Serbian Banking Sector 2018

Serbian Banking Sector 2018

Prospects And Challenges Of the Serbian Banking Sector

INTERVIEW

Stable & Highly Resilient JORGOVANKA TABAKOVIĆ

GOVERNOR OF THE NATIONAL BANK OF SERBIA

The main objective for all of us should be to ensure that bank operations are sustainable in the long run, in order to avoid a repetition of past negative experiences.

Thanks to the measures we undertook in past years, the domestic banking system is now stable and highly resilient against various macroeconomic shocks 4 |

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SERBIAN BANKING SECTOR 2018

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s the institution tasked with safeguarding and strengthening the stability of the financial system, the National Bank of Serbia closely monitors and analyses bank operations in Serbia. The technological advancements of the banking sector and global economic developments of

past years are resulting in changes in the shareholder structure of banks, both globally and on the domestic banking market. We are not merely passive observers of this process. Instead, in accordance with our legal mandate, we supervise status changes and make decisions on applications for the acquisition of ownership in banks. We approve status changes under the prescribed terms, which also relate to their economic justification.

Above all, we ensure that those changes contribute to the improvement of the quality of services and have no adverse effects on financial market stability.

The main objective for all of us should be to ensure that bank operations are sustainable in the long run, in order to avoid a repetition of past negative experiences. Thanks to the measures we undertook in past years, the domestic banking system is now stable and highly resilient against various macroeconomic shocks. We improved the regulatory framework within which banks operate and implemented the Basel III international standards successfully, all the while significantly reducing the share of non-performing loans (NPLs).

In order to resolve the NPL issue in a systemic way, in cooperation with the

The share of NPLs in total banking sector loans (NPL ratio) is today at the lowest level since the introduction of the definition and reporting requirements in September 2008 Government, the National Bank adopted the NPL Resolution Strategy and accompanying action plans in August 2015.

Through efficient implementation of the activities envisaged by its Action Plan, and by adopting the Decision on the Accounting Write-off of Bank Balance Sheet Assets, the National Bank of Serbia contributed significantly to progress in resolving this issue that is of great importance to preserving financial stability.

In the period since the adoption of the Strategy (slightly exceeding two and a half years), the amount of NPLs has more than halved, and the share of NPLs in total loans had fallen by 13.2 percentage points to 9.2% in March – below the pre-crisis level. In fact, the share of NPLs in total banking sector loans (NPL ratio) is at the lowest level since the introduction of the definition and reporting requirements, i.e. since September 2008. There is certainly SERBIAN BANKING SECTOR 2018

room to further reduce their share, and we expect to see that scenario unfold.

Conducive to this will be the further recovery of lending supported by past monetary policy easing, and the still low interest rates in the euro area, interbank competition, the anticipated acceleration of economic activity at home and labour market recovery, as well as the continuation of banks’ activities on cleansing their balances of distressed assets and further reducing the volume of NPLs. Banks have worked tirelessly on NPL resolution, as confirmed by data showing that from the beginning of 2016 until and end of March 2018, banks’ receivables related to write-offs and sales decreased by around RSD 209 billion. That decrease continued in 2018, though the pace of JUNE

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Lending growth continued in 2018 as well, accelerating to 7.5% in year-on-year terms. Lending to the corporate sector increased to 5.1%. It should be stressed that the recovery of lending takes place against the backdrop of the intensified resolution of NPLs. Excluding the effect of NPL write-off and sale since early 2016, year-on-year growth in domestic lending equalled 14 per cent in March, with lending to the corporate sector growing by 13.9 per cent. Such growth in lending to the private sector amid the cleansing of bank balance sheets from NPLs, which reduces the stock of loans, confirms the speedy recovery of lending activity. A particularly positive fact is that investment loans have for quite some time already accounted for a significant portion of the banks’ corporate credit portfolio – around a third. Their share is rising in the structure of new loans, implying that investment growth is also increasingly financed from loans.

We expect lending growth to continue going forward, due to the effects of past monetary policy easing, the still low interest rates in the euro area, the expected acceleration of economic activity at home and labour market recovery, as well as interbank competition.

Finally, I always like to highlight the following – the positive statistics on lending growth do not diminish the need for banks further write-offs is likely to be slower this year, considering the progress already accomplished in this area during the past two years.

