Issuu

The GUIDE

Issue No. 7 • Volume 7 • June 2011 alliance international media

EDITORIAL

Another Challenging Year

became operational in this he Serbian banking sector, as the most vital region. Regardless of these segment of the Serbian economy, has been rediscouraging results, ten leasing companies mansisting the challenges of the global economic aged to record positive business results which are downturn, as well as the challenges of doing busistill not sufficient for the leasing industry in Serbia ness in Serbia for three consecutive years. Last year’s to be optimistic about 2011. results accomplished by our banks give cause for opDuring the first few months of this year, the timism. The 2010 pre-tax profits of the banking secBelgrade Stock Exchange indices were on the up, as tor increased by 27 percent compared to the year bewere the values of market capitalisation and turnfore. However, banks say that their profitability is lowover. These slight improvements are somewhat ener than in the neighbouring countries. Also, we are couraging, but still unsatisfactory. hearing certain critical opinions about several measIt is interesting to note that voluntary pension ures which have been implemented by the National funds have managed to survive and even record a Bank of Serbia (NBS), primarily those that pertain to positive result which, unfortunately, was not the case reducing the inflation rate. with investment funds in Serbia. The Governor of the National Bank of Serbia, Investment funds were unlucky in the sense that Dejan Šoškić, says that reducing the inflation rate their emergence coincided with the flourishing of to the projected percentage is the number-one task securities trading on the Belgrade Stock Exchange. for the central bank at the moment. It remains to be The descent of the value of securities which folseen whether the Governor’s expectations that, as lowed after this, as well as the global economic criof June this year, the inflation rate will start dropsis, totally depreciated the value of investment fund ping and will be reduced to the projected six percent, will eventuate. In 2010, the insurance market al- The National Bank of Serbia says so underwent some positive changthat reducing the inflation rate to the es. The balance assets of the entire sector went up by 18 percent, their projected percentage is the number-one capital grew by 10.5 percent and the task for the central bank at the moment overall premium by 5.6 percent. units. Some funds closed down, while others were However, the insurance experts say that we can acquired by other companies that manage investdeclare an insurance market developed when over ment funds. Despite these negative tendencies, this 50 percent of the total premium comes from life inindustry expects to recover. surance. This percentage in Serbia currently stands Without a doubt, 2011 will be yet another chalat 16.5 percent which is a clear indicator as to how lenging year for Serbia’s banking and financial sector. undeveloped this segment is. Maybe the goal for this year could be maintaining the While banks and insurance companies have ficurrent position and even improving it until realistic nancially benefited from their operations, leasing goals are accomplished. This very much depends on companies in Serbia ended last year with a loss how much our government is willing to help since it amounting to 8.25 million euros. The leading figures needs to understand just how significant this sector in this industry say that 2010 was the most economis for the overall development of Serbia. ■ ically challenged year since the leasing companies Serbian Banking & Financial Sector 2011

By TATJANA OSTOJIĆ Editorial Director

Contents The GUIDE

Serbian Banking & Financial Sector 2011

LOW INFLATION, STRONG INSTITUTIONS,

DEJAN ŠOŠKIĆ ŠOŠKIĆ, the Governor of the National Bank of Serbia

YOUR BUSINESS SOLUTION,

SBB SOLUTIONS

ZORAN VIŠNJIĆ, President of the Board of UNIQA Insurance Company

EDITORIAL CONTRIBUTORS Bobana Bratić, Marica Vuković, Danijela Jovanović

PROFIT LEVELS INCREASING,

Bank Operations in 2010

PHOTOS Marijana Šaponjić, Boško Karanović

ECONOMY WITH POTENTIAL,

TRANSLATOR Snežana Bjelotomić

PRINTING Rotografika d.o.o. Segedinski put 72, Subotica The Guide - Serbian Banking & Financial Sector 2011 published by: alliance international media Makenzijeva 67 11000 Belgrade, Serbia Phone: +(381 11) 245 05 08 Fascimile: +(381 11) 245 05 04 E-mail: office@allianceinternationalmedia.com www.allianceinternationalmedia.com ISSN no: 1451-7833 All rights reserved alliance international media 2011

MARKET ORIENTED,

40 42

Leasing

GROWTH DESPITE THE CRISIS,

LONG ROAD TO RECOVERY,

INDICES (AGAIN) ON THE RISE,

TRULY GLOBAL, Megatrend

YEAR OF RECOVERY,

SAVING FOR THE FUTURE,

MILENKA JEZDIMIROVIĆ, General Director of Dunav Insurance Company (Dunav Osiguranje)

NEOCLIS NEOCLEOUS, Chairman of the Executive Board of Piraeus Bank

Private Pension Funds

AMBITIOUS PLANS,

KONSTANTINOS TSIOLIS, Piraeus Leasing and Piraeus Rent Managing Director

in Serbia

MODERATE GROWTH, The insurance market

Investment Funds

FINANCING BUSINESSES,

MIODRAG KOSTIĆ, Chairman of the Managing Board of AIK Bank

SLIGHT INCREASE OF APPROVED LOANS,

VEROLJUB DUGALIĆ, Secretary General of the Association of Serbian Banks

GENERAL MANAGER Ivan Novčić i.novcic@cma.rs

EDITORIAL MANAGER Tanja Banković t.bankovic@cma.rs

HILDEGARD GACEK, Director at the Serbian Office of the European Bank for Reconstruction and Development (EBRD)

PROJECT MANAGERS Vesna Vukajlović, v.vukajlovic@aim.rs; Marija Savic, m.savic@aim.rs; Jelica Lepori, j.lepori@aim.rs; Nataša Popović, n.popovic@aim.rs;

FINANCIAL DIRECTOR Ana Besedić a.besedic@cma.rs

Euronet Worldwide

INCREASE IN PREMIUMS AND PROFITS,

ASSISTANT EDITOR Slavka Kovač s.kovac@aim.rs

PROOFREADER Philomena O’Brien

BRINGING CURRENCY TO LIFE,

EDITORIAL DIRECTOR AND EDITOR IN CHIEF Tatjana Ostojić t.ostojic@cma.rs

ART DIRECTOR Ilija Petrović i.petrovic@aim.rs

Serbian Banking & Financial Sector 2011

GORDANA DOSTANIĆ, Director of the Belgrade Stock Exchange

INTERVIEW Dejan Šoškić, the Governor of the National Bank of Serbia

Low Inflation, Strong Institutions Serbia should base its chances for healthy development on low inﬂation and the real appreciation of the dinar based on the growth of productivity and the economy’s competitiveness

By SLAVKA KOVAČ

“T

he National Bank of Serbia’s number one task at the moment is reducing the inflation rate to the projected level, but this certainly does not exclude dealing with the country’s macroeconomic challenges, both mid- and long-term,” says Dejan Šoškić, the Governor of the National Bank of Serbia (NBS), in an interview for the ‘Serbian Banking & Financial Sector’.

► Inflation is projected at 6% in 2011. Is the end-of-

year projection feasible? - Inflation is projected at 4.5+/-1.5% in 2011. However, the growth in food, processed food and regulated prices triggered a 5.5% inflation rate in Q1 this year. Note that the methodology applied by the National Bank of Serbia (NBS) to monitor and target inflation is a yearon-year change in the consumer price index (CPI), i.e. the level of inflation in a certain month this year over the same month in the previous year. April 2011 infla-

target for this year. CPI is highly likely to fall back to the target tolerance band in the first half of 2012. ► Regulated price growth planned for 2011 is 7%.

The target was reached already in Q1. How do you assess, from your vantage point, the consequences of price hikes and what do you expect the government to do in order to preserve the stability of the dinar? - Regulated prices account for more than 1/5 of CPI. Last year, the government raised the prices under The key aspect of stabilisation in the its remit above the agreed limit. Movements medium and long term is to cut the share of in regulated prices and volatile food priccurrent consumption in GDP and to bolster es were the main drivers behind the target overshooting in 2010. However, the governinvestment and exports ment continues to pursue such policy – of the 7+/-2% target for 2011, it raised regulated prices by tion thus reached 14.7% relative to April 2010. Non8.8% in the first four months of the year and thus pracfood core inflation (market determined prices, excludtically used up all of its regulated price increase agreed ing food) fell sharply to 0.7% in Q1, down from 2.6% for this year. Any further regulated price hikes will fuel in Q4 2010. Encouraging as they are, such trends sigmore inflationary pressures and lead to monetary policy nal positive price developments in the second half of tightening. Such tightening, however, stifles the develop2011. Monetary policy measures implemented by the ment potentials of our economy – it hinders GDP growth NBS have a lagged effect and are likely to produce a fulland reduces employment. The key aspect of stabilisation blown impact by mid-2011, reflecting in lower non-food in the medium and long run is to cut the share of current core inflation. We expect inflation to precipitate down consumption in GDP and to bolster investments and exfrom June 2011 onwards, moving towards the inflation

Serbian Banking & Financial Sector 2011

ports. After all, such shift underpins “Serbia’s new development model”. To make this happen, the government should create appropriate preconditions, with each government authority exercising its own, clearly set tasks. To attract foreign investment, Serbia needs to implement the rule of law, efficiently protect private assets and contractual relations, show low levels of corruption, regulate and increase transparency of financing and functioning of the political life, run low inflation, low budget deficit and low public debt, build strong institutions, devise simple and intelligent regulations, have educated and hard-working people and no unresolved issues in respect of its international political position. But, none of the above is new to us. What should urgently be done now is step up the involvement of government institutions as a change in the economic structure and a shift to industrial development and exports are pivotal in stabilising and strengthening of the domestic currency. Growth in foreign direct investment is central to this process. ► What is the level of foreign exchange reserves? How much did the NBS spend in defending the dinar last year? - The country’s foreign exchange reserves managed by the NBS exceed EUR 10 billion. In 2010, the NBS intervened by selling EUR 2,569.7 million and buying EUR 236.5 million – net interventions from foreign exchange reserves amounted to around EUR 2,333 on the selling side. In 2011, the NBS intervened only once by purchasing EUR 5 million. We are considering balanced euro purchases in the foreign exchange market in order to cover a part of last year’s deficit.

While citizens and importers are content with strengthening of the dinar, exporters dub it the “theft of the healthy part of the economy”. How to reconcile expectations given the focal role of exports for Serbia’s future development? - The NBS is alert to the developments in the domestic and international financial markets and is aware of the fallout from these markets. The strengthening of the dinar over recent months is driven by rising domestic interest rates, sparked by restrictive monetary policy implemented with a view to curbing inflation. This prompted the NBS to activate its reserve requirements instrument in early 2011 and thus lessen the need for further interest rates hikes. The interest rate differential – the difference between dinar and euro rates, triggered a foreign exchange inflow from non-residents and simultaneous

►

supply of foreign currency by residents. This trend is all the more pronounced as investors believe in the shortterm nature of inflation pressures and macroeconomic stability in Serbia. Besides, the global interest in emerging markets is on an increase, giving rise to appreciation of other regional currencies as well. The dinar’s growth is doubtless detrimental to exporters, but it also reduces inflation expectations and diminishes the impact of imported inflation on domestic prices. Serbia should base its viable development chance on low inflation and real appreciation, rooted in higher productivity and competitiveness of its economy. This is why the NBS’s task number one is to bring inflation back within the target tolerance band, which certainly does not mean our indifference towards the complexity of medium- and longterm macroeconomic challenges ahead of us. ► Most of the funds available are invested in government treasury bills. Will this practice continue in the future? - That depends primarily on investors’ mood. What we have noticed lately is that investors are increasingly interested in making long- rather than short-term transactions in Serbia. The quality of investments in Serbia is very important. Our aim should be to secure long-term investment, primarily in companies, other develop-

In 2011, the NBS intervened only once by purchasing EUR 5 million ment projects and, as much as possible, in the tradable components of GDP, i.e. sectors that can increase our exports and reduce our imports. ► Political parties often complain about the high re-

quired reserve ratio, citing it as the reason for costly loans. What is you response? - Unfortunately, there is a lot of misunderstanding and ignorance in relation to this matter. Required reserves are an important tool of monetary policy which serves as a link between the monetary base, whose spending is controlled by the central bank, and the overall money supply where bank credit activities play an important role. What happens often is that this instrument is not distinguished from the instrument of loan loss reserves, which is quite another matter and part of the so-called microprudential regulation aimed at keeping banks safe and sound and precluding them from creSerbian Banking & Financial Sector 2011

ating risks in the system that could ultimately come as a cost to the taxpayer. Let me remind you that, in our country, the required reserve ratios you asked about range from zero percent, for dinar loans with maturity over two years, to five percent for those with maturity up to two years. The required reserve ratio is somewhat higher for foreign currency sources of financing, especially short-term, since such financing creates additional risks in the country’s financial system. ► Both the corporate and household sectors are overindebted, the number of nonperforming loans is rising. What is the solution to this problem in your opinion? - Objectively speaking, citizens and companies in Serbia are not over-indebted compared to other countries. The problem in our country is the greater share of NPLs in total loans, and this applies in particular to corporate loans. The National Bank of Serbia’s policy is that banks must hold sufficient reserves to cover po-

ness. Hence I am confident that this Law will be supported not only by citizens, but also by each and every serious financial institution that intends to operate in our market in the long term. I expect that implementation of this Law will improve the competitiveness and stability of the Serbian financial market. ► Lending rates in Serbia are the highest in the region. When will they decrease? - As we get closer to the targeted inflation rate, we will be able to relax our monetary policy stance which will, in turn, facilitate the reduction of interest rates. However, the really low interest rates will only be possible after all of the aforementioned prerequisites for healthy economic growth have been attained. In an economy that is under-regulated, the main reason for high interest rates lies in the high premium risk in the interest rate structure.

