serbia’s 11.75 percent reference rate, the amount of problematic loans — those that are 90 days behind in their payments — could continue to cause difficulties. Estimates say that 20 to 30 percent of all loans in the country have been officially labeled as problematic.
“This significantly makes bank credit activity more expensive and slows down the whole economy,” Dusan Tomic, head of the financial sector department with KPMG Serbia, part of a global network of tax and advisory services, told SETimes. “There is no new money in the sytem, and new loans used to be used exclusively for liquidity.”
He added that accumulated unpaid loans are the biggest problem, both for Serbia’s banking sector and the whole economy — a fact that should be recognised and resolved by the government, regulators and the banks.
“High interest rates still characterise the Serbian banking sector. Expensive financing sources, high mandatory foreign exchange reserves and significant losses from problematic loans are discouraging owners from new recapitalisation and investments in the sector,” Tomic said.
“Additionally, it is necessary to solve the problem of lack of confidence in the local currency, because more than 70 percent of total bank funding remains in relation to the euro,” he said.
Some of the 33 active banks in Serbia achieved excellent results during last year, in spite of the overall difficult economic picture. Slavko Caric, president of the Executive Board of Erste Bank Serbia, said last year was the bank’s best business results since its arrival in Serbia in 2005.
“In 2012 we made several important moves for the bank and customers. We aired long-term corporate bonds in dinars, which contributed to expanding of the bank’s financing range in local currency. We did the same with a public offer at the primary segment of the Belgrade Stock Exchange, which is important for the development of the Serbian financial market. The secondary trading of these bonds has been started as well,” Caric told SETimes.
He added that Serbia has overcome a lack of solvency through subsidised loans, which have mobilised banks’ extra funds that would not otherwise have been injected into the economy.
“This money has, for sure, contribued to all payments in the whole economy sector, and it will decrease delays [of loan payments] to the bank sector,” Caric said.
He added that interest rates reflect an increased financing risk.
“We are trying to find the optimal combination, sustainable for us and for the customers, by providing various financing sources,” Caric said.
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Source SETimes