Even if we assume that there will be no more NPL write-offs and sales until the end of this year, which is unlikely given that RSD 8.5 billion of NPLs has already been written off and sold in the first quarter of 2018 on account of expected lending growth alone, the share of NPLs in total loans could fall by another 0.5 percentage points by year’s end.

What is also important is that banks operating in Serbia rely primarily on domestic, stable sources of funding, 6 |

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We expect lending growth to continue going forward, due to the effects of past monetary policy easing, the still low interest rates in the euro area, the expected acceleration of economic activity at home and labour market recovery, as well as interbank competition whereby their exposure to risks from the international environment is diminished.

All this confirms that individual banks and the sector as a whole operate in a stable way, which is also a precondition for healthy growth in loans to the retail and corporate sectors in the coming period.

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to increasingly turn – instead of investing in low-risk loans – to strengthening the role of intermediaries between depositors and loan beneficiaries, thus contributing to even faster lending growth and, consequently, helping underpin sustainable economic growth. ■

CORPORATE

Eurobank is celebrating an important jubilee - 15 years of successful business on the Serbian market and 15 years of commitment to its clients, business partners and the community in which it operates. Over the 15 years of its operations, the Bank has been growing by increasing its number of employees and branches, by implementing new technologies and by offering innovative products and services tailored to the needs of its clients

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ince joining the market in 2003 with the acquisition of Postbanka and a merger with the National Savings Bank in 2006, Eurobank has been one of the leading foreign investors and financial institutions on the market. More than 1,300 employees are now servicing over 500,000 accounts of physical and legal entities through a business network of 80 branches and 5 business centres. Eurobank’s capital is eight percent of the total capital of the banking sector and represents a guarantee of stability towards its partners, clients and employees.

Last year was very successful for Eurobank. Loan growth of over 15% was recorded in both segments – with individuals and companies. The range of services the bank offers through digital channels has been enhanced and the client base has grown. In 2017, Eurobank made a profit before tax of 2.5 billion dinars, which is 17% more than in 2016. In future, we will remain focused on business growth and development. Since the backbone of our business is products and services tailored to meet the needs of our clients, our desire is to further improve them to increase the

Eurobank – 15 Years At Its Clients’ Service

growth in investments, but also to grow our client base both through traditional banking and following modern trends in terms of “digitalization” of the business and turning to new, innovative services and products that are taking over the banking market.

Eurobank is recognized for its wide range of retail products and great savings options

support to its clients, but also taking care of the community. Through the programme “We invest in European Values”, more than €4.5 million have been invested so far in education, health, the environment, culture and social inclusion. As we consider a socially responsible business an extremely important and inseparable part of our

More than 1,300 staff are now servicing over 500,000 accounts of physical and legal entities through a business network of 80 branches and 5 business centres.

Eurobank's capital is eight percent of the total capital of the banking sector and represents a guarantee of stability towards its partners, clients and employees

and is the only financial institution in this part of Europe that has exclusive cooperation with Manchester United. Since 2014, it has offered its co-branded Eurobank - Manchester United payment cards that provide special benefits to more than 30,000 users.

For over a decade Eurobank has been operating steadily by providing financial SERBIAN BANKING SECTOR 2018

operation, we continue to implement our CSR projects, among which we especially emphasize the newly launched project “The school designed for you”, supported by the Ministry of Education, Science and Technological Development, whose goal is to improve work and study conditions in secondary economic schools in Serbia. ■ JUNE

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CORPORATE FEZA TAN, CHAIRWOMAN OF THE MANAGEMENT BOARD OF UNICREDIT BANK

We’re Focused On Client’s Needs Despite oscillations in the banking sector, UniCredit Bank is succeeding in strengthening its position on the market and increasing its net profits, loan volume, number of clients and number of employees. The bank is currently focused on improving its integrated offer, online and mobile banking platforms and corporate portals

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n line with our Group’s strategic focus on developing strong roots in local markets, UniCredit has continued to demonstrate its strong commitment to Serbia, as well as to all CEE countries, which continue to be the Group’s core growth engine • Last year’s operations of UniCredit Group showed a growth of profits, indicating the stability of the bank and the security of your clients around the world. How satisfied are you with UniCredit Bank’s operations in Serbia?

- Last year was one that marked significant growth in all important parameters.