► Serbia’s credit rating (BB) has increased slightly, while the government is looking to conclude a The strengthening of the dinar over recent new arrangement with the IMF purely as months is driven by rising domestic interest a precautionary measure. How does this rates, sparked by restrictive monetary policy improve the image of Serbia? - Quite substantially, in fact. Serbia is the implemented with a view to curbing inflation only country in the region that has had tential loan losses at all times. This is the very foundaits credit rating upgraded. However, the vulnerability tion of the stability of banking industry and confidence of the Serbian economic and financial system has not in the financial system as a whole. Debt restructuring, been fully eliminated. That is why the NBS has been inin terms of repayment periods and interest rates, possisisting on a precautionary arrangement with the IMF as ble recapitalisation, i.e. exchanging debt for shares, and this will help us maintain and increase the confidence economic recovery should bring NPLs down to what is of international business and financial community in considered a relatively normal level for a stable bankour country. As a result of this precautionary arrangeing system. The NBS has encouraged these processes ment we will see an increase in foreign investor interbefore and will continue to do so. Quite recently, the est in Serbia and better conditions for debt consolidaNational Bank changed its requirements for the classition. Concluding such an arrangement does not entail fication of bank receivables under restructured debt, going further into debt, but being assisted in the implewhich will provide additional impetus to these processmentation of important reforms with a certain amount es and ultimately lead to consolidation of the financial of money put at our disposal just as a precaution. system as a whole. ► Serbia’s banking sector is the most successful segment of the country’s economy. How do you see it de► To what extent will the new Law on the Protection veloping in 2011? of Financial Services Consumers contribute to market - I believe that our banking sector will continue to be stabilisation? successful while continuing to protect the legitimate - We believe that, in the long run, treating citizens fairinterests of Serbian citizens – the borrowers, and suply is in the best interest of banks. Taking advantage of porting the efforts made by the NBS in reducing the one’s lack of understanding and/or ignorance in order risks to our country’s financial system. ■ to gain a short-term profit is “bad taste” in serious busi-

Serbian Banking & Financial Sector 2011

BANK OPERATIONS IN 2010

Profit Levels Increasing In 2010, banks in Serbia managed to generate a healthy proﬁt despite the overall crisis experienced both by the economy and Serbian citizens. The pre-tax proﬁts of the banking sector increased by 27 percent compared to 2009 and amounted to 25.4 billion dinars

By MARICA VUKOVIĆ

ut of the 33 banks operating in Serbia last year, 11 posted losses while 22 generated a profit. According to data compiled by the National Bank of Serbia, the losses generated by the banks amounted to nine billion dinars which is 2.1 billion less than in 2009. These banks have a 17 percent share in the banking sector’s total assets. Last year, the banks posted profits amounting to 34.5 billion dinars with Banca Intesa generating the largest profit (8.5 billion dinars), followed by AIK Bank (6.2 billion) and Unicredit Bank (3.9 billion dinars). Banca Intesa is in first position when it comes to the biggest individual profit, while AIK Bank is the most profitable bank per profit/capital ratio. The following banks also generated profits of over two billion dinars – Raiffeisen Bank, Komercijalna Bank and EFG Eurobank, while Societe Generale Bank, Poštanska Štedionica, Agrobanka and Volksbank’s profits ranged from between one and two billion dinars.

state of the domestic economy and its export results. The domestic currency would be worth less if banks did not borrow euros from their ‘mother banks’ abroad and exchange them for dinars in Serbia in order to buy state bonds with favourable interest rates. At the end of 2010, the overall borrowing of the banks in Serbia stood at 309 billion dinars and most of this money was spent on securities instead of providing better corporate and retail loans. The analysis conducted by the Institute of Economics has demonstrated that the growth of the net profits of Serbian banks has been due to several factors - maximising revenue from interest rates and bank fees, cutting losses stemming from impairment and reserves and improving management efficiency indicators. At the end of December 2010, the total capital that banks disposed of amounted to 498 bilAt the end of 2010, each Serbian citizen owed lion dinars and their assets were 2,533.5 billion dinars which is a 17.3 percent hike on average 749 euros to banks, which is the compared to last year. The first ten banks lowest figure out of all European countries have 69.3 percent market share, while 17 banks have a two percent share in total assets. Banca Intesa remains the leader in term of assets If we compare these figures to 2009, Banca Intesa – 359.1 billion dinars or 14.2 percent of market share. recorded the greatest growth in profit of 1.8 billion diKomercijalna Bank takes second place with assets worth nars. At a time when credit growth is losing pace and 256 billion dinars and a market share of 10.1 percent both retail and corporate clients are late in settling while Greek bank EFG was in third place with assets of their loans, banks are recording profits which is the 181 billion and a 7.1 percent market share. result of redirecting their capital to safe placements, The analysis carried out by the Institute of Economics i.e. purchasing state bonds. Thanks to these operatshows that the banks’ cost/revenue structure remained ing policies, the dinar has appreciated against the euthe same as the year before, i.e. net profit from interest ro more than expected bearing in mind the current

Serbian Banking & Financial Sector 2011

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sRisks rates stood at 108.4 billion dinars and was still very much the basis of their profitability. The interest rate yield increased by 7.8 percent (or 7.9 billion dinars) compared to 2009, while the yield from bank fees grew by four percent (or 1.4 billion dinars) and it amounted to 32.9 billion dinars. If we consider that the inflation rate was 10.3 percent, then realistically speaking, these revenues did decline. Operating expenses of 100.8 billion dinars made up the single biggest cost in the overall overheads of banks and they increased by seven percent in relation to 2009. Net losses from impairment and reserves stood at 32.6 billion dinars, which is a 3.5-billion-dinar drop compared to the previous year. Losses from exchange rate fluctuations increased two-fold and exceeded 80 billion dinars. Approved loans – worth 1,685 billion dinars – made up most of the banks’ assets, with corporate loans amounting to 936 billion dinars, retail loans to 501 billion and public sector loans to 209 billion dinars. A total of 273-billion-dinarsworth of loans had not been repaid on time, which is 16.9 percent of the total number of approved loans. Bad loans, to both the public and private sector, were worth 198 billion dinars and made up 72 percent of the total loans that were not settled on time. When it comes to the retail sector, 14 percent of all loans (worth 40 billion dinars) were not repaid on time. Bank clients were predominantly late with repaying mortgages (14.1 billion dinars) and cash loans (11.5 billion dinars). In 2010, a total of 286 billion dinars of housing loans were granted and 130-billion-dinars-worth of cash loans. According to the data compiled by the Credit Reference Agency of the Serbian Association of Banks, a total of 1,700

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published by the Institute of Economics, says. At the end of last year, the total undertakings of banks in Serbia amounted to 2,036 billion dinars which is 80 percent of their total liabilities. Client deposits stood at 1,505 billion dinars, with the retail sector having a 52 percent share and the corporate sector, 24 percent. The majority of client deposits, i.e. 79 percent, are made in foreign currencies with most of them being on demand or short-term deposits and only five percent long-term savings (over a year). According to data compiled by the National Bank of Serbia, at the end of 2010, total retail savings in Serbia (in foreign currency and dinars) stood at 7.2 billion euros with 90 percent of the savings being in foreign currency. In only one year, savings increased by a billion euros due to favourable interest rates that are up to three times higher than those in neighbouring countries. Hence, bank clients from these countries are frequently using Serbian banks for their savings. For example, the interest rate on fixed-term deposits (of up to a year) is up to 9.5 percent in Serbia. The organisational structure of Serbian banks in 2010 remained more or less unchanged. Out of 33 banks, the state is the majority owner or At the end of 2010, the overall borrowing of the the single biggest shareholder banks in Serbia stood at 309 billion dinars and in eight banks; Serbian legal entities and citizens are majormost of this money was spent on securities instead ity shareholders in four banks; of providing better corporate and retail loans and 21 banks are owned by foreign enterprises. The banking sector in Serbia employs 29,887 people, which is drafts which are terribly expensive. According to a cal1,200 fewer employees than in 2009. culation done by an economic expert, each larger bank Experts say that, despite the aforementioned positive in Serbia earns 20 million dinars annually on the basis trends, credit risks remain high and pose the biggest danof maintaining the bank accounts of their clients. ger to the Serbian banking sector. They are advising bankOn the other hand, bankers respond that, unlike ers to focus on maintaining the level of losses generated their clients, they regularly pay every single financial from bad loans below the reserve requirements level. obligation they have such as profit tax, income tax and State authorities also agree that, during the crisis, state contributions, as well as settling their financial the banking sector in Serbia played a stabilising role, obligations for purchased goods and services. and did not generate further problems, so maintaining "In regional countries, lower profitability stems from its stability and continuing to foster its good operationcredit losses. The banking sector in Serbia is one of the al results is of utmost importance. few banking sectors, including Slovakia and Croatia, In 2011, the Serbian government undertook to prewhich has increased its profitability. The credit risk levpare the establishment of a development bank that el and losses emerging from credit risks have an overwill not rival commercial banks since it will not collect whelming influence on a bank’s profitability. Reducing any deposits. This bank will be established using state credit losses, as a result of the strict reserve policy, money and will provide funding to large-scale infrais inherent to all three countries whose banking secstructure projects. The bank is expected to commence tors have recorded higher profitability,” the authors of operations in the Spring of 2012. ■ ‘Macroeconomic Analyses and Projections’ magazine, billion dinars worth of loans were approved in Serbia at the end of 2010 which is a 23.7 percent increase compared to 2009. The number of approved corporate loans increased by 21.5 percent, while the number of loans for entrepreneurs increased by 11.6 percent as did retail loans (by 3.3 percent). Consumer, cash and housing loans recorded the biggest increase last year, i.e. consumer loans went up by 46.1 percent (total amount 39.9 billion dinars), cash loans by 32.6 percent (129.9 billion dinars) and mortgage loans by 31.4 percent. At the end of 2010, each Serbian citizen owed on average 749 euros to banks, which is the lowest figure out of all European countries, as are average salaries in Serbia. Each person owed 668 euros on average on approved loans, 49 euros on their credit cards, 24 euros on their bank account overdrafts and eight euros on concluded leasing arrangements. In 2009, each Serbian citizen owed on average 661 euros to banks. Businessmen say that it comes as no surprise that banks have profited so well when the annual interest rates on loans range between 21 percent and 22 percent, while citizens mostly use current account over-

Serbian Banking & Financial Sector 2011

INTERVIEW Hildegard Gacek, Director at the Serbian Office of the European Bank for Reconstruction and Development (EBRD)

Economy with Potential The EBRD’s priorities for Serbia remain in the area of supporting further privatisation and also supporting speciﬁc sectors including agribusiness, natural resources and the property sector By SLAVKA KOVAČ Photos: BOŠKO KARANOVIĆ

ildegard Gacek, Director at the Serbian Office of the European Bank for Reconstruction and Development (EBRD), has been the head of the EBRD Belgrade office since 2007. The impact of the economic crisis was but one of the issues we discussed with Ms. Gacek. ► The

EBRD’s prognosis for Serbia for 2011 is moderately optimistic. What do you perceive as the greatest risks in regards to fulfilling the planned projections of economic growth? - The Serbian economy did show some modest signs of recovery in 2010 after the recession in 2009 and further expansion is expected this year as well. The EBRD will release new forecasts for all of its countries of operations later this month including Serbia. Serbia is

Serbian government to the introduction of structural reforms and prudent fiscal policies, including pension reform. It clearly is important and will remain important for the authorities to see these steps through.

► Which economic sectors in Serbia need the most help? - The EBRD’s priorities for Serbia remain in the area of supporting further privatisation and also supporting specific sectors including agribusiThe Bank is closely cooperating with the ness, natural resources and the propersector. The EBRD is also working with government on a range of infrastructure projects ty foreign strategic investors and supportin the rail and road sector, primarily related to ing the development of smaller compafurther developing Serbia’s transport network nies with strong growth drivers. The Bank is closely cooperating with the government on a range of infrastructure projects in the rail benefiting from a major infrastructure programme and and road sector, primarily related to further developalso appropriate policy responses but there are risks to ing Serbia’s transport network. In the energy sector the outlook – including high and rising external debt the EBRD is working towards the development of a and potential exposure to developments in Greece and regional market and expanding the share of renewaelsewhere in the eurozone periphery. ble energy are high priorities. It is working to support banks to promote further consolidation and support ► Do you believe that the Serbian government is cato SMEs to develop new products; and support to pable of creating a stable business environment? non-banking financial institutions. - There is a strong commitment on the part of the

Serbian Banking & Financial Sector 2011

► Since the opening of its Belgrade office in 2001,

the EBRD has invested 2.5 billion euros in the Serbian market. What was this money directed at? - The EBRD investments were aimed at supporting the economy broadly while at the same time trying to match our own investments with the strategic priorities of the authorities and helping to support those priorities. These include the development of a stable financial sector, a diversified corporate sector and a modernised infrastructure sector and the introduction of sustainable energy programmes, aimed both at being energy efficient and increasing the competitiveness of the economy. ► What is the degree of success for the realisation of credit loans? Are all the approved loans actually realised? Are there any loans which are not used? - Projects have a disbursement schedule based on the progress of the project for which the loan has been signed. Therefore loans are disbursed according their needs and over a certain period of time.

complement each others’ activities or to cooperate when that is the most effective response. ► The EBRD and EIB have recently signed a memorandum of understanding on financial acts outside the EU. What does this mean for Serbia? - As we have said above, this memorandum works out a division of labour between the two IFIs and shows where we can complement each other by bringing our own niche skills or how we can be more effective by working together. The EBRD traditionally works with an emphasis on the development of the private sector. Typically 80 to 90 percent of our invest-

The EBRD traditionally works with an emphasis on the development of the private sector

► In addition to credit aid, the

EBRD has invested into banks’ and companies’ assets. Subsequent to Commercial Bank and Čačanska Bank, are there any other recapitalisations planned? - Not at the moment. ► Electrical Power Industry (EPS) of Serbia has an-

nounced credit support from the EBRD for the construction of small hydropower plants. Have you reached a decision in regards to this credit line? - The project is undergoing Due Diligence but we envisage presenting the project to our Board for approval in the second half of 2011. ► Apart from the EBRD, the World Bank and EIB have provided the Serbian market with financial assistance. Does Serbia have an adequate level of good projects? - Clearly there is potential for further reform in the Serbian economy and the EBRD is playing its role in that development. All the IFIs and development banks have their particular specialisations and they aim to

ments are with private partners. In Serbia the EIB and the EBRD are working very closely together in the infrastructure sector. ► Does

Serbia have a complete set of legal regulations when it comes to risks from indebtedness? - The National Bank of Serbia is supervising the financial transactions of banks in the country based on a large number of strict regulations. ► You have been the head of EBRD Belgrade office

since 2007. How do you assess those four transition years in Serbia? - This has been a difficult time for the world economy, during a crisis which hit Eastern Europe harder than any other emerging region in the world and the impact of the crisis was particularly hard in South Eastern Europe and Serbia also suffered. There is a recovery now in place and everyone has drawn lessons especially from the issues that arose specifically during the crisis, including the problem that was not by any means limited to Serbia of heavy indebtedness in foreign currencies and the need to develop domestic sources of capital generation on local currency and capital markets. The reform process in Serbia is advancing, much progress has already been made and there is a great amount of potential in the Serbian economy. EBRD has contributed to this progress in providing 425 million euros to 18 projects in 2009 and 590 euros million to 26 projects in 2010. ■ Serbian Banking & Financial Sector 2011

INTERVIEW Neoclis Neocleous, Chairman of the Executive Board of Piraeus Bank

Market Oriented The year of 2010 was very challenging for the banking sector and we expect that 2011 will probably be slightly better due to the anticipated growth of the Serbian economy of about three percent

By BOBANA BRATIĆ

“B

anks expect to be treated fairly so that consumer lending can be better structured and so that the economy of Serbia can benefit,” says Neoclis Neocleous, Chairman of the Executive Board of Piraeus Bank in regards to the new Law on Protection of Financial Services Users and in respect of banks expectations. ► Piraeus Bank is one of the banks that has reduced interest rates on retail loans. By how much did you reduce the interest rates on mortgage loans? - Since the beginning of the year, Piraeus Bank has twice decreased interest on CHF mortgage loans, to its current value of 5.5 percent. The Bank has announced further interest rates reduction to 4.9 percent, starting from 1st January, 2012. The Bank has also launched several programmes for the restructuring