Thanks to improved processes, and placements of additional products and services – each designed accord8 |

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ing to the needs of our clients – we managed to further strengthen our position as one of the market leaders in terms of profitability, efficiency and productivity. We have also retained third position when it comes to market share in total assets. UniCredit Bank’s net profit reached 6.782 million dinars on a consolidated basis.

An unrelenting focus on the client contributed to us increasing our customer base by 11%, both in retail and

corporate. Even though the local market was showing narrowed credit worthy demand, our bank managed to attract new clients, and continued to show its commitment to support the country’s future development. The volume of net loans in 2017 reached almost 241 billion dinars, marking an increase of 15.5%.

I am particularly proud of our CSR initiatives conducted in 2017. Namely, we exerted extraordinary efforts to position ourselves as one of the lead-

The fact that we increased the number of employees by 3.7%, reaching 1,286 by year’s end, proves that we are constantly investing in this market, and I am very proud of that

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ers in this field. We have continued to involve employees in different volunteering activities throughout Serbia. As a result, almost half of our colleagues participated in mentoring programmes, charity initiatives and the arranging of the environment.

loans. What are the expectations of this project?

- Agriculture is an industry with huge potential in Serbia. It already represents the largest foreign trade surplus at current, while it is obvious, on the

• The dynamism of your operations is reflected in new technologies. How are citizens responding to these changes in the banking sector?

- For everything we do, we need to stay close to our customers, to anticipate their needs and increase the customer experience level. As such, focusing on the client is one of the main pillars of our business. The aim of our digital transformation is to enhance efficiency and, most importantly, to improve the experience of our customers, meeting their changing needs. We are further improving our integrated distribution offering with new, multi-country online and

Our goal is to support farmers in taking advantage of opportunities to further improve their production and to continue supporting the expected development of Serbia’s economy mobile banking platforms and corporate portals. Our Digital Journey is ongoing; it will continue to develop and cover more initiatives reaching an ever-increasing number of clients. Proof that we are on the right track is provided by the fact that the number of users of our digital services is growing day by day.

• You recently began offering loans to farmers, thereby joining the Ministry of Agriculture’s programme of subsidised

basis of various studies, that a very small number of agricultural holdings use credit products. Namely, the state subsidised loans programme enables them to restore agricultural mechanisation and the application of advanced agro-technical measures under very favourable conditions. This will enable them to harvest higher yields, and thus generate higher income. As always, UniCredit Bank, through the support of various Government programmes, SERBIAN BANKING SECTOR 2018

continues to support the expected development of Serbia’s economy.

• There have been clear oscillations on the Serbian banking sector in previous months. How do you see the immediate

future for banking in Serbia?

- We have already witnessed certain consolidation movements on the Serbian banking market, but we cannot exclude additional mergers in the future. On the other hand, as the Serbian economy continues to grow, and investment projects continue to rise, we can also expect the entrance of new players on the banking market that will certainly lead to an increase in the level of competition when it comes to certain client segments. To conclude, consolidation will represent an opportunity for some banks, while for others it will represent a threat. Those banks that manage to better anticipate the needs of clients, to provide proper services and products – ones that they really need – will certainly have a competitive advantage. ■ JUNE

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INTERVIEW VEROLJUB DUGALIĆ PH.D., SECRETARY GENERAL OF THE ASSOCIATION OF SERBIAN BANKS

Well-Grounded Optimism The results of the banking sector’s operations in 2017, together with the prospects of further improvement in 2018, show that the banking sector is highly secure, stable and liquid

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avourable predictions of both domestic and international financial institutions regarding expected economic growth in 2018 bring reason for optimism to the financial industry, says Veroljub Dugalić Ph.D., Secretary General of the Association of Serbian Banks. “Banks will provide reliable support in that process,” says our interlocutor.

• What will this year be like for the banks?

What does current ASB data indicate?

- Even the preliminary information from the financial market in 2018 pointed towards realistic optimism. As a reminder, Bloomberg announced the Serbian dinar as the world’s number two currency at the beginning of the year, based on its performances from the previous 12 months; investors have dem-

onstrated increased interest in investing in domestic securities, a mild recovery of lending activity was noted, while announcements and predictions of economic growth in this year are certainly most encouraging. This points toward 2018 being a year in which the banking sector will be further consolidated and banks’ role in the future economic development of our country will be strengthened. The system’s monetary stability has been fully sustained, and monetary policy instruments showed clear signals and incentives for increasing lending activity.

• Some economists believe that lending activity in 2017 was higher than data suggests, which is supported by an increase in banks’ lending potential. How do you interpret this data?

The results of the banking sector’s operations in 2017, together with the prospects of further improvement in 2018, show that the banking sector is highly secure, stable and liquid

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SERBIAN BANKING SECTOR 2018

- Banks’ lending activity in 2017 was characterised by an increase in total loans, achieved despitethewrite-offsofNPLs,whichsurpassed those of the year before. Hence, at the end of 2017, the gross carrying value of all approved loans granted to public enterprises, companies, entrepreneurs, households and the public sector amounted to €15.3 billion. Corporate loans experienced growth based on increased lending to companies, and the increase in retail lending also continued, primarily in the segment of cash and refinancing loans.

Broken down in terms of structure, the data shows that at the end of 2017, compared to the end of 2016, banking loans had increased noticeably, by six per cent, mostly in the retail segment (8.7%), while growth in the segment of corporate clients and entrepreneurs stood at 4.4%. This trend, together with the data provided on the stability and liquidity of the banking sector, shows that it is possible to expect significant lending activity in the period ahead, especially in the corporate segment, which is a prerequisite for achieving the projected economic growth rates.

• The last crisis, and the level of NPLs that remained very high until recently, taught both banks and clients to be more careful when getting into debt. Is this one of the causes of stagnating lending activity, or are there more ingrained reasons?

- The NPL ratio at level of the banking sector, as a percentage of the share of these loans in the portfolio of total approved loans at the end of 2017, amounted to 10%. This indicator experienced a significant drop in comparison to the end of 2016, by 7.2 percentage points – mostly as a result of banks selling NPLs and thereby significantly clearing their portfolios of risk-bearing assets and boosting their liquidity. Broken down by sector, the largest share of NPLs was noted in corporate loans (around 11%), the same as in loans granted to entrepreneurs, followed by public enterprises, with 6.4%, and households with 5.6%. All the observed indicators recorded a decrease compared to the previous year.

This is certainly encouraging and proves that the active measures of the NBS, the Government of the Republic of Serbia and the banks have achieved some results, the end goal of which is to finally solve the problem of NPLs as a limiting factor to increased lending growth.

for shareholders. The long-term attractiveness for new banks will primarily be determined by favourable business conditions and the general economic environment.

There is a lot of room to further develop banking operations, not only when it comes to lending, but also regarding a number of other banking activities. In this sense, we

The ASB will this year be particularly dedicated to the financial literacy of all citizens, the digitisation of banking operations and the development of safe business mechanisms in the digital world • Some foreign banks have already withdrawn from the Serbian market, but on the other hand we have gained some powerful players like the Bank of China. In the long run, how attractive is the Serbian market to new players, and how much will this determine the outcome of expected privatisations in the banking sector, primarily regarding Komercijalna Banka and Jubmes Banka?

- We see these processes heading in the direction of further banking sector consolidation, the achievement of better performances of banks and higher yields

see these changes as normal changes in a vibrant and dynamic environment, which the banking sector certainly is.

• In your opinion, what will be the consequences of disputes over banks’ right to collect loan processing fees?

- Although the judicial practise regarding this issue is rather heterogeneous, we have recently seen more litigations ending with verdicts that favour the banks, which should have been done much earlier – considering the relevant laws and practise. It should, however, be explicitly underlined that the SERBIAN BANKING SECTOR 2018

banks have the full legal right to collect loan processing fees, based on relevant domestic and foreign regulations, as well as on generally-accepted international banking and financial practises.

• You were recently awarded by the International Banking Council for your contribu-

tion to international financial and banking activities. What do you consider the greatest achievement of the ASB and yourself when it comes to the banking sector?

- This award is a significant acknowledgement, both for the ASB and for me personally, of our outstanding results in the development of banking. We are deeply respected by the International Banking Council, and they really appreciate the tradition of the Association of Serbian Banks, which was established back in 1921, as well as our operations, which are not typical for any other association of banks in Europe.