Franc, Piraeus Bank has also decided to change the FX rate that it uses to calculate the monthly instalments from the current selling rate, to the middle NBS FX rate. We are also willing to try our best to convert the loan currency to euro, if this is what the cliPiraeus Bank Beograd in 2010 ents want, free of charge. All these actions are intended to help our clicontinued a positive growth trend and ents surpass the current difficulties in servicing achieved good operational results their monthly obligations. Also, as part of the financial support to citizens, Piraeus Bank has started to accept applications for retail loan restructurof the existing CHF mortgage loans. Namely, the Bank ing programmes, according to the recommendations of has facilitated a 24-month grace period, an extension the Association of Serbian Banks and the Government of the repayment period of up to 30 years if the age of of the Republic of Serbia. the client at the loan maturity date is up to 70 years, the possibility of capitalisation of overdue debts and a combination of all above mentioned restructuring pro► You have recently widened your product offer to grammes, subject to final NKOSK approval. include entrepreneurs and legal entities. Does that Having in mind the fact that most of our clients remean that you are now focusing more on corporate ceive their monthly salaries in local currency, which rather than retail clients? has significantly depreciated compared to the Swiss - Our goal is to mark development and growth in eve-

Serbian Banking & Financial Sector 2011

ry segment of banking operations. We are equally focused on the areas of retail banking, microfinance, small and medium-sized enterprises (SMEs) and corporate banking. Recently, Piraeus Bank has extended its offer for entrepreneurs and legal entities with a new credit line with subsidised interest rates. Clients may apply for loans with the subsidised interest rate of 3.5 percent for the financing of working capital and liquidity as well as for investments. Short-term loans for liquidity and working capital are approved in local currency in maximum amounts of three million dinars for entrepreneurs, up to one million dinars for lump-sum payers and up to five million dinars for legal entities. The interest rate is at the level of the reference interest rate of the National Bank of Serbia (two-week REPO), while the effective interest is from 13.24 percent. Longterm loans with a currency clause for investments are approved with the repayment term of five years, including a grace period of six to twelve months, and the interest rate is three-months Euribor plus four percent. The effective interest rate is from 4.91 percent, and the maximum loan amount is up to 50,000 euros, and loan disbursement, and/or loan repayment is made at the middle NBS rate. ► Greek banks are very vis-

ible in the Serbian market. Is there a sort of an inter-banking agreement amongst them? - No, we do not have any kind of inter-banking agreement with other Greek banks operating in this market. We are operating as independent legal entities and we are, therefore, competitors. All Greek banks value the strong historic links between Serbian and Greek people and we are confident about the future of Serbia. Piraeus Bank is here to stay and to grow our business, aiming to benefit not only the Bank but also our clients, the economy and society. Coming from a neighbouring country with such strong links with Serbia, we believe that we can better understand things happening around us in Serbia and in this way be of more value to our clients. ► What is Piraeus Bank’s market share? - Piraeus Bank has made great strides in improving our results through greater loan and deposit balances while maintaining our high standard of customer service. The

greatest improvements came from our deposit gathering where we increased our deposit market share from 1.32 % in April 2010 to 1.64% in April 2011, increasing our deposit base from Eur 156 mIllion to Eur 214 million respectively. This represents a yearly deposit increase of 37.02%. For the foreseeable future, we are working towards a greater Loans and Deposits portfolio with our deposit market share expected to increase to 1.87 percent or an equivalent annual deposits increase of 20 percent for 2011. ► Aside from the bank and the leasing company, what

other activities do you carry out in Serbia? - There are also rent activities which are conducted by Piraeus Rent, mainly for the financing of passenger and light commercial vehicles. Piraeus Bank

Piraeus has invested a lot more than 250 million euros into Serbia has also introduced life insurance as part of its offer. The first product within the life insurance group, Death or Total Permanent Disability Insurance, is designed to protect the beneficiary and his family, and therefore it is symbolically called “the Protector”. Not too long ago, we launched Plan Plus life insurance with long term savings characteristics. This is a high quality product since it provides protection to the family, as well as quality personal protection. ► Are you expecting better times for the banking sector? What business results did the bank accomplish in 2010? - The year of 2010 was very challenging for the banking sector and we expect that 2011 will probably be slightly better due to the anticipated growth of the Serbian economy of about three percent. Piraeus Bank Beograd in 2010, despite the very challenging period for business, continued a positive growing trend and achieved good operational results. This was reflected in the loan portfolio that at the end of 2010, reached 610 million euros together with cross-border loans, while total assets with cross-border loans was 764 million euros. An indicator that Piraeus Bank is recognized as a stable bank is Bank’s deposit portfolio growth of € 58 mn to €214 mn, what is y-o-y increase of

Serbian Banking & Financial Sector 2011

37%. Particular success has been achieved in the growth of retail savings, which in 2010 increased by 40 million euro. The Bank has also taken an active role in the purchase of treasury bills issued by the Republic of Serbia, so at the end of 2010 its portfolio had a claim on these securities amounting to more than 25 million euros. When it comes to investments, Piraeus has actually invested a lot more than 250 million euros into Serbia. In fact if you were to add all the loans that Piraeus Group has granted to Serbian legal entities, whether through Piraeus in Serbia or, for example, through a Piraeus branch in London, the total is in excess of 600 million euros. This makes Piraeus Group one of the largest foreign investors in Serbia. ► What is your view of the Serbian

banking market, which is considered the healthiest part of the Serbian economy?

The business plan at Piraeus Bank for 2011 envisages growth both for loans and deposits - The Serbian banking market remained solid and well capitalised during the recent crisis. It is in my opinion one of the healthiest parts of the Serbian economy. Serbian banks took a hit due to the crisis and this has been reflected in their business results but overall, they performed satisfactorily given the great difficulties that they had to face. ► You have been the Chairman of the bank’s Executive Board for a year now. Could you share your experiences with us? - It has been an exciting and interesting year for me with Piraeus Bank Belgrade. My impression is that we have excellent quality personnel, people who are educated and experienced. Piraeus Bank Belgrade, despite the challenging times and the global financial crisis, has improved significantly its internal organisation and operations during the last few years and we can look ahead to the future with self confidence and ambition. I am man of challenge and I am very proud of the fact that the Bank is progressing in the right direction. My role in the Bank is to actively support and guide all staff, in close cooperation with all management colleagues, in an effort to achieve our business objectives. We must be ambitious and confident, focusing not only

Serbian Banking & Financial Sector 2011

on the day to day running of the Bank but also to bring about significant progress in the Bank’s business. ► What are your expectations in regard to the bank’s business results this year? - Our business plan at Piraeus Bank for 2011 envisages growth both for loans and deposits. We are also planning to introduce improved products and services which will better serve the needs of our clients. Quality of service and customer orientation is paramount to us. We are continuously searching for better ways of doing business every day, aiming to offer faster and better service with simpler procedures. Piraeus Group places a high priority on the environment and conservation. In Serbia the Bank will continue to support several related causes and also banking products and services, like investment in renewable energy and environmentally-friendly and energy-efficient housing projects. I expect the Bank to continue to show further growth with all indicators: assets, deposits and revenues. ► Could you tell us something about your hiring policy and employment trends in your bank? - Our current policy is not to increase our staff, but to provide our employees with better working conditions and better career opportunities. ► Piraeus Bank is known for its socially responsible behaviour, especially in terms of environmental protection. What are your plans in this regard for this year? - On a global scale, Piraeus Bank is involved in CSR activities in the fields of the environment and green banking, human and labour rights, support of disabled persons, anti-corruption and scholarship programmes. Piraeus Bank Group passes its experience in the domain of Corporate Social Responsibility to the countries where it operates and Serbia is no exception. Piraeus Bank Belgrade is very active in programmes of recycling paper and electronic waste, and in the forthcoming period it will launch several scholarship projects. One of them, beside funds for education, includes employment in the Bank. Piraeus Bank will continue to follow world trends in the usage of modern technologies with the aim to improve banking business, create products that will best meet the customers' needs and support the local community through different socially responsible activities. ■

CORPORATE Konstantinos Tsiolis, Piraeus Leasing and Piraeus Rent Managing Director

Ambitious Plans

By BOBANA BRATIĆ

The Serbian leasing market is a very competitive market, taking into consideration its size and also the number of 16 leasing companies that are operating within it

xperiences and the results of doing business in the Serbian market, as well as the changes to the Law on Leasing gave good reason for an interview with Konstantinos Tsiolis, Piraeus Leasing and Piraeus Rent Managing Director. ► Piraeus Bank plays an important role in the Serbian

banking market. What are the business results that have been achieved by Piraeus Leasing? - Piraeus Leasing, as a member of the Piraeus Bank Group, shares of course the same corporate culture and has the same business targets and mission. The strategy of Piraeus Leasing is to orient, understand and satisfy the continuously increasing needs of the Serbian market, by offering customers both products and financing solutions that will help them boost their business and achieve their goals. Piraeus Leasing’s 2010 business results were accordingly, even slightly better than the business plan of the company. Also, during 2010 Piraeus Leasing had an equity increase and in this respect, it confirmed the commitment of the company to its business operation in the Serbian market and its plans for further expansion. Plans for 2011 are also ambitious and Piraeus Leasing’s goal is to continuously improve the products and services being offered to our clients. ► Which period was more difficult for Piraeus Leasing – your commencement of operations in Serbia in 2007 or now, during the (post-)crisis period? - The Serbian leasing market is a very competitive market, taking into consideration its size and also the number of 16 leasing companies that are operating within it. In 2009 the total volume of new leasing contracts was 64 percent less compared to 2008 and in 2010 there was a further decrease of 18 percent. Despite the not so favourable business circumstances, Piraeus Leasing has today managed to become a strong ‘player’ in the Serbian Leasing market, ranked 10th for the first quarter of 2011, according to the statistics of the Association of Leasing Companies in Serbia, in terms of the signing of new leasing contracts. ► How much will the new law concerning the leasing

of real estate affect the development of your company and the overall leasing market in Serbia? - This change of the Financial Leasing Law to allow real estate transactions to be performed through financial leasing is a very positive step, which will help both the Serbian real estate market and leasing companies. Real estate leasing is a very popular industry and a very useful financing tool in many countries. However in order to be the same in the Serbian market, further changes have to be made, more specifically according to the current tax law. The interest in buying real estate is currently very low in the Serbian market and it cannot be realistically expected that the leasing option will be more favourable under the current tax law. ► Together with the Serbian Association of Banks, the state authorities have adopted a series of measures to help with the repayment of bank loans. Are leasing companies offering similar measures? - Leasing companies also are trying to help their clients in order to facilitate the repayment of leasing contracts. Piraeus Leasing is specifically extending the duration of leasing contracts by one or two years, for those clients whose businesses have been affected by the crisis. Another proposal that Piraeus Leasing is presenting to its clients is for their contracts to have residual value at the end, in order to further decrease monthly instalments. In this way, Piraeus Leasing is assisting its clients to overcome their difficulties and to continue their business with the least number of problems as possible. ■

Serbian Banking & Financial Sector 2011

INTERVIEW Miodrag Kostić, Chairman of the Managing Board of AIK Bank

Financing Businesses The cumulative amount of problematic loans is far lower when it comes to retail than corporate loans, but AIK Bank is not discouraged by this fact as it continues to grant corporate loans

“E

ight banks in Serbia make up 62 percent of the overall banking market and individually they have net assets that exceed a billion euros. It is also worth mentioning that 18 banks have a 17.39 percent market share with total assets of 4.3 billion euros. This data justifies the need for bank consolidation, although it is very difficult to project when this could happen,” says the Chairman of the Managing Board of AIK Bank, Miodrag Kostić, in an interview for the ‘Serbian Banking and Financial Sector’.

- In the Q1 of 2011, judging by the volume of balance assets, AIK Bank managed to increase its market share to 5.81 percent and has made it to the group of the ten biggest banks in the country. It is also one of the three banks that did not record a drop in net balance assets. If we look at placements, our market share has also risen to 6.26 percent, while in terms of our deposit potential, the market share has increased to 5.27 percent. Let me remind you that exactly three years ago AIK Bank had a By SLAVKA 4.14 percent share in the Serbian banking sector’s deKOVAČ posit potential, which amounted to 536.6 million euros. Currently, our bank’s deposit potential is close to 900 million euros. I am confident that the bank’s shareholders, potential and future investors are pleasantly surprised by our gross profit in the first three months of 2011. People who are familiar with the way banks operate know all too well that the financial results achieved ► In terms of profit, AIK Bank is the strongest bank on in the first quarter are not relevant to the overall gradthe Serbian banking market. How did you manage to ing of a bank’s operations. Simply put, the first quaraccomplish this? ter is a period when the general loan-loss AIK Bank has over 6,000 shareholders that reserves are formed for the first time that Another important fact to consider is are physical persons and almost 900 that year. that any U-turns in business policy cannot are legal entities, with the single biggest yield results in only three months. We are quite happy with the bank having shareholder being Greece-based ATE Bank resources that will ensure that everybody is going to be happy with the end-of-year results. - AIK Bank’s strategic advantage is high efficiency and productivity, as well as low cost per banking product unit. Suffice to say that the share of operative costs ► Could you tell us who AIK Bank’s shareholders are? in the overall revenue of our bank ranges between 12 - At the moment, AIK Bank has over 6,000 shareholders percent and 13 percent. that are physical persons and almost 900 that are legal entities, with the single biggest shareholder being Greece-based ATE Bank which owns 20 percent of vot► AIK Bank is the first banking institution in Serbia that ing stock and 25 percent of priority stock. The remainhas publicly revealed financial results for the Q1 of 2011. ing shareholders are various funds and custody acAre you happy with your overall business operations?

Serbian Banking & Financial Sector 2011

counts. The common denominator for all of our shareholders is that they view AIK Bank’s securities as safe and generating dividend yield. Also, they make money from the purchase price variance. ► Although the banking market is thought to be the

most regulated part of the country’s economy, bankers are often very critical of the measures applied by Serbia’s central bank. What is your take on this? - Last year’s capital adequacy indicator was 19.9 percent which speaks volumes about just how capitalised our banking system is. Higher capitalisation of the banking sector is especially important at a time when the number of problematic loans is growing and is about to reach the 17 percent indicator. However, what is good for one segment can be detrimental to another. When I say this I am referring to the central bank’s measures for reducing the inflation rate. Since the beginning of this year, the required reserves in dinars increased by approximately 5.5 billion, while the dinar segment of the foreign currency required reserves has been constantly growing. In the same period, a total of 229.4 million euros of required reserves in foreign currency has been withdrawn. All of the aforementioned factors, in combination with the appealing price of state-issued treasury bills and trade bills issued by the National Bank of Serbia (NBS), provide an explanation as to why the current dinar/euro exchange rate is what it is. What is not clear in NBS' activities is this constant emphasis on battling the inflation rate, while the activities on stabilising the exchange rates are only verbal. Also, we do not quite understand the meaning of ‘the central bank will intervene only if it has assessed that the daily fluctuations in the exchange rate are too high’. In 2010, the NBS spent 2.3 billion euros on keeping the exchange rate from fluctuating too much and that very exchange rate rose from 95.88 dinars to 105.49 dinars for 1 euro. This year, we have a divergent process where the exchange rate dropped from 105.49 dinars to 96.70 dinars with NBS spending only five million euros on keeping the exchange rate steady. What worries us is the effect that all of this will have on the health of the real sector since there are no good banks without a good economy, just like there is no strong and stable economy without strong and stable exports. ► Has the Serbian market become less attractive to

Serbian and foreign investors bearing in mind that

there are no substantial investments being made? - The appeal of a certain market varies and the criteria that are used to ascertain this appeal differ from investor to investor. One thing is certain – an investor that is a manufacturer will have much stricter criteria than one in commerce who usually conducts their business in rented offices. What is important, and this is the starting point, is the macro-economic environment, the length of administrative procedures when obtaining various licences, battling corruption, the safety of the environment for investing... The quality of an investment is even more important than its size or the money attached to it, i.e. it is important to see in which branches and economic activities this investment going to be spent. A smaller but better quality investment can have a much better effect on the overall economy particularly if an investment is made in one economic branch with a multiplying effect. Very little has been done on creating a high-quality macro-economic environment, while a lot has been accomplished in giving investors benefits such as grants for creating new jobs. The opinions about the effectiveness of these activities vary a great deal and we are all familiar with the results.