At the same time, this is one of many recognitions for our contribution to the development of the banking sector of Serbia, resulting from the long-standing role of the ASB as a trustworthy partner of the National Bank of Serbia and the Government of the Republic of Serbia. ■ JUNE

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CORPORATE ZORAN POPOVIĆ, MEMBER OF THE EXECUTIVE BOARD OF POSTAL SAVINGS BANK

Enduring Relationships Create Trust

The previous two years have proven to be the most dynamic period in the recent history of the Postal Savings Bank . As a result of this, the bank is today a stable and secure financial institution that ended 2017 more than successfully, realising a profit of 3.9 billion dinars

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ver the course of the previous 97 years, we have gone through various stages of business development and technological transformation, striving to nurture long-term relationships and links, as well as mutual loyalty with our clients.

We are ready for the new digital era, but we will preserve our traditional values,” explains Postal Savings Bank Executive Board Member Zoran Popović.

• Postal Savings Bank will soon commemorate 100 years of its existence as a bank. What were the key stages of its development?

- Postal Savings Bank was established way back in 1921 and is one of the oldest financial institutions in this region. Thanks to a tradition that has endured for 97 years, one of the slogans for which we are recognisable is “We know each other the longest”. Throughout all these years, Postal Savings Bank has gone through various stages of business development and technological transformation. As such, for example, it was the first bank on the market of the former Yugoslavia to issue a payment card, the POST card. Postal Savings Bank became a commercial bank in 2002, 12 |

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thus creating the preconditions required to expand its business and develop a more significant market share.

As of April 2015, the Ministry of Finance began actively participating in the work of the governing bodies of the bank, which is 100% owned by the Republic of Serbia. The revision of the stand-by arrangement with

loyalty with our clients. Through constant innovations and the adapting of our offer to meet the needs of users, we have succeeded in preserving the trust of our existing clients and attracting new ones. In the campaign “Even closer to you” we intensified the development of our business network with the opening of new branches throughout

The global financial crisis, coupled with Serbia’s market size and the concentration of its banking sector, have certainly limited the scope for banks’ operations to grow, so the consolidation that is currently underway was inevitable the IMF envisages a reorientation of the bank’s business model towards operations with retail and small business clients, which was formally implemented in August 2016 as the bank’s official business model.

• You are a leader in doing business with retail clients. Every second citizen of Serbia is still your client. To what do you owe this fact?

- It is part of our tradition to nurture longterm relationships and links, and mutual SERBIAN BANKING SECTOR 2018

Serbia, thereby increasing our accessibility to clients. They currently have available 166 branches and around 2,100 employees.

Simultaneously, through the introduction of electronic and mobile banking, we have made communication with our clients more efficient and operational. We are expanding our base of loyal clients, which include pensioners and employees of public companies, to new clients seeking efficiency, speed and security.

• You pay great attention to strict risk controls?

- The events that have occurred since the onset of the global financial crisis and that have exposed the banking sector to significant risks, primarily credit risks, had a negative impact on the operations of our bank, which is why we’ve been paying considerable attention to the risk management system for years already. All of the bank’s management levels – primarily its board of directors and executive board – are today significantly engaged in ensuring such risks are placed completely under control, ensuring the bank can continue along its path of stable development and successfully expanding a healthy portfolio and balance sheet.

with a lower market share, to more easily increase capital, to create a sound basis for operating more effectively, achieving faster growth and higher profitability.

• What are your immediate plans for the further development of card systems and new digital technologies?

- One important project that’s being de-

Users of these payment cards will soon be able to withdraw cash from our ATMs and pay at the bank’s POS terminals in the retail network.

The digital transformation is inevitable for us, because banks today must exert significant efforts and invest significant resources in order to enable the development of innovative services that meet the needs

• We are witnessing the process of bank consolidation on the market, which has long been anticipated. How would you assess the situation in the banking sector today?

- Considering that the expansion of the banking sector was very intense during previous years, and that it then became evident that it was unsustainable over the long term, consolidation was inevitable.

It represents one of the most important strategic decisions and enables the longterm profitability of banks and the further

The digital transformation is inevitable for us, because banks today must exert significant efforts and invest significant resources in order to enable the development of innovative services that meet the needs of clients and thereby expand their operations growth of their operations. The consolidation of the banking sector leads to market stabilisation and healthier competition, or a correct distribution of power.