The quality of an investment is even more important than its size or the money attached to it ► Banks are increasingly focusing on citizens. Does

that now mean that companies cannot count on banks’ support as they were able to in the past? - Banks, the economy and citizens all exist in the same system and I see no reason for discriminating against someone. The advantage of working with the retail sector is the dispersion of risk, but when the real sector is hit by problems then it is only a matter of time before the general illiquidity will hit the retail sector too. The current situation is such that the volume of problematic loans is much lower in the retail sector than in corporate one and it stands at 8.8 percent compared to 21.8 percent which is how high the share of problematic loans in the corporate sector is. However, AIK Bank is not discouraged by this data as it continues to grant corporate loans. Our bank funds businesses, not clients. This means that corporate clients, whose businesses are stable and the retail clients who are creditworthy, are moving along the same path. This is our bank’s business policy although I doubt that any bank Serbian Banking & Financial Sector 2011

would not consent to granting a loan to a good client regardless of the sector they belong to. ► How many loans does AIK Bank grant to businesses

and how many to individuals? - Traditionally, AIK Bank has been cooperating with corporate clients, although the share of retail clients has been constantly increasing and it currently stands at 10 percent. ► Your bank is one of the banks that has supported

► If we look at developments in the stock exchange,

we can see that AIK Bank often buys the stock of Petroleum Industry of Serbia. What is the bank’s share in this company? - Buying stock is a short-term business move and, at the moment, AIK Bank is not a stakeholder in Petroleum Industry of Serbia (NIS). ► AIK Bank’s securities are amongst the most attractive on the Serbian stock exchange. Why is this the case? - We have been floating our bank’s securities on the Belgrade Stock Exchange since October 2005. The bank’s net balance assets in late 2005 stood at 259 million euros, while, at the end of last year, they grew to 1.3 billion euros. In the period from 2005 to 2010, AIK Bank generated a cumulative pre-tax profit of 307.8 million euros. I think that the reply to your question can be found in these numbers. ► Initially,

We have been floating our bank’s securities on the Belgrade Stock Exchange since October 2005

the government’s decision on allowing the reprogramming of retail loans. Is this going to resolve the problems associated with over-indebtedness and the late payment of loans? - Any kind of loan reprogramming makes sense only if you expect better days ahead for the economy and ordinary people. The idea should be supported, but we ought to be selective in choosing clients. For the people who have ‘dead businesses’, loan reprogramming will not help and the bank will be left to carry the financial burden. ► Does Serbia have too many banks and what is the opti-

mum number bearing in mind the size of the market? - Eight banks in Serbia make up 62 percent of the overall banking market and individually they have net assets that exceed a billion euros. It is also worth mentioning that 18 banks have a 17.39 percent market share with total assets of 4.3 billion euros. This data justifies the need for bank consolidation, although it is very difficult to project when this could happen. We could expect progress in this matter to be made in the case of banks where the state is the majority shareholder.

Serbian Banking & Financial Sector 2011

AIK Bank was the internal bank of Agroindustrijski Kombinat Niš (Agri-Industrial Combine Niš). Is it worthwhile investing in agriculture in Serbia? - Agriculture is one of our best chances in terms of development and exports. Investing in agriculture is profitable long-term. In addition to these investments, the state’s support through implementing a long-term strategy for agricultural development is also important. Having ad-hoc activities is not good for agriculture since, for example, it takes years to increase livestock levels, yet it takes only a couple of months to reduce it. ► Has the economic crisis in Serbia subsided, as our

government is claiming? - In 2010, Serbian GDP stood at 1.7 percent which is much better than in 2009 when it dropped by 3.1 percent. What is not good is that wholesale and retail have the biggest share in the GDP structure, i.e. 12.58 percent. The same goes for the real estate sector which participates with 14.89 percent, while, on the other hand, you have the processing industry with only 13.91 percent and agriculture with 11.66 percent. The growing public debt and foreign trade deficit, low industrial production and exports, and the increasing number of companies that have stopped paying their suppliers are not demonstrating that Serbia has overcome the crisis. It is always possible to find some indicators to support the claim that the economic crisis has subsided, but these indicators are few and far between. ■

CORPORATE SBB Solutions

Your Business Solution Srđan Tomašević, Director of SBB Solutions: “SBB Solutions is intended for companies looking to maintain the ﬂexibility of their business and be ahead of their competitors”

BB (Serbia Broadband) has recognised the need for starting an independent platform especially designed for business users. The company has continued with its well established practice of introducing high end technologies and services in Serbia – now under the SBB Solutions brand. Srđan Tomašević, Director of the company, talks about SBB Solutions and the ways in which the service can improve business and make doing business easier.

picture transfer service. Apart from our fibre optic and HFC networks we also have wireless solutions ► Can you briefly describe SBB Solution? How does it to complement our network now spanning across 28 cities in Serbia. differ from similar products, and what is it for? Fibre to the Business (FTTB) as a way of linking of- SBB has built its own, independent high end optic fices at different locations to a single network, offerfibre network now spanning over 2,500 km; our fiing protection from outside attacks on your compabre-optic centres in major cities and our links crossny’s network, easy and safe access NIS, DHL, Raiffeisen Bank, Banca to corporate databases from home Intesa, EFG Bank, Reuters, Adria Media, (teleworking) as well as integrated telephony are just some of the adRed Cross of Serbia, Delta Sport, and vantages we offer. Belgrade Public Health Institute are just Tailor-made to suit our clients our Internet and voice packages, some of the clients to trust SBB Solutions configuration, maintenance and administration of equipment and services, data cening the border at five (soon to be six) different points tre services, round the clock support, guaranteed provide direct connection with major European cenSLA (Service Level Agreement) and QoS (Quality of tres, guaranteed data flow and uninterrupted availService) put SBB Solutions at the top when it comes ability. This is the first network of its kind in Serbia to reliable, efficient, flexible solutions for business and it allows us to combine different technologies telecommunications already on offer at SBB. to deliver the most sophisticated data, voice and

Serbian Banking & Financial Sector 2011

► Are these services or similar systems used any-

where else in the world? - Telecommunication solutions available at SBB Solutions are made for business users, tailor-made to follow the dynamic of their business operations. One of the high end solutions will be available under the name of “Managed Service” which will include customer care, nonstop technical service and IT equipment rental, all managed by the operator. SBB has a long tradition of offering the same kind of service to our home users to rent equipment (modems, routers, digital receivers etc.) Services like these are a trend in the modern world and they can be found on offer at only the biggest operators, with their own infrastructure and high end equipment. By launching SBB Solutions, our company is once again reaffirming its intention to use our multiservice platform and offer only the best service to our clients. ► Are you making any savings

sultants to help them choose the optimal package of services. As a part of a group owned by the European fund MidEuropa and European Bank for Reconstruction and Development, SBB joins Telemach of Slovenia and Telemach Bosnia and Herzegovina to offer region-wide telecommunication solutions. ► Can you name a few companies already using the service? - The biggest client of SBB Solutions is SBB! The multi-service, award winning platform is upgraded with the modern business tools (SAP, IP, telephony etc.) used by SBB. Our business operations span across the region and this gives us enormous experience in applying business solutions and allows us to face even the most complicated problems hampering the development of modern businesses. NIS, DHL, Raiffeisen Bank, Banca Intesa, EFG Bank, Reuters, Adria Media, Red Cross of Serbia, Delta Sport, and Belgrade Public Health Institute are just some of the clients to

by introducing this service? What is the expected return on investment time? - Analysis and our previous experience show the potential for savings of up to 30 percent on telecommunication ex- Telecommunication solutions available penses, but one should not forget the savings made by the new at SBB Solutions are made for business way of doing business. This rev- users, tailor-made to follow the dynamic of olutionary call for changes in the their business operations way businesses operate has been trust SBB Solutions. We have increased the securiheard even at the employee level giving them a new ty of our networks and data transfers guaranteed by energy to invest in the future of their company. SLA and our clients have recognised our efforts. By Communications as a foundation of modern analysing the needs of every individual client SBB business is an everyday requirement and it calls Solutions offer tailored solutions in all aspects of for a good partner, able to shadow your developbusiness, regardless of the company size or nature ment. SBB Solutions will offer a reliable and optiof your business. mal solution, using its integrated telecommunicaSBB Solutions is intended for companies looktions and equipment; we are ready to shadow our ing to maintain the flexibility of their businesses clients regardless of the business they are in or how and be ahead of their competitors; it allows them to fast their needs change. focus on their core business leaving telecommuni► What are the advantages for your subscribers? cations in the hands of experts and a reliable business partner. - SBB gives its individual subscribers access to high This kind of partnership allows us to grow togethend TV and Internet services and we are ready to er with the companies we modernise and become transfer our experience to SBB Solutions and offer a ready for the challenges of the modern market. service of premium quality. Our clients can use our www.sbbsolutions.rs Showroom to test and engage our seasoned conSerbian Banking & Financial Sector 2011

INTERVIEW Veroljub Dugalić, Secretary General of the Association of Serbian Banks

Slight Increase of Approved Loans Unlike retail loans, where the number of approved loans fell between one percent and 1.5 percent, the number of approved corporate loans increased slightly

By SLAVKA KOVAČ

“P

eople are behaving rather rationally. They are cautious when it comes to taking out new loans and quite consistent with settling ones which have been granted. In terms of retail loans, only 3.4 percent of bank clients are late with payment, while, in the case of corporate loans, that percentage stands at 14.5 percent,” says the Secretary General of the Association of Serbian Banks (UBS), Veroljub Dugalić in an interview for the ‘Serbian Banking and Financial Sector’.

► The largest banks in Serbia have accepted

the government’s proposal to help citizens with payment of their loans through loan rescheduling. How does that affect the Credit Reference Agency? eter when ascertaining whether a person can regularly service a loan. We divide the costs of the ‘consumer basket’ by the number of family members and then we compare that to a person’s cumulative monthly income. The difference between the monthly income and consumer basket costs is the basis for ascertaining whether a person can pay a loan regularly. Of course, we are talking about a theory. In practice, we are not going to be able to utilise this formula to the fullest. The ratio is clear and the formula will be applied in the latter part of the year.

In its 2010 report, the World Bank declared the Serbian Credit Reference Agency as the best agency of its kind in Europe in terms of technological protection - Yes, banks immediately said “yes” to the initiative and have already started to implement the relevant measures. I expect other banks to join soon and I think that all of them will get involved eventually. In regards to the Credit Reference Agency, it is business as usual for us and that does not represent any burden for us. We have done our part by proposing the measures, which was, after all, our role. ► Did you come up with a formula that will be used in

calculating the monthly loan instalments? - The so-called ‘consumer basket’ is the key param-

Serbian Banking & Financial Sector 2011

► How much do citizens and businesses owe on the account of obtained loans? - On 30th April 2011, money owed on the account

of unpaid retail loans amounted to 510 billion dinars, and 1,184 billion dinars in the case of corporate ► Bankers are wholeheartedly in favour of loan reloans, which is twice as high as retail loans and quite scheduling, while economic experts claim that it is a logical. For years, this ratio was 2/3:1/3 in favour of double-edged sword. What arguments did you use in corporate loans. trying to persuade banks to support the rescheduling What can we conclude from these figures? The programme? number of approved retail loans is stagnating, which - There was no need for the Association of Banks to is not good and is indicative of a drop in living standtry to persuade the banks since they have been talkards. People are behaving rather rationally. They are ing about it with their clients for some time now, especautious when it comes to taking out new loans and cially since mid-2008. Even before this initiative, banks quite consistent in settling the approved ones. In had their own internal loan rescheduling programmes terms of retail loans, so UBS’ role was to help If the living standards of citizens only 3.4 percent of devising a single propobank clients are late sition of how banks can and overall macroeconomic with payment, while, in indicators improved, then everybody help their clients. the case of corporate Loan rescheduling would pay their loans more easily will not resolve peoloans, that percentage stands at 14.5 percent. The way that the delay in payple’s debt problems, it just alleviates it. If the living ment of corporate loans is calculated differs to retail standards of citizens and overall macroeconomic indiloans since, in the case of corporate loans, exceeding cators improved, then everybody would pay their loans the payment deadline by only five days means that a more easily. But is that really going to happen? This company is late in settling its loan. If we are talking does not depend solely on us. The benchmark interest about retail loans, that period is 90 days. Also, there rate in the EU has been going up; they think that the is a difference in calculation methodology, but, generworst is behind us and that the main peril now is a high ally speaking, citizens are more conscientious and reinflation rate. This is a good signal which shows us that sponsible particularly due to past experiences. the European economy is recovering.

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► Can companies hope to be given certain benefits? - The difference between companies and citizens is that not every company is the same – some have liquidity problems, some are facing the loss of clients, some cannot acquire raw-materials in the usual way so it is very difficult to find a solution that will suit everybody. The banks are reluctant to treat all companies the same and they have an individual approach to each corporate client. It remains to be seen whether a comprehensive agreement will be reached since we still haven’t received any concrete proposal from the government.

most of those companies don’t have personal identity numbers for their users which is the main factor in identifying a person whose credit-worthiness should be ascertained by the Credit Reference Agency. Our report contains information on whether a person regularly settles his or hers loans, credit card debts, money owned on cheques or is late with paying utility bills. Banks take all of that into consideration and never make a decision based on a single parameter. ► Have you ever encountered a situation where your

data has been misused? - No, we haven’t. The Credit Reference Agency has strong protection systems in place – like technological protection which ensures that unauthorised persons cannot access data. Then there is legal protection where we need written consent from a bank client to send out our report and third is functional protection by which the report of the Credit Reference Agency can be used only for a specific purpose, meaning in order to obtain a loan. The requests for reports are registered permanently. If a citizen asks the Credit Reference Agency to submit a report, his or her request is registered and will always remain on file even if somebody else, other than that person, tries to obtain a credit reference report without proper authorisation. You need a SMART card to access the database which only authorised

► Before the crisis, On 30th April 2011, money owed on the account Serbia’s loan expan- of unpaid retail loans amounted to 510 billion sion was 63 percent and in the meantime dinars, and 1,184 billion dinars in the case of this has declined by corporate loans, which is twice as high as retail two percent. Is this just loans and quite logical a temporary situation? persons have, so there have been no unauthorised at- Obtaining a loan is no easy feat these days. Of course, tempts to extract information. there are large successful companies that have felt the burden of the crisis much less than others and are continuing to do what they have always done. In terms ► Who and in what way is protection provided to a of businesses, we are seeing a slight increase in the wronged party? number of corporate loans being granted, while, in the - A bank client should first get in touch with the Credit case of retail loans being obtained there is a one percent Reference Agency, but, as I said, we haven’t received to 1.5 percent drop compared to the previous month any complaints so far. On the contrary, many people which is a result of the economic crisis in Serbia. commended us. In its 2010 report, the World Bank declared the Serbian Credit Reference Agency as the best agency of its kind in Europe in terms of technological ► Do reports that you send to banks contain other figprotection. We have been given a ‘grade 6’ rating and ures like the percentage of people who regularly pay we are the second agency in Europe, after the British phone or utility bills? one, which has received a much higher grade than the - The Credit Reference Agency collects data from varrelevant domicile legislation. In the beginning, it took ious institutions, i.e. it has information on any money us several minutes to compile a credit reference report owed by a particular citizen. We still don’t collect data while today we do in five to seven seconds. ■ from utility companies since we have ascertained that

Serbian Banking & Financial Sector 2011

EURONET’S PEOPLE, PRODUCTS AND GLOBAL PRESENCE Helping You Connect to Your Customers At Euronet, we understand that a customer-focused business model is the foundation to strong customer loyalty, business profitability and growth. Our dedicated people, integrated products and global presence are a reflection of our commitment to make each of our business initiatives customer-focused. Every customer interaction is an opportunity for us to provide the convenience and simplicity of our electronic payment solutions and further strengthen our relationship. Every succesfull transaction is a measure of our customers’ confidence in our capabilities and an affirmation of the vital role we play within the global payments industry.

OUR PEOPLE

Our customers - financial institutions, mobile operators, retailers and individual consumers - choose Euronet because of our ability to deliver innovative global payment solutions. Euronet’s dedication to customer service excellence enables us to meet demanding electronic financial payment needs and help our customers achieve greater success and profitability.

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Local Office: EuroPlanet, Makenzijeva 53, 11000 Belgrade, Serbia;Tel: (+381-11) 308-2300

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INTERVIEW Milenka Jezdimirović, General Director of Dunav Insurance Company (Dunav Osiguranje)

Saving for the Future Each year, Dunav Osiguranje issues 1.2 million insurance policies and the company is in ﬁrst position in terms of premiums, and the size and development of its insurance network

By SLAVKA KOVAČ

“I

t is very encouraging to see that life insurance premiums overall in Serbia have increased fivefold in the last five years and that this development trend, albeit insufficient, is continuing,” says the General Director of Dunav Osiguranje, Milenka Jezdimirović, in an interview for the 'Serbian Banking and Financial Sector'.

stands at 83.5 percent and this decreased by 1.8 percent compared to 2009. Regardless of the decline, this type of insurance continues to dominate. Life insurance policies increased their share in the total premium by 14.7 percent in 2009 and by 16.5 percent in 2010. Although this is an encouraging tendency, it is not sufficient. In 2010, Dunav Osiguranje maintained its leadership position in Serbia in terms of total gross premiums with a 25.9 percent market share. The next on the list is DDOR Novi Sad with 18.5 percent and Delta Generali with 18.5 percent, followed by Wiener, Uniqua, Takovo, Triglav Kopaonik, Grawe and Sava.

► Are you satisfied with the level of growth achieved? - The situation in the economy and the public sector percent growth. Subsequent to the crisis, is this a sign remains very complex and, bearing this in mind, I have of recovery? to say that we are happy with our accomAt a time when the Serbian financial sector plishments so far. Of course, it is only natuto strive for even better results and set is very focused on banks, which make up 95 ral even more ambitious goals that will generpercent of the sector, insurance and funds ate further work and growth. ► In 2010, the Serbian insurance market recorded 5.6

are left with only five percent of the market - Last year was not easy on the Serbian economy and the insurance sector. According to data from the National Bank of Serbia, the insurance market continued to grow in 2010 compared to 2009, although this growth was relatively slow. The total assets of the insurance sector increased by 18 percent, technical reserves grew by 17.5 percent and overall premiums by 5.6 percent. The share of non-life insurance in overall premiums

Serbian Banking & Financial Sector 2011

► Could you give us information on Dunav Osiguranje’s market share in Serbia in terms of total premiums and settled insurance claims? - When it comes to total premiums, in 2010, Dunav Osiguranje was number one with a 25.93 percent market share. In terms of the settled insurance claims in the same year, we were also in first position in the Serbian insurance market with a 30.59 percent market share and we have settled 99.8 percent of insurance claims. This is the additional value that our company

has and this is recognised by insurance policy holders when choosing an insurance company. ► The average value of a life insurance policy in Serbia is 10 euros per capita and the biggest reason for this is the poverty of the population. Yet, citizens pay 66 euros on average for their cigarettes. So, what are the real reasons for having such a low number of life insurance policies? - True, a lot of money in Serbia is being spent on cigarettes and other secondary expenses. Spending only a fraction of that money (on a life insurance policy) would give our citizens a much safer future. However, the reasons for that are many and are typical of countries in transition. It is very encouraging to see that the life insurance premiums overall in Serbia have increased five-fold in the last five years and that this development trend, albeit insufficient, is continuing. The other problem is that the state authorities, the media and even insurance companies have not embarked on the long-term education of citizens, i.e. encouraging them to save by purchasing a life insurance policy.

► The story of Dunav has been alive for 140 years; 31st May is Dunav Day and also the Day of the Serbian Insurance Sector. What is the atmosphere surrounding the jubilee like? - In its long history of business successes, Dunav has always strived for innovation and expansion. We are the only insurance company that also has its own bank, as of recently, in which we have invested 11.5 million euros. Initially, the bank was in charge of managing accounts and payments for Dunav’s transaction accounts. We have clearly shown that we can compete with other banks. In addition to Dunav Bank, six other companies make up Dunav Group - Dunav Re, Dunav Auto, Dunav Stockbroker, Dunav which manages voluntary pension funds, Dunav Osiguranje Banja Luka and Dunav Turist. All of the aforementioned companies recorded positive business results in 2010.

Dunav is the only insurance company that also has its own bank, in which we have invested 11.5 million euros Electric Power Industry of Serbia (EPS) is one of Dunav’s long-standing clients and we have concluded a new contract with this company that covers the next four-year-period. Each year, Dunav Osiguranje issues 1.2 million insurance policies and the company is in first position in terms of premiums, and the size and development of its insurance network. We are also number one when it comes to the amount of taxes paid and contributions and I have to say that we are not a day late in paying our taxes. In addition to this, Dunav is the leader in the range of insurance products it offers. Our employees are of different profiles and are very knowledgeable. In regards to settling claims, 99.8 percent of them have been settled. These are all reasons why we are feeling very positive as we approach Dunav Day and the Day of the Serbian Insurance Sector. ■

► You have made a proposition to the government to introduce a 25 percent discount on life insurance policies if such policies are taken for a period longer than five years. What are your main arguments supporting this? - Every state needs to recognise the enormous financial potential of the insurance industry, especially when it comes to life insurance. The state needs to utilise these long-term financial resources and, at the time of financial crisis, have relatively easy access to cheap funds that could be used in the implementation of large-scale infrastructure projects that are imPrivatisation portant in Serbia, just like any other state would do. The prerequisite for collecting more budget he Serbian government budget memorandum indicates that the state funds is for the state to have tax incentives that will not sell its minority share before 2013. This is a wise and an imporwould encourage people to take out life insurtant decision as Dunav will be thoroughly reorganised and modernised. At ance policies. the time when the Serbian financial sector is very focused on banks, which make up 95 percent of the sector, insurance and funds are left with onWe have carried out an analysis which has ly five percent of the market. In the light of this situation, the state needs shown the benefits that a very small increase to balance out the banking and insurance/pension fund sector. Since the in the number of life insurance policies could banking sector is almost entirely privatised, it is important for the state to bring to the state. Our proposition was well rehave good tools for implementing policies that will lead to economic revivceived and is currently being considered by the al. Insurance can be one of those tools. Finance Ministry.

Serbian Banking & Financial Sector 2011

INSURANCE The insurance market in Serbia

Moderate Growth An insurance market is considered developed when over 50 percent of the total premiums come from life insurance. In Serbia, this percentage stands at 16.5 which is a clear indicator of the insuﬃcient level of development

By DANIJELA JOVANOVIĆ

ollowing the crisis year of 2009, insurance companies in Serbia experienced positive business growth in 2010. Their total assets grew by 18 percent to 117.1 billion dinars, their capital increased by 10.5 percent, while the total value of premiums reached a figure of 56.5 billion dinars which overall indicates growth of 5.6 percent. According to the National Bank of Serbia, which monitors the insurance sector in Serbia, an 83.5 percent share of non-life insurance in total premiums shows that this insurance segment is still quite dominant. “Vehicle insurance is constantly growing, as are premiums from non-mandatory insurance like property insurance and casco vehicle insurance. All of these policies recorded a drop in 2009 due to the fact that the

BRANKO KRSTONOŠIĆ Chairman of Wiener Städtische’s Managing Board

asked whether low living standards is the main cause of this situation, the Chairman of Wiener Städtische’s Managing Board, Branko Krstonošić, says to the ‘Serbian Banking and Financial Sector’ that the fact remains that the insurance market is still undeveloped which is clearly visible when compared to other countries. “When assessing the development level we cannot take into consideration manThe state has recently issued euro-bonds which datory insurance such as vehicle insurance, have been snapped up in no time and this where we have concluded as many insurillustrates the fact that Serbia lacks good quality ance agreements as we have insurance securities for insurance companies to invest in subjects. The development level of a certain insurance market is measured against voluntary insurance. If we split this insurance into life insurance sector was exposed to the global financial and non-life, we can see that the life insurance market downturn,” states the National Bank of Serbia. is lagging behind,” says Krstonošić. In 2009, life insurance made up 14.7 percent of An insurance market is considered developed overall premiums and it increased in 2010 to 16.5 perwhen over 50 percent of the total premiums come cent. Despite this growth, this share is still below the from life insurance. In Serbia, this percentage stands EU average where, in 2009, it stood at 61 percent. at 16.5 which is a clear indicator of the insufficient Comparing Serbia to the rest of the world, the counlevel of development. try is in 66th position in terms of the share that insur“There are two main reasons why our insurance ance premiums make up of the national GDP. When

Serbian Banking & Financial Sector 2011

market is undeveloped – the first reason is the inadequate level of awareness about the need and benefits of life insurance for the future, i.e. life insurance being a safe financial backbone for a good level of quality of life in retirement. State-provided pensions are no longer sufficient and one should think about an additional form of income before retiring,” Krstonošić explains and adds that the second reason for the market being so undeveloped is the low living standards of ordinary citizens. In order for the insurance market to grow, in addition to insurance companies, the state also needs to get involved. Still, insurance companies operate today under much better conditions compared to the time prior to relevant legislation being adopted in 2004 when the market was totally unregulated. Krstonošić underlines that, at the time when the law was enacted, insurance companies operated as composite enterprises, while today they are facing a problem with the state having to separate life from non-life insurance. The subsequent division of composite enterprises will lead to an increase in costs which, in the end, will affect clients. Bearing in mind that clients are few and far between and that the market is undeveloped, such a step would lead in the wrong direction and would be contradictory to growth. Serbia lacks good quality securities for insurance companies to invest in. To illustrate this, the state has recently issued eurobonds which have been snapped in no time. “Until the recent issue of euro-bonds, there had been no quality long-term bonds in the market in the past 15 years aside from the so-called old foreign currency savings bonds. Bearing in mind that life insurance policies are concluded for a period of ten and more years, we can say that insurance companies actually prefer long-term securities with a fixed yield,” Krstonošić explains. According to Krstonošić, by owning the aforementioned securities, an insurance company is making sure that it will be able to pay out insurance policies when they mature. It has been estimated that, in five years time, providing that the life insurance portfolio continues to grow, and the state continues to provide help and issue good quality long-term secuStatistics rities, close to a billion euros will

be generated for the purchase of state bonds. The total annual premium, i.e. the value of the Serbian life insurance market, stood at 9.35 billion dinars in 2010. These are all reasons why insurance companies are eager to invest in long-term securities issued in foreign currency. Experts are confident that the insurance market will recover and that it has good potential. However, development of the insurance market is closely tied to economic development. In terms of non-life insurance, this sector can develop only if more significant investments are made in the following period. Each new greenfield investment is a potential insurance deal which contributes to the growth of the entire sector. “Still, I think that life insurance has the biggest po-

It has been estimated that in five years time, providing certain conditions are met, close to a billion euros will be generated for the purchase of state bonds

tential. There are many foreign insurance companies in Serbia which have based their operations on long-term projections of the potential of the Serbian insurance market,” Krstonošić adds. The heads of the leading insurance companies in Serbia agree that the insurance market in Serbia will develop much faster if the state gets involved. “A group of insurance companies, including Wiener Städtische, has proposed a very simple development concept that will benefit everybody – the insurers, citizens and the state. The gist of it is that the state ought to allow a 25 percent discount on the premium to each citizen who takes out a mixed life insurance policy. The insurance companies would invest the money generated from the sale of such insurance policies into long-term state bonds whose maturity corresponds to the length of the insurance policy,” Krstonošić explains. He says that, in this way, the state would benefit since the money collected from the sale of long-term bonds could be used on the implementation of large-scale infrastructure projects. The proposed format has been partially implemented following the Serbian state authorities issuing long-term securities in February in order to make it possible for the premiums collected by insurers to be safely placed. However, the incentives, in the form of tax exemphe insurance sector in Serbia has 11,142 employees and tions that would attract more people to buying life 26 insurance companies. insurance, have still not been realised. ■

Serbian Banking & Financial Sector 2011

CORPORATE Euronet Worldwide

Bringing Currency to Life Money is called “currency” for a reason. It has a natural ﬂow; it never stops moving from person to person; it travels great distances and has the power to emerge and give life to the most distant of places. The people of Euronet Worldwide enable this ﬂow through three business segments: Electronic Financial Transactions, Prepaid Products and Money Transfer Services. We help sustain the currency of life — bringing people together through the exchange and transfer of money, and connecting our people to all people. We are Euronet Worldwide. About Euronet Worldwide, Inc. Euronet Worldwide (NASDAQ: EEFT) is an industry leader in processing secure electronic financial transactions. The Company offers payment and transaction processing solutions to financial institutions, retailers, service providers and individual consumers. These services include comprehensive ATM, POS and card outsourcing services, card issuing and merchant acquiring services, software solutions, consumer money transfer and bill payment serv-

er money transfer network of approximately 110,000 locations serving 134 countries. With corporate headquarters in Leawood, Kansas, USA, and 43 worldwide offices, Euronet serves clients in approximately 150 countries.