Systemic solutions, which emerged via amendments to the regulations of the National Bank of Serbia and the Government of the Republic of Serbia, contributed to a significant reduction of bad loans in the total placements of banks. This made it possible for larger banks to acquire banks

veloped by Postal Savings Bank – on the initiative of, and in cooperation with, the National Bank of Serbia – is the possibility of paying in instalments, without fees and interest charged, using the debit and identification card - POST CARD Dina card. At the end of last year, Postal Savings Bank was granted the status of principal for the acceptance and issuance in Serbia of the international (originally Chinese) card payment brand Union Pay. SERBIAN BANKING SECTOR 2018

of clients and thereby expand their operations. The convenience of digital services represents an essential need, so I expect that we have a very exciting era of banking operations ahead of us.

• You are among the country’s most socially responsible companies. What would you specifically single out from your CSR activities?

- We have from the very beginning nurtured and developed the principle of mutual trust and respect, both with our clients and the community in which we operate. Listening to and understanding the needs of our environment is at the forefront of what we do, and operating responsibly is our strategy, and that’s why we strive to support projects that promote and encourage cultural, educational, scientific and sporting values. ■ JUNE

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INTERVIEW EMERITUS PROF. HASAN HANIĆ PH.D., PRESIDENT OF THE BELGRADE BANKING ACADEMY

Better Days Ahead For Banking Thanks to the consolidation of the banking sector in Serbia, there has been an increase in individual savings, particularly fixedterm deposits, creating additional potential for lending to investment projects, increased employment and more dynamic economic growth

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n future, we should work more on the use of modern software tools and other analytical techniques that can significantly improve the performance of banks, the use of client databases, better adjustment of banking products 14 |

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and services and development of modern marketing concepts The Serbian banking sector is very stable because all banks in Serbia have a regulatory capital above the minimum prescribed level of €10 million. Of the 28 SERBIAN BANKING SECTOR 2018

banks as there were at the end of the first quarter of this year, 16 had a high capital adequacy ratio (over 22%), while the remaining had a middling capital adequacy ratio (14 – 22%). All banks in Serbia at the end of the first quarter of

this year met the three prescribed capital adequacy indicators defined by the Basel III standard, but whose application was introduced into domestic legislation in the middle of last year – the Capital Adequacy indicator, the Common Equity Tier 1 indicator and the Additional Tier 1 capital indicator.

Another important indicator of the stability of the banking sector is the liquidity indicator. The average value of the monthly liquidity indicator stood at 2.2, which is substantially above the regulatory minimum, and the share of liquid assets in banks’ total balance sheets is very stable.

If previous trends continue, it is expected that in 2018 banks will be able to increase their business profitability. There are reasons for optimism because of the results achieved and expected in terms of macroeconomic stability, which is reflected in low and stable inflation, a stable exchange rate, low reference interest rate, relatively low interest rates, reducing public debt in relation to GDP, and reducing the related budget deficit, and the visible dynamics of overall

of the existing and the arrival of major foreign banks on our market. This will boost competition, which contributes to a wider product range, cheaper loans and reduced bank fees and commissions.

To general satisfaction, there has

As long as the business environment improves, with expectations of stable and dynamic economic growth that allows banks to operate with profit, the market for banking products and services in Serbia will be attractive to new investors economic growth in the first quarter of this year.

In my view the privatisation of the banking sector is coming to an end, and what we can expect is a consolidation

been a consolidation of the banking sector in Serbia, which resulted in an increase in individual savings, particularly fixed-term deposits, creating additional potential for lending to investment SERBIAN BANKING SECTOR 2018

projects, increased employment and dynamic economic growth.

As for the credit activity of banks, this has stagnated in Serbia for qite a long time, but at the beginning of this year there has been a significant recovery. I believe that accelerated growth of lending to companies is particularly important.

The inter-year growth rate in March 2018, according to the latest report of the National Bank of Serbia, was over 5%.

The dynamic activity of the banks is primarily a result of the lower reference interest rate and an increase in general economic activity in the country.

Today’s banking operations are characterised by high distribution and application of ICT, in terms of using modern software solutions to perform basic banking operations. Unfortunately, the use of modern software tools based on business intelligence, data warehousing and other analytical techniques that can significantly improve decision making in banks is in practise insufficient. The client database is a treasure that is not used sufficiently for the so-called fine segmentation of clients to customise offers of banking products and services to implement a “one on one” model of communication and other modern marketing concepts that can increase the profitability of commercial banks.