Euronet’s Core Business Segments: Euronet operates in the following three principal business segments: • Electronic Financial Transactions (EFT) Processing This segment processes transactions for a network of 10,786 ATMs and approximateEuronet has eleven transaction ly 55,000 POS terminals across Europe, Asia processing centres, including six in Pacific, the Middle East and Africa. We provide Europe, two in Asia Pacific, two in the comprehensive electronic payment solutions United States and one in the Middle East consisting of ATM network participation; outsourced ATM and POS management solutions; credit and debit card outsourcing; and card issuing and ices and electronic distribution for prepaid mobile airtime merchant acquiring services. Through this segment, we aland other prepaid products. Euronet operates and procso offer a suite of integrated electronic financial transesses transactions from 50 countries. action software solutions for the electronic payment and Euronet's global payment network is extensive — intransaction delivery system. In 2010, the EFT Processing cluding 10,786 ATMs, approximately 55,000 EFT point-ofsegment accounted for approximately 19% of Euronet`s sale (POS) terminals and a growing portfolio of outsourced consolidated revenues. debit and credit card services which are under management in 32 countries; card software solutions; a prepaid • epay – Prepaid Products processing network of approximately 563,000 point-ofThis segment provides electronic distribution of presale (POS) terminals at approximately 276,000 retailpaid mobile airtime and other electronic payment proder locations in 29 countries; and a consumer-to-consum-

Serbian Banking & Financial Sector 2011

ucts and collection services for various payment products, cards and services. We operate a network that includes approximately 563,000 POS terminals that enable electronic processing of prepaid mobile airtime in Europe, the Middle East, Asia Pacific, North America and South America. Through this segment, we believe we are the world`s leading international network for distribution of prepaid mobile airtime. In 2010, the epay segment accounted for approximately 58% of Euronet`s consolidated revenues.

over the world. We have eleven transaction processing centers, including six in Europe, two in Asia Pacific, two in the United States and one in the Middle East. We also maintain 43 business offices that are located in 31 countries. Looking to the future, Euronet is enthusiastic about our ability to sustain current contracts as well as pursue new customer opportunities in all markets where we have an established and substantial presence. We will continue to build upon the sound fundamentals of our core complementary businesses by introducing new products and new markets in all three segments. The expansion of these products and markets will help us maintain competitive positioning and enable us to grow.

• RIA Money Transfer This segment provides global consumer-to-consumer money transfer services. We ofAbout EuroPlanet d.o.o. fer this service through a network Euronet’s Serbian entity, of sending agents and company EuroPlanet d.o.o., has been ac–owned stores (primarily in North tive since 2002. Euronet became America and Europe) disbursing a 100% owner of EuroPlanet at money transfers through a worldthe end 2005 and subsequently wide correspondent network that acquired MTS at the end of 2009. includes approximately 110,000 Today, EuroPlanet operates a modlocations. In addition to money ern processing center with over transfers, we also offer customers 70 employees and ensures stable bill payment services, payment alternatives such as money orders and prepaid debit cards, compre- Euronet Worldwide (NASDAQ: EEFT) is hensive check cashing services for an industry leader in processing secure a wide variety of issued checks and competitive foreign currency ex- electronic financial transactions and continuous business activity which covers all aspects change services. We are one of the largest global money of processing services for 18 client banks. transfer companies in terms of revenues and volumes. In In addition to operators who provide 24/7/365 moni2010, the money transfer segment accounted for approxtoring and authorization center services, EuroPlanet’s staff imately 23% of Euronet`s consolidated revenues. includes electrical engineers, information systems engiOur segments bring value to consumers in a varineers, mathematicians and management who are coverety of ways, from cash and cash equivalents, to preing different areas of communications, software support, paid services, to secure and affordable money transfers system monitoring, payment cards, and cooperation with across borders and between currencies — all in a safe International Card Organizations (ICOs). and secure manner. Whether it’s check cashing or bill EuroPlanet is supported with know-how and experipayment in our money transfer segment, payments for ence by Euronet EFT teams throughout Europe and the digital or transportation services in our epay segment or U.S.. Direct Host-2-Host connections between these endynamic currency conversion or ATM advertising in our tities have been implemented to ensure prompt interEFT segment —we are targeting retail expansion opvention, knowledge-transfer and further specialization portunities in higher-margin emerging markets and levof our experts. eraging the opportunities to cross-sell services. To illusEuroPlanet is organized in three internal units: 1) trate, our money transfer business sells epay products Software Unit – which provides 1st and 2nd level support through its retail agent locations and uses the EFT ATM to all Euronet software clients worldwide; 2) Processing network as an option for transfer payout. Our EFT bankCenter – which provides processing services for clients ing relationships in Europe are opening correspondent from Serbia, Montenegro, Bosnia and Herzegovina, Greece, opportunities for money transfer. We transact some type Romania and Bulgaria; and 3) Money Transfer Unit – which of business in 80% of the countries across the world, provides money transfer services. approximately 40% of which include the services of at For more information, please visit the company's webleast two of our business segments. site at www.euronetworldwide.com ■ Euronet conducts business and serves customers all Serbian Banking & Financial Sector 2011

INTERVIEW Zoran Višnjić, President of the Board of UNIQA Insurance Company

Increase in Premiums and Profits According to preliminary business results, in the ﬁrst quarter of 2011, UNIQA scored an increase in premiums of 20.10 percent compared to the same period last year

By SLAVKA KOVAČ

“T

he main indicator of the growth of the insurance market is the participation of premiums in the total gross national product of a country. In the last few years, that percentage in Serbia has been below two percent, which shows a very low degree of penetration,” Zoran Višnjić, CEO of UNIQA Insurance, states in his interview for the ‘Serbian Banking and Financial Sector’.

► In the insurance market, UNIQA is among the top five insurance companies in Serbia. Does that satisfy your ambitions and the ambitions of the company you head? - If we observe our first five years of business in Serbia, UNIQA has scored the largest level of growth amongst the top five insurance companies in our market over the

In business, you must never be satisfied with the current situation last four years, and by the end of 2010 we had secured a market share of 6.14 percent. After these excellent business results in 2010, which saw an increase in premiums of 19.66 percent and profit of 102 million dinars, UNIQA Insurance Serbia continued achieve growth in the first quarter of 2011. According to preliminary business results, in the first quarter of 2011, UNIQA Insurance

Serbian Banking & Financial Sector 2011

Serbia scored an increase in premiums of 20.10 percent compared to the same period last year. These results point to the very fact that our primary goal is to find the right balance between growth and profitability. The economy of volume implies more efficient and cheaper business dealings, but at the same time you have to be sure that the increased field of business brings profitability and further diversification, which decreases the risks of business. In business, you must never be satisfied with the current situation. As the Latin saying goes “not going forward, means going backwards”. So, we will always strive toward bigger, better, and more efficient. Our ambition is to be the best insurance company in Serbia, and that can be achieved via the sustainable growth of business and superior client services. ► To what extent has the economic crisis affected the

development of insurance companies in Serbia? - The insurance industry has felt the effect of the crisis through a reduction in total insurance premiums. In real values, a drop in premiums occurred in 2009 and 2010. As a rule, a decrease in gross domestic product leads to a drop in insurance premiums. Some signs of recovery are being seen, but we still cannot discuss a more significant increase at the industry level. The most important thing is that the industry remained stable and without any big ‘shakes’, so clients’ confidence has been maintained. ► On which criteria is development of the insurance market measured and at what level is Serbia currently? - The main indicator of the growth of the insurance market is the participation of premiums in the total gross national product of a country. In the last couple of years, that percentage in Serbia has been below two percent, which marks a very low degree of penetration. Just for comparison’s sake, this percentage in Slovenia is over five percent. So, there is potential, it just has to be realised.

► What kind of services does UNIQA Insurance offer

and are they the same for all markets in which the group operates? - We offer a broad range of insurance products and it is our goal to meet the needs of all of our clients, both corporate and individual. In addition to life insurance, we offer property insurance, travellers’ health insurance, insurance of vehicles, bank-insurance products, insurance in the case of accidents, and starting in September, we will offer private health insurance, focused on corporate clients. We have achieved a rather good balance between the applied solutions from other countries where UNIQA does business and their adjustment to the specificities of the Serbian market. The power of UNIQA is in the fact that the knowledge gained in the 21 countries where the group is present, particularly in the countries which have gone through the process of transition, is able to be transferred to the Serbian market in an efficient and modern way. ► How big are the total investments of UNIQA group in the Serbian market and are there currently any new investment prospects? - The total investments of the group over the last five

years of business in Serbia are about 50 million euros. The group believes in the long-term potential of the Serbian market and is ready for new investments, according to the conditions of the market and development plans. We advocate the improvement of the business climate, a predictable environment and fair business dealings in the insurance sector; and when the environment improves, fresh capital will not be far behind.

At the end of 2010, UNIQA scored a market share of 6.14 percent You were the first to offer the MeteoUNIQA service, which is insurance against natural hazards. How have citizens reacted to your free service? - This is a new, exclusive service we offer to our clients free of charge. The response has been extraordinary. Prevention is the best protection. The weather situation is being monitored from a modern centre in Vienna and sms or e-mail warnings are being sent in a timely manner to our clients. Our competition in the insurance sector is due to focus on services more and more, so this is a new kind of differentiation compared to the competition, which has been already recognised by our clients. ■ ►

CORPORATE Megatrend By Professor MIĆA JOVANOVIĆ, Rector of Megatrend University

Truly Global There are four Megatrend institutions in the world: Vienna International University in Vienna, Institut de Management de Bozinoﬀ in Paris, West London Business School in London and Teogaku Training School in Tokyo

egatrend University is the biggest private university in Europe. After its first two decades of existence and work in the domain of higher edhas been developed with over 20 world-leading eduucation, it has over 26,000 active and 15,000 graducational institutions, thus giving the opportunity for the ate students at 11 faculties, three colleges and the development of an international academic network and Megatrend Virtual University. scientific-research cooperation, as well as for student MEGATREND International Expert Consortium exchanges. Limited, London, is a consultant-educational house, Students at Megatrend University have the opporfounded in 1980, which represents the starting point tunity to learn from internationally-recognised lecturfor the development of the ‘Megatrend’ educationers, by using the most contemporary literature. At our al group in Serbia. The first institution of the system university, they gain the knowledge required for startwas Megatrend Business School, founded in 1989. The ing a successful career in the fields of business, interschool soon became the founder of all other institunational economy, management, state administration, tions within this academic community. The faculties culture and media, art and design, computer sciences and schools which were founded later were primarily and bio-farming. Many of those coming out of our edoriented towards apucational system are now well-known and acknowlplied economiks and edged scientists in recognised areas, and these people management, and latare the best guarantee of Megatrend University. er on, other scientific Megatrend is now in its third development phase, and artistic fields were which is called the’ internationalisation of Megatrend conquered. Megatrend University’. There are four Megatrend institutions in University sets the the world: Vienna International University in Vienna, highest standards for Institut de Management de Bozinoff in Paris, West education in the reLondon Business School in London and Teogaku gion, while putting Training School in Tokyo. students at the centre of all efforts. There are several reasons why one Diplomas were presented to students should study at Megatrend University. from 19 nations, which makes Megatrend First of all, there are exceptional study University a truly global university programmes at our faculties, which At the youngest Megatrend University institution have been carefully created to meet even the highest abroad, Vienna International University in Vienna, the standards of study; then there is the excellent teachfirst class of students hev recently graduated. The grading staff; the most beautiful modern buildings where all uation ceremony was held in the impressive premisstudent activities take place; and finally, extraordinary es of the Vienna Chamber of Industry on 20th May. international cooperation, which ranges from America An interesting point is that diplomas were presented to Japan, from Scandinavia to South Africa. One of the to students from 19 nations, which makes Megatrend indicators of the quality and success of this higher edUniversity truly a global university. ucation institution is the international cooperation that

Serbian Banking & Financial Sector 2011

LEASING Challenges that leasing companies are facing in Serbia

Year of Recovery Despite the crisis, the slow path to economic recovery and the lack of subsidies, ten leasing companies in Serbia recorded positive business results in 2010. They shared the burden of the financial crisis by offering their clients longer repayment periods and the option of consolidating their existing financial obligations

VLASTIMIR VUKOVIĆ Chairman of the Association of Leasing Companies in Serbia (ALCS)

By DANIJELA JOVANOVIĆ

n 2010, leasing companies lost 868 million dinars, i.e. 8.25 million euros (based on the foreign exchange rate on 31st December, 2010). Leasing companies in Serbia comment that 2010 posed the biggest economic challenge since commencing operations in the region. Yet, despite this, ten leasing companies managed to record good financial results which were, however, insufficient to declare the operations of the entire sector financially successful.

Statistics

• There are 17 leasing companies in Serbia. • Losses accumulated by seven leasing companies stands at 1,675.40 million dinars (or almost 16 million euros). • The profits generated by ten leasing companies are 807.3 million dinars (or 7.67 million euros).

Serbian Banking & Financial Sector 2011

“The main reason for this is certainly a sharp and rather unexpected drop in market potential. Economic downturn affected business expectations so companies were reluctant to invest in production development which is perfectly understandable. Lately, the expectations have changed which is reflected in the growth of the production of the leasing sector. This gives us good

The Serbian Parliament has recently adopted a new leasing law which, for the first time ever, stipulates real estate leasing reason to see things more optimistically this year,” says the Chairman of the Association of Leasing Companies in Serbia (ALCS), Vlastimir Vuković, in a statement for ‘The Serbian Banking and Financial Sector’. Neighbouring countries share similar experiences. After a rather drastic drop of almost 40 percent in 2009, leasing companies in Central and Eastern Europe recorded 2.7 percent growth in 2010 compared to the year before. The growth rates were somewhat higher in other parts of Europe, and 2011 projections are far more optimistic with estimated leasing production growth of between five percent and 20 percent. The Serbian Parliament has recently adopted a new leasing law which, for the first time ever, stipulates real estate leasing. However, if a leasing company wants to

get involved in real estate leasing, it needs to have initial capital of at least five million euros. However, there are several other conditions that need to be met in order for such leasing arrangements to really become popular in Serbia. “Since the very first initiative pertaining to introducing real estate leasing, the Association of Leasing Companies in Serbia has been insisting on the state having a systematic approach to this issue. The current situation is such that new legislation resembles ‘a frame without a painting’ in terms of the effects that such regulations should have in practice and this is something that is happening across the region,” Vuković underlines. In order to avoid the aforementioned scenario, in addition to changing the legal framework in the sense of allowing real estate leasing, it is vital to introduce a series of measures that will help such leasing arrangements become popular amongst Serbian citizens and which will accommodate all interested parties. These measures primarily entail tax exemptions for people wanting to buy real estate such as abolishing VAT (which significantly increases the costs for leasing users) on the leasing fee. There is also the issue of VAT returns for first-time buyers who have purchased a house via a leasing arrangement. The current regulation stipulates that a leasing company actually owns the real estate in question. In addition to this, the state should abolish double taxation on the transfer of the so-called absolute ownership rights in cases where the real estate is purchased via the ‘sale and lease back’ format. In Serbia, businesses and companies tend to use leasing the most. Bearing in mind that we are still working through a financial crisis, it is really not that difficult to presume that the settling of leasing claims goes hand-in-hand with the fact that the economy is illiquid.

Loan or LEASING

“B

efore a client finds himself in a situation where he needs to choose between two financing sources, i.e. having to choose between a loan and a leasing arrangement, it is important that both formats are treated equally in the subsidies programme devised by state authorities which certainly influences the choice that a client makes. Unfortunately, current practices have shown that leasing is often excluded from the subsidies programme which is tantamount to imposing what choice a person should make. We do expect that leasing will be included in the subsidy programme in the future, (to be on equal footing with loans), and clients will be the ones to choose the source of the funds they require,” says Vlastimir Vuković.