To increase profitability and ensure sustainable development, banks must constantly adapt their business models to modern trends, including the introduction and rapid development of mobile banking and other online services. ■ JUNE

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CORPORATE DR NEMANJA ALEKSIĆ, LAWYER, ALEKSIĆ AND ASSOCIATES LAW OFFICE NOVI SAD

Our Banks Are Stable

Among those working at the Aleksić and Associates Law Office is one of the most efficient and experienced lawyers in Serbia specialising in banking law. In addition to representing more than half of domestic banks, this office also represents major corporate clients

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lthough our work is hindered by the difference between domestic regulations and those of the EU, the most important legal aspect for improving the efficiency of our office is related to the way regulations are applied and interpreted by state bodies, primarily the courts. We hope that this will change • You represent a large number of banks in Serbia. What have been the most significant changes in the banking market since your establishment in 1976?

the National Bank of Serbia, 15 banks lost their operating permits, and the transition of our country to democratic state structures marked the launch of structural reforms in the banking sector. The restructuring strategy for the banking sector led to the bankruptcy and liquidation of large stateowned banks in Serbia, while the rest were privatised successfully.

An important issue for the banking system generally is represented by the emergence of electronic banking, which includes electronic money transfer, internet

In our collegium of our office there are more women, which is to an extent a reflection of the trend in the legal sector and some other professions. However, the essential factor is that each member of our collegium contributes to the work and quality of the office - One of the biggest changes to the banking market is the privatisation of banks that began after 2002. Privatisation was preceded by high inflation, or rather hyperinflation, beginning in 1992 and lasting until 1994.

After that, domestic banking faced numerous challenges, which led to the illiquidity of the banking sector. According to a decision of 16 |

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marketing, automatic data collection systems, electronic negotiations with clients, as well as the provision of banking services through electronic systems.

From the perspective of users of banking services, electronic banking is the most convenient way of doing business with a bank. I would also like to stress the importance of SERBIAN BANKING SECTOR 2018

the legal regulating of this type of business, because high-tech crime advances in step with the progress of technology, so we need more experts in this area to anticipate and prevent a wide range of possible abuses.

• How would you assess the current situation in the banking sector, given that we are now, after several years, in a clear period of consolidation?

- The consolidation of the banking sector began with the onset of the world financial crisis, and in Serbia it has lasted for about five years. From the perspective of the citizens, it is important to note that increased competition raises the quality of services, which can be seen in increasingly favourable loan offers. Good news for citizens, related to the rights and obligations of contracts concluded with banks’ legal predecessors, are that contracts continue under the same conditions with the legal successor bank.

We shouldn’t shy away from the consolidation process itself, given that the National Bank of Serbia, in accordance with its legal powers, oversees the actual process by deciding on banks’ requests for approval to merge or issue a license for the operations of merged banks. It also monitors the impact of consolidation on the state of the

financial market, in order to prevent negative consequences. The consolidation process is desirable, because without it there would be a large number of banks on the market, and though this generally means “healthy” competition, on a small market like ours it would have the opposite effect. The existence of multiple banks implies higher costs for their maintenance, for which clients would have to be charged. Thanks to our consolidation, our banks are well-capitalised, while the banking sector represents the healthiest branch of the economy. Most banks in Serbia operate without losses, generating significant profits.

those of Europe, there is a problem of certain domestic regulations not complying with the rules that are valid in the EU. This primarily applies to rigid foreign exchange regulations, and foremost to

• What are the most common disputes within the banking sector today?

- The most common disputes relate to the collection of receivables from overdue debtors. The specificity of Serbia, which it shares to some extent with some of the other countries of the region, is a large number of cases being led by banks against lenders with currency indexed in Swiss francs seeking the termination of contracts due to the change in circumstances or, more precisely, because of the rise in

Many years were required to develop security protocols in order for electronic banking to be safe for users, and time was certainly needed for users to gain trust in banking operations of this type the exchange rate of this foreign currency compared to the Serbian dinar.

• To what extent are valid laws regulating relations within the banking sector harmonised with European laws, and what is lacking that would improve the efficiency of your office?

- Despite the implementation of reforms and the harmonisation of laws regulating relations within the banking sector with

the Law on Foreign Exchange Operations, which represent a limiting legal framework for banking sector operations. As such, liberalisation in this area is essential, while on the other hand we need stable judicial practises, without arbitrary applications of the law, because that has a negative impact on operational efficiency.

• Your clients include both private individuals and legal entities (retail and corporate).

SERBIAN BANKING SECTOR 2018

To what extent do you use the process of out-of-court settlements as the most effective form of settling disputes?

- The process of out-of-court settlements is indeed the most effective form of settling disputes, because it allows an exit from controversial situations through mutual concessions, through the reprogramming of debt, payment in instalments, partial write-offs of principal and interest, and all of that with minimal costs.

As such, our office uses this process wherever possible, or whenever the other party in the dispute agrees to this type of dispute settlement.

With the goal of effectively protecting the rights of banks, as our most important clients, we monitor and apply in practise regulations that allow the burden of debts in a bank’s tax balance to accept the write-off of uncollectible or difficult claims on the basis of credit, thereby providing tax incentives for banks, as the largest creditors. According to the decision on the accounting write-off of banks’ balance sheet assets, brought at the end of last year, a case was stipulated in which a bank is obliged to conduct an accounting write-off of balance sheet assets with a low level of recoverability.

• Your office has about 180 employees, from legal trainees to professors of law. Apart from the banking sector, which branches of industry are most represented in your office?

- Alongside the banking sector, our office represents large corporate clients, primarily foreign and domestic investors in the field of investment and public-private partnerships in energy and infrastructure facilities. Likewise, also present are real estate management, mineral resource exploitation, agriculture and the food industry, as well as transport and trade. We provide corporate clients with a comprehensive legal service, starting from the very establishment of a company or non-status forms of investment (various types of business cooperation agreements), tax advisory services, and even the hiring of workers, or labour law. ■ JUNE

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CORPORATE MILOŠ VUJNOVIĆ, EXECUTIVE BOARD CHAIRMAN, JUBMES BANK

Small, But Efficient

The ambitious vision of JUMBES Bank from the beginning of 2016, aimed at changing a negative trend and starting anew, to create value for shareholders, has been successfully realised over the previous two years, thus making the Bank stable, profitable and with good prospects for the period to come

O

ur clients recognise JUMBES Bank as a reliable business partner.

Having a relatively small number of clients allows us, and moreover commits us, to dedicate ourselves fully to each client. Our Bank provides benefits of personalised services that are available to all clients

• JUBMES Bank experienced several extremely difficult years, during which it was confronted by damaging business results. How have you managed to turn this negative trend around and consolidate your business operations?

- Our primary tasks were to ensure stabilisation, grow business activities and achieve better results, as well as reducing risks to which the Bank is exposed. Successful business operations and a reversal of the negative situation is reflected primarily through the achieving of extremely high growth in placements to clients, with a focus on attracting new clients, more efficiently utilising the Bank’s financial resources and resolving – to the greatest extent possible – the issue of non-performing loans accumulated in the earlier period.

We recognised and took advantage of the positive macroeconomic trends reflected 18 |

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in companies’ increasing need for financial support, generated by the rising volume of business activities.

• JUBMES Bank is fairly small and isn’t supported by strong international financial institutions as parents, which tend to react slowly to challenges and new requirements.

Could this be viewed, in a certain sense, as an advantage on the Serbian market?

- The domestic banking market is charac-

Bank’s dynamism and adaptability, which is reflected in the results we have achieved.

• Are you able to keep pace with modern banking trends like digitisation and online services? Will branches and services rendered “face to face” disappear in the near future, or are we still a long way from that happening?

- Counters have already been consigned to the past when it comes to some required basic banking transactions. However, one of

In such market competition, JUBMES Bank’s advantages are our speed, efficiency and expertise. It is for this reason that our high-quality service is highly appreciated by our clients terised by high competition, significant segmentation, the withdrawal of certain groups and consolidation, as well as the emergence of new market participants.

Reduced interest rates on banks placements, as well as reduced costs of financial resources, are unfavourable for banks that have a smaller market share. On the other hand, the needs of market competition nevertheless enable us to find and efficiently maintain our market niche, owing to the SERBIAN BANKING SECTOR 2018

our principal competitive advantages is our expert consulting services and assistance to clients, aimed at identifying the best solution among a number of alternatives. This is an entire process preceding the transaction’s execution, which demands experience, time and dedication. Your bank is so often a bridge connecting you and your most important life decisions, and for this reason “face to face” contact will continue to exist in the future, despite digitisation as a competitive process. ■

SERBIAN BANKING SECTOR 2018

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