“Problems with settling claims are not unique to the leasing industry. The economic crisis has left a deep footprint in the financial system as a whole, but overall, leasing companies have had a similar number of problems with settling claims compared to other financial companies. Of course, this is more difficult to handle now

Bearing in mind that we are still working through a financial crisis, it is really not that difficult to presume that the settling of leasing claims goes hand-in-hand with the fact that the economy is illiquid

compared to during the pre-crisis period, but we cannot say that that is a structural problem that is typical only of the leasing sector,” says Vlastimir Vuković. Despite everything that has happened, the leasing market is showing clear signs of recovery. According to data from Q1 of this year, the volume of new financial leasing placements has grown by 17 percent compared to the same period last year, i.e. it is equivalent the level from Q1 of 2009. “Nonetheless, the development of leasing is closely related to the rate of economic recovery,” says the Chairman of the ALCS Managing Board Financing and adds that the higher level of liquidhe financing structure in Serbia is similar to that of European counity in the economy is being directly felt tries. “According to data compiled by Leaseurope, in 2010 almost 83 in terms of new placements and the percent of leasing users were companies or legal entities and 17 percent settling of existing claims. In awareness were individuals. The similarities don’t end there – the two leasing secof this, leasing companies have shared tors also resemble one another in terms of the items being leased, with a smaller share of leasing arrangements being made for vehicles and real the burden of the financial crisis by ofestate, which was not even possible in our country until recently. Bearing fering their clients longer repayment in mind that the new Law on Financial Leasing has just been enacted and periods and the option of consolidatthat this law stipulates real estate leasing, it is realistic to expect that ing their existing financial obligations. the financing structure, in regards to the items being leased, will change In this sense, we can say that 2011 will in the future,” comments Vlastimir Vuković. be the year of recovery. ■

Serbian Banking & Financial Sector 2011

PRIVATE PENSION FUNDS

Growth Despite the Crisis There are a total of six companies that manage eight voluntary pension funds. Their average yield in 2010 was 9.12 percent

he assets of voluntary pension funds in Serbia, all eight of them, curcial instruments, and there was a decrease in both the rently stand at 10.44 billion dinars. Unfortunately, the value and liquidity of securities being traded on the prevalent money shortage and economic downturn led Belgrade Stock Exchange,” says the National Bank of to pension funds taking the ‘back seat’, however, they Serbia which monitors pension fund operations. continued to record good operating results. Ever since Still, despite these negative tendencies, voluntary the Law on Voluntary Pension Funds was enacted in pension funds have quickly adjusted to the changes. 2006, the number of these funds has fluctuated with The share of risky instruments (securities) has been certain funds ceasing to exist and some merging. Today, significantly reduced in favour of no-risk state bonds, there are a total of six companies that manage eight volold foreign currency savings untary pension funds. Their average yield in 2010 was The annual data of the NBS bonds and treasury bonds. “The exposure to risk has 9.12 percent. shows that 100,401 men been reduced to a minimum In the beginning, pension have deposited money in and assets are protected funds in Serbia had to overvoluntary pension funds as from substantial losses. All come the securities crisis and the declining living standards opposed to 66,357 women of this has resulted in funds preserving the net value of of the population. Although, assets of their members and even increasing those over eight billion dinars has been paid into private assets. The FONDex index, which is a unique indipension funds, deposits did not grow as expected. cator of fluctuations in investment unit values, has “There are some tax reliefs in place and these are not dropped below 1,000 dinars and recorded much multiplying each year as they are moderated against better results than any format of collective investthe growth of retail prices. However, the securities maring,” says the Serbian Central Bank. In 2010 and earket did not have the sufficient number of finanPayments ly 2011, new instruments were issued that enable even more diversification in investing. ccording to the NBS, 40 percent of all voluntary pension fund contributions are from large companies and public enterprises. In Also, long-term treasury bonds, indexed in dinars 2010, five companies each made over 100 million dinars in voluntary and euros, were issued in early 2011 with a maturity pension contributions, and combined, they paid a billion dinars which date of 2026. The first ever corporate bond has been is 38 percent of all contributions. The remaining 1,000 companies included in trading on the Belgrade Stock Exchange paid less than 100 million dinars individually, i.e. just over a billion disecond-tier market, while pension funds have also benars. The remaining contributions pertain to individual contributors. gun investing in foreign markets. At the same time, the

By DANIJELA JOVANOVIĆ

Serbian Banking & Financial Sector 2011

ly in the case of those funds that invest most of their securities of two large corporations – the Petroleum money into high-risk securities with the prospect of Industry of Serbia and Nikola Tesla Airport – received having higher long-term yield. an ‘A’ listing on the Belgrade Stock Exchange “Voluntary pension funds’ reimbursements have been The National Bank of Serbia (NBS) says that the growing year-on-year which is a normal consequence of growth potential of this so-called ‘third pillar’ is very the systematic development. With the increase of yield, strong. It is interesting to note that, in Serbia, men are net assets and the years that pension funds have been in more inclined to save for old age than women. The anexistence, the reimbursements will also grow (calculatnual data of the NBS shows that 100,401 men have deing in absolute amounts),” the NBS adds. However, one posited money in voluntary pension funds as opposed of the things that voluntary pension funds frown upon is to 66,357 women. the fact that as soon as voluntary pension fund members However, if we consider the average money saved via meet the conditions for reimbursement (they have to be pension funds, then women have 61,746 dinars on their at least 53 years old) they are withaccounts on average, whilst men drawing their funds, i.e. even before have 59,119 dinars. The data for Q1 they officially retire. of this year shows that 222,659 volThe recently adopted law stipuntary pension fund members are ulates that a person cannot withcurrently in the so-called ‘accumulation stage’, while 71,603 members The share of risky are active members. The yield for voluntary pension instruments (securities) has funds has undergone three phases been significantly reduced in since the their beginning – the first favour of no-risk state bonds, was a drop in yield which lasted until September 2008 due to the deold foreign currency savings clining value of the Belgrade Stock bonds and treasury bonds Exchange securities. The securities draw all of his or hers funds from the voluntary pension made up 20 percent of all voluntary pension funds’ portfunds at once, i.e. that they can withdraw 30 percent of folios – according to NBS data. In response to the market the accumulated sum in one transaction while the rest shifting, the funds re-directed their investments towards can be withdrawn over a period whose length the volsafer instruments which led to the share of securities reuntary pension fund user determines themselves but ducing to 10 percent. must be no less than two years. At a certain point, over 50 percent of assets were It is important to mention that these law amenddeposited in transaction accounts opened with cusments apply only to those persons who have signed tody banks. Following the emergence of treasury the relevant contracts with voluntary pension funds bonds, the pension funds money was re-directed tofollowing the adoption of the aforementioned law. wards that instrument, while the old foreign currenIn 2011, the tax deductible amount of contricy savings bonds maintained their 25 percent to 30 butions to the voluntary pension fund is 4,343 dipercent share in investing. nars. Tax reliefs are envisaged for those employers “By making such investment decisions, voluntary who are paying voluntary pension insurance on bepension funds managed to protect their assets, and half of their employees, as well as for employees the FONDex index never fell below 1,000 points. As themselves who are making contributions to pension a result of changes made to the investment structure, funds via their salaries. Cumulatively, this amounts the yield grew and funds entered the second phase. At to 8,686 dinars. If an employer pays contributions to that time, the benchmark interest rate also increased a voluntary pension fund on behalf of his employee, which positively affected treasury bonds and deposin terms of taxes, this is not treated as income but its, as well as the value of euro against dinar which, in rather as an income tax expense. ■ turn, was beneficial to the finanContributions cial instruments indexed in euros,” the NBS explains. ut of all voluntary pension fund payments in 2010, 18 percent were made by individual contributions, 34 percent by companies on behalf of their employees while 48 The third phase is the stagnapercent were payments were made via pension plans. This share hasn’t varied much since tion of voluntary pension funds’ 2008. The biggest amounts are usually paid in the last quarter, i.e. mostly in December. yield which, in 2010, stood at 10 In the Q4 of 2010, contributions to voluntary pension funds were at the highest levpercent per annum. Such a trend el ever and stood at 662 million dinars. Compared to the preceding quarter they increased shows that yield can fluctuate by 100 million dinars. even in the short term especial-

Serbian Banking & Financial Sector 2011

INVESTMENT FUNDS

Long Road to Recovery

The total value of assets of all open-end investment funds in Serbia is far below that of neighbouring countries; on 31st December 2010 it stood at 1.1 billion dinars

vestment funds. Most of these funds in Serbia recorded positive business results last year and the same is expected in 2011,” says CFA Portfolio Manager at the investment fund management company Fima Invest, Vladimir Drašković. Referring to which type of funds fared the best durnvestment funds in Serbia have been unfortunate By DANIJELA ing the economic downturn, Drašković says that monin the sense that they emerged on the market at JOVANOVIĆ ey market funds managed most favourably during the the same time that the value of securities on the economic crisis. Belgrade Stock Exchange skyrocketed. What followed “Those (money market funds) are safe placements, next was that the value of securities began plummetboth risk and yield wise, and they are similar to traing and the global economic downturn reared its ugditional savings options. ly head which, when combined, devalued the in- Those (money market funds) are However, the biggest danvestment units owned by safe placements, both risk and ger for these funds is a sudden increase in the ininvestment fund members. yield wise, and they are similar flation rate which can turn Some funds were closed, nominal yield into real and some were sold to to traditional savings options loss. Hence the diversificaother management comtion concept, i.e. investors have diverse choices for inpanies. However, the biggest market players still expect vesting, is more or less desired,” Drašković explains. the industry to recover. According to data compiled by the Securities “Last year, domestic and global financial markets Commission, which supervises investment funds in became more stable, and so did inAverage RATE Serbia, in the period from March 2007 to December 2010, the investment units of all investment funds, i.e. n 31st December 2010, the average daily asset growth rate of all open-end investment funds was 0.32 percent, primarily thanks all fifteen of them, recorded negative average yield. On to the growth that occurred in 2007 and the first half of 2008. 31st December 2010, this yield stood at -37.82 perErste Keš investment fund has the highest daily average growth rate cent. Still, when taking into consideration the height of of +0.63 percent. an average yield per investment unit for all open-end Raiffeisen Akcije investment fund has the biggest average negafunds we should bear in mind the fact that not all intive daily drop of -0.41 percent. vestment funds became operational at the same time.

Serbian Banking & Financial Sector 2011

“On the last day of 2010, the investment fund Triumf Balans had the biggest yield of 31.55 percent per single investment unit, calculated in dinars. However, if we were to express the investment unit value in euros then the yield would be negative, i.e. -3.2 percent,” the Securities Commission comments. If we observe the euro value of an investment unit in the period from March 2007 to September 2010, we get a different picture on an average gross yield per unit due to the euro/dinar exchange rate fluctuations. So, the negative average yield per investment unit, expressed in euros, is -52.27 percent for all open-end investment funds. “Investment fund Raiffeisen Akcije recorded the lowest gross yield per investment unit, calculated in euros. On 16th August 2007, the initial value of this unit was 12.51 euros while, on 31st December 2010, it dropped to only 1.45 euros which is an eleven-fold-decrease,” the Securities Commission advises. The total value of assets of all open-end investment funds in Serbia is far below that of neighbouring countries and on 31st December 2010, it stood at 1.1 billion dinars (or 10.2 million euros). “On the last day of 2010, Delta Plus had the most valuable assets of all open-end investment funds – 200.3 million dinars or 1.9 million euros. Citadel Novčani Fund had the lowest assets of 8.3 million dinars or 78,300 euros. This is below the required amount of 200,000 euros,” the Securities Commission says. In terms of the share of assets, Delta Plus had the biggest share of 18.6 percent (or 1/5), followed by Fima Proaktiv with 17.7 percent (almost 1/5) and Erste Keš with 15.6 percent (or 1/10). Still, Vladimir Drašković remains optimistic and says that, in the light of the Q1 2011 data, investment funds can expect a moderate level of growth. “Market recovery also means the recovery of investment funds. Bearing in mind

New LAWS

The greatest number of INVESTMENT UNITS Fima ProAktiv Fund: 490.819 investment units Delta Plus Fund: 276.467 investment units Erste Keš: 152.565 investment units Source: The Securities Commission, on 31st December 2010 that the expectations pertaining to financial market trends are positive, we are confident that most of the funds, if not all of them, will recover in the future period. What is even more important is what an investment fund has been investing in, rather than when was it founded or what results is has accomplished,” Drašković says and points out that, in terms of results, they are relatively important since almost all funds and their investment policies are closely tied to the overall tendencies in both

In the period from March 2007 to December 2010, the investment units of all investment funds, i.e. all fifteen of them, recorded negative average yield the domestic and global economies. Accordingly he comments that the value of assets which are managed by investment funds in Serbia are estimated at 20 million euros and growing. In addition there are announcements that certain funds might exchange hands between management companies. “The consolidation of funds was inevitable due to the industry’s size and the overall economic situation. Regardless, new investment funds could emerge in the Serbian financial services market. So, the number of companies that manage investment funds will probably grow in 2012,” Drašković adds. He says that the banking sector will share the same destiny as investment funds and brokerages. Consolidation is a natural process that will result in resource optimisation which has already occurred in several other sectors in Serbia. ■

arly in May, the Serbian Parliament enacted a series of ulate the term ‘custody bank’, the scope of its activities and laws that govern financial operations. Amendments to the conditions for being granted an operating licence. A custoLaw on Payment Operations, the Law on Financial Leasing, dy bank is a specialised financial institution responsible for the Law on Foreign Currency Operations, the Law on Default safeguarding a firm's or individual's financial assets and arInterest Rates, and the Law on Pension Funds and Pension ranging the settlement of any purchases and sales and the Plans were all adopted. delivery in/out of securities. The changes to the Law on Investment Funds were also The new Law on Capital Markets is supposed to enable sevadopted and they stipulate that the companies that man- eral domestic and foreign investors to participate in trading and age investment funds can also manage portfolios and offer the development of the Serbian capital market in order for this investment advice to other clients that are not members of market to become a source of funding for domestic businesses. that particular investment fund. The amendments also stip- It should also curb the abuses that occur in securities trading. Serbian Banking & Financial Sector 2011

INTERVIEW Gordana Dostanić, Director of the Belgrade Stock Exchange

Indices (again) on the Rise The lack of interest from companies in transferring their securities from the second-tier market to the stock exchange shows that they are still quite fearful of sharing business information and news with investors and the general public

By SLAVKA KOVAČ

“T

here has been a decrease in the share made up by foreign investors of trading in securities on the Belgrade Stock Exchange, but their share in both buying and selling securities is encouraging. Over 50 percent of the stock exchange traders who buy shares are foreign and 27 percent of all securities sold are those sold by foreigners,” says the Director of the Belgrade Stock Exchange, Gordana Dostanić, in an interview for the ‘Serbian Banking & Financial Sector’.

► Following a three-year drop in turnover of the trade

in securities on the Belgrade Stock Exchange, in Q1 of 2011 we have seen signs of recovery and an increase in the volume of turnover. In your opinion, which direction do you see this trend taking? - In the first few months of this year the value of the Belgrade Stock Exchange indices have increased, as has

respect, the Stock Exchange will continue to develop the concept of added value for listed companies. ► What is the ratio of foreign versus domestic investors in terms of stock exchange trading? - There has been a drop in the share of foreign investors trading in securities on the Belgrade Stock Exchange, but their share in both buying and selling securities is encouraging. Over 50 percent of the stock exchange traders that buy shares are foreign and 27 percent of all securities sold, are those sold by foreigners. This behaviour of foreign investors is just a continuation of the Q4 2010 tendencies, which was also noticeable in 2007 when foreign investors were more active in selling as opposed to buying. Maybe the statistical indicators could be interpreted as foreign investors showing more interest in the Serbian capital market and returning to their previous positions.

In order to develop the stock market and appeal to investors, it is necessary to have a well-rounded offer of financial instruments the value of market capitalisation and turnover. This slight recovery is somewhat encouraging, but we still should not be satisfied with the attitude that secondtier companies have towards providing elementary and permanent information to the investing public which is still unsatisfactory. The fact that companies are not interested in transferring their securities from the second-tier market to the stock exchange shows that they are still quite fearful of sharing business information and news with investors and the general public. In this

Serbian Banking & Financial Sector 2011

► This year, the number of daily transactions executed on the Belgrade Stock Exchange has been over four times the level of trading on the Luxembourg Stock Exchange, but the value of transactions differs greatly. How can this be explained? - It is strange that you use the Luxembourg Stock Exchange as a comparison, which trades solely in bonds, to the Belgrade Stock Exchange which is a mixed financial exchange. Of course, these two exchanges differ in many other aspects too. I think that it would be more prudent if we were to compare our stock exchange to those in regional countries which have a similar development trajectory and which started to operate at the time of transition and reforms.

If you consider the stock exchange indicators from the last three years pertaining to trading on the Romanian, Bulgarian, Slovenian and Croatian exchanges, you will notice that all of them have been through a rather difficult time. The value of turnover and market capitalisation was, and still is, at a much lower level compared to the pre-crisis values. In the last year or so, the stock exchange indices have been stagnating, at best. If we are talking about the number of transactions executed, this number depends entirely on the shareholding structure of issuers and cannot be compared to other markets except in the respect of technical and technological requirements that need to be moderated with the development level of an individual market, its requirements and maintenance costs.

en’ by the Law on Capital Markets to institutions and market participants to adapt to the new regulations, 2012 will be the year when these changes will actually take place. We should bear in mind that the process of enacting the Law on Companies is pending and that this law will also affect the stock market. So, moderating operations with the amendments to the aforementioned law and new bylaws will require well-thought out organisational activities and all in-

► If telecommunications and energy se-

curities are the strongest magnet for investors, and presuming that these companies are going to stop floating their shares on the Belgrade Stock Exchange in the near future, how long do you expect the stock market to remain ‘shallow’? - In order to develop the stock market and appeal to investors, it is necessary to have a well-rounded offer of financial instruments. If these instruments originate from substantially capitalised companies and attractive investment circles, this means that we have met the basic conditions for appealing to a large number of diverse investors whether professional, or financial etc.

There are absolutely no municipal bonds on the Serbian stock market

► When can we expect new securities,

such as municipal bonds, to emerge? What impact will they have on stock trading? - There are absolutely no municipal bonds on the Serbian stock market due to fact that our regulations, in terms of the issuance of these bonds, are quite limited. These hurdles are expected to be eliminated soon and certain municipalities have already been preparing themselves for issuing bonds, which is certainly good news. ► The Belgrade Stock Exchange is supposed to be re-

organised this year in accordance with the new Law on Capital Markets. When can we expect these changes to take place and exactly what will be changed? - Bearing in mind the deadline that has been ‘giv-

stitutions and capital market participants adapting their operations to the new regulations. ► Will a regional stock exchange be established and

what advantages will its establishment bring? - I haven’t heard of any regional stock exchanges in existence, but that doesn’t mean that they don’t exist. Also, I am not familiar enough with the concept of a regional stock exchange in order to respond to your question. ■ Serbian Banking & Financial Sector 2011

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11000 BEOGRAD +381 11 206 58 80 +381 11 333 2338 FINDOMESTIC BANKA A.D. BEOGRAD Bul. Mihaila Pupina 115A 11070 NOVI BEOGRAD +381 11 333 6000 +381 11 3331 775 HYPO ALPE-ADRIA-BANK A.D. BEOGRAD Bul. Mihajla Pupina 6A 11070 NOVI BEOGRAD +381 11 222 6713, +381 11 222 6799 JUGOBANKA JUGBANKA A.D. KOSOVSKA MITROVICA Kralja Petra I 165 KOSOVSKA MITROVICA +381 28 425-455 JUBMES BANKA A.D. BEOGRAD Bul. Zorana Đinđića 121 11070 NOVI BEOGRAD +381 11 220 55 00 KBC BANKA A.D. BEOGRAD Omladinskih brigada 90v 11070 NOVI BEOGRAD +381 11 30 50-300 KOMERCIJALNA BANKA A.D. BEOGRAD Svetog Save 14 11000 BEOGRAD +381 11 3080 100 MARFIN BANK A.D. BEOGRAD Dalmatinska 22 11000 BEOGRAD +381 11 3306 300, MOSKOVSKA BANKA A.D.BEOGRAD Karađorđeva 89 11000 BEOGRAD +381 11 3952 200 NLB BANKA A.D. Beograd Bul. Mihaila Pupina br. 165v 11070 NOVI BEOGRAD +381 11 2225 100 +381 11 2225-194 OPPORTUNITY BANKA A.D. NOVI SAD Bul. oslobođenja 2a 21000 NOVI SAD +381 21 4893-100 +381 21 4893-123 OTP BANKA Srbija a.d. Novi Sad Bul. oslobođenja 80 21000 NOVI SAD +381 21 48 000 00 PIRAEUS BANK A.D. BEOGRAD Milentija Popovića 5b 11070 NOVI BEOGRAD +381 11 3024 000 +381 11 3024 040 POLJOPRIVREDNA BANKA AGROBANKA A.D. BEOGRAD Sremska 3-5 11000 BEOGRAD +381 11 2021 000, 2637 622 +381 11 328-1408 PRIVREDNA BANKA BEOGRAD, A.D. BEOGRAD Bul. kralja Aleksandra 70 11000 BEOGRAD +381 11 3816-555

Serbian Banking & Financial Sector 2011

ProCredit BANK A.D. BEOGRAD Milutina Milankovića 17 11070 NOVI BEOGRAD +381 11 20 77 855 +381 11 20 77 905 RAIFFEISEN BANKA A.D. BEOGRAD Bul. Zorana Đinđića 64a 11070 NOVI BEOGRAD +381 11 320-2100, 320-2777 +381 11 320-2179 RAZVOJNA BANKA VOJVODINE A.D. NOVI SAD Stražilovska 2 21000 NOVI SAD +381 21 488 4400 SOCIÉTÉ GÉNÉRALE BANKA SRBIJA A.D. BEOGRAD Bul. Zorana Đinđića 50a/b 11070 NOVI BEOGRAD +381 11 30 11 400 “SRPSKA BANKA" A.D. BEOGRAD Savska 25 11000 BEOGRAD +381 11 360 72 00 UNICREDIT BANK SRBIJA A.D. BEOGRAD Rajićeva 27-29 11000 BEOGRAD +381 11 32 04 500, 33 44 100 +381 11 33 42 200 UNIVERZAL BANKA A.D. BEOGRAD Francuska 29 11000 BEOGRAD +381 11 3022-801, VOJVOÐANSKA BANKA A.D. NOVI SAD Trg slobode 5-7 21000 NOVI SAD +381 21 4886 600 +381 21 6624 859 "VOLKSBANK" A.D. BEOGRAD Bul. Mihajla Pupina 165g 11070 NOVI BEOGRAD +381 11 2013-259, +381 11 2013-270 Insurance Companies A.D. ZA ŽIVOTNO OSIGURANJE "METLIFE" Omladinskih brigada 88 11070 Beograd +381 11 20 92 900 +381 11 20 92 909 A.D. ZA NEZIVOTNO OSIGURANJE "AS OSIGURANJE" Bul. Mihaila Pupina 165e 11070 Beograd, + 381 11 26 08 676 + 381 11 26 08 684 A.D. ZA OSIGURANJE "AMS OSIGURANJE" Ruzveltova 16 11000 Beograd, + 381 11 308-49-02 A.D. ZA OSIGURANJE "BASLER" nezivotno osiguranje Resavska 29 11000 Beograd + 381 11 324-77-16 A.D. ZA OSIGURANJE "BASLER" zivotno osiguranje Resavska 29

11000 Beograd, +381 11 324-77-16 A.D. ZA OSIGURANJE "AXA ŽIVOTNO OSIGURANJE" Bul. Mihaila Pupina, 6 11070 Beograd, +381 11 22 00 400 A.D. ZA OSIGURANJE "DDOR NOVI SAD" Mihaila Pupina 8 21101 Novi Sad, +381 21 4886 000, +381 21 6624 831 A.D. ZA REOSIGURANJE "DDOR RE" Bul. Mihaila Pupina 8 21000 Novi Sad, + 381 21 6621 305 + 381 21 6621 305 A.D. ZA OSIGURANJE "DELTA GENERALI OSIGURANJE" Milentija Popovića 7 b 11000 Beograd, +381 11 201-17-00 + 381 11 201-17-07 A.D. ZA REOSIGURANJE "DELTA GENERALI REOSIGURANJE" Milentija Popovića 7 b 11000 Beograd, + 381 11 201-17-00, 201-17-11 + 381 11 201-17-07 A.D. ZA OSIGURANJE "DUNAV OSIGURANJE" Kolarceva 7/ VII 11 000 Beograd +381 11 3223143 A.D. ZA REOSIGURANJE "DUNAVRE" Knez Mihailova 6/II 11000 Beograd, + 381 11 2634-755, 2634-987 + 381 11 2633-845 A.D. ZA OSIGURANJE "ENERGOPROJEKT GARANT" Bul. Mihaila Pupina 12 11070 Beograd + 381 11 310-10-82 A.D. ZA OSIGURANJE "GLOBOSOSIGURANJE" Knez Mihailova 11-15/III 11000 Beograd, + 381 11 2620 015, 2629 097 +381 11 186 209 A.D. ZA OSIGURANJE "GRAWE" Bul. Mihaila Pupina 115D 11000 Beograd, +381 11 2092 600 +381 11 2092 661 A.D. ZA OSIGURANJE "MERKUR" Bul. Mihajla Pupina 6/22 PC Ušće 11000 Beograd + 381 11 220 12 50 + 381 11 220 12 51 A.D. ZA OSIGURANJE "MILENIJUM OSIGURANJE" Kneza Miloša 82/I 11000 Beograd, + 381 11 3620 487 + 381 11 3620 623 A.D. ZA OSIGURANJE "SAVA OSIGURANJE" Bul. vojvode Mišića 51

11000 Beograd, + 381 11 3644 801 A.D.ZA OSIGURANJE "SAVA ŽIVOTNO OSIGURANJE" Bul. vojvode Mišića 51 11000 Beograd, + 381 11 3643 610 + 381 11 3643 613 A.D. ZA ŽIVOTNO OSIGURANJE "SOCIETE GENERALE OSIGURANJE" Bul. Mihaila Pupina 115đ 11070 Beograd + 381 11 26 08 654 + 381 11 26 07 330 A.D. ZA OSIGURANJE "TAKOVO" Dr. Zorana Đinđića 15a 34000 Kragujevac, +381 34 303-000, A.D. ZA OSIGURANJE "TRIGLAV KOPAONIK" Kralja Petra 28 11000 Beograd + 381 11 3305-111, A.D. ZA OSIGURANJE "UNIQA" životno osiguranje Milutina Milankovića 134 g 11000 Beograd +381 11 20 24 170 +381 11 20 24 160 A.D. ZA OSIGURANJE "UNIQA" nezivotno osiguranje Milutina Milankovića 134 g 11001 Beograd +381 11 20 24 100 +381 11 20 24 160 AD ZA OSIGURANJE "WIENER STADTISCHE" Bul. Mihaila Pupina 165g 11070 NOVI BEOGRAD 381 11 220-99-01 A.D. ZA REOSIGURANJE "WIENER RE" Trešnjinog cveta 1 11070 Beograd, + 381 11 2209 960 Leasing companies EFG LEASING A.D. BEOGRAD Vuka Karadžića 10 11073 Novi Beograd, + 381 11 3027 555 +381 11 2622 350 HYPO ALPE-ADRIA-LEASING DOO BEOGRAD Bul. Mihajla Pupina 6 11070 Beograd +381 11 2227 000 +381 11 2227 099 INTESA LEASING DOO BEOGRAD Cara Uroša 54 11158 Beograd + 381 11 2025 414 + 381 11 3025 433 ISTRABENZ LIZING BEOGRAD Despota Stefana 12 11070 NOVI BEOGRAD +381 11 322-79-10 LIPAKS LEASING DOO BEOGRAD Vidska 29a 11050 Beograd,

+381 11 244 9229 CA LEASING SRBIJA DOO BEOGRAD Milentija Popovića 5 a 11070 Beograd, + 381 11 3305 930 NBG LIZING DOO BEOGRAD Omladinskih brigada 88 11070 Beograd, +381 11 2287 982 +381 11 2287 984 NLB LEASING DOO BEOGRAD Bul. Mihajla Pupina 165v 11070 Beograd, +381 11 222 0101 +381 11 222 0102 OTP LEASING DOO NOVI SAD Bul. oslobođenja 80 21101 Novi Sad +381 21 4800 172 +381 21 4800 172 PIRAEUS LEASING DOO BEOGRAD Milentija Popovića 5 b 11108 Beograd, +381 11 2228 600 +381 11 2228 601 PORSCHE LEASING SCG DOO BEOGRAD Zrenjaninski put 11 11210 Beograd +381 11 3042 440 +381 11 3042 449 PROCREDIT LEASING DOO BEOGRAD Milutina Milankovića 17 11070 Beograd +381 11 3012 700 +381 11 3012 713 RAIFFEISEN LEASING DOO BEOGRAD Milutina Milankovića 134a 11070 Beograd +381 11 2017 700 +381 11 3130 081 S-LEASING DOO BEOGRAD Ðorđa Stanojevića 12/III 11070 Novi Beograd +381 11 2010 700 SOGE LEASE SRBIJA DOO Bul. Zorana Djindjica 48a 11070 NOVI BEOGRAD, +381 11 222 13 69 TBI Leasing d.o.o. Kolarčeva 7, 11000 Beograd, +381 11 3227 955 UNICREDIT LEASING SRBIJA DOO BEOGRAD Trešnjinog cveta 1 11070 Beograd, + 381 11 309 3500 + 381 11 309 3501 VB LEASING DOO BEOGRAD Đorđa Stanojevića 12 11070 Beograd, + 381 11 2016 501 + 381 11 2016 560 ZASTAVA ISTRABENZ LIZING DOO BEOGRAD Despota Stefana 12 11103 Beograd, + 381 11 3227 910 + 381 11 3343 393

Non-life insurance a.d.o. Belgrade

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Bul. Mihajla Pupina 165E 11000 Belgrade, Serbia Tel: +381 11 26 08 676 Fax: +381 11 26 08 684 www.as-osiguranje.rs