Guide to Serbia Banking Sector 2007 by CorD Magazine

Guide to the Serbian Banking Sector - 2007

contents

Guide to SERBIAN BANKING SECTOR

%DQNV LQ 6HUELD Competition is greater, stronger and harsher

Managing Director: $QD ,VDNRYLĂź a.isakovic@cma.co.yu Editor in Chief: 7DWMDQD 2VWRMLĂź t.ostojic@cma.co.yu Corporate Editor: Mark Pullen m.pullen@cma.co.yu

Art Director: %UDQLVODY 1LQNRYLĂź studio.trid@gmail.com, www.trid.co.yu Project Manager: %LOMDQD -RYLĂź b.jovic@cma.co.yu Editorial Contributors: 'DQLMHOD -RYDQRYLĂź /HOD 6DNRYLĂź Photo: -HOHQD 6HIHULQ &RU' $UFKLYH Translators: 'HMDQ =XEDF 0LOLFD .XEXUD -RYDQRYLĂź Editorial Manager: -HOHQD 9LJQMHYLĂź j.vignjevic@cma.co.yu Sales Executives: 6DQMD =LPRQMLĂź s.zimonjic@cma.co.yu $OHNVDQGUD =HĂžHYLĂź a.zecevic@cma.co.yu 6YHWODQD %DĂżLĂź s.badjic@cma.co.yu 3HWDU 1HQDGLĂź p.nenadic@cma.co.yu General Manager: ,YDQ 1RYĂžLĂź i.novcic@cma.co.yu )LQDQFLDO 'LUHFWRU 6QHĂĽDQD %DWULĂźHYLĂź s.batricevic@cma.co.yu

Insurance: Growth in foreign participation

Printing: Politika AD *XLGH WR 6HUELDQ %DQNLQJ 6HFWRU is published by: DOOLDQFHPHGLD Knjeginje Zorke 11b, %HRJUDG 6HUELD Phone: +(381 11) 308 99 77, 308 99 88 Fascimile: + (381 11) 244 81 27 ( PDLO RIÂżFH#FPD FR \X ISSN no:1451-7833 $OO ULJKWV UHVHUYHG DOOLDQFHPHGLD

60 'U $OHNVDQGDU *UDĂžDQDF

Investment Funds: The law protects, but risks remain

Guide to the Serbian Banking Sector - 2007

director of the Serbian Shareholdersâ&#x20AC;&#x2122; Fund

Legitimate market mechanisms

5DGRYDQ -HODĂŁLĂź Governor of the National Bank of Serbia

Market promise

18 9ODGLPLU Ä&#x2C6;RUĂżHYLĂź Visa representative for Serbia and Montenegro:

Excellent co-operation with banks

Crediting Bureau: &RQÂżUPLQJ reputations

$OH[DQGHU 3LFNHU

9HVQD 0XNDHWRYD

Member of the

$FWLQJ 'LUHFWRU 6HUELD (%5'

Board of the FIC

Serbia continues to be interesting to foreign investors

Lobbying without judgement

46 64

*RUGDQD 'RVWDQLĂź general director of the Belgrade Stock Exchange

Expanding the domestic equity market

Voluntary private pensions: Great interest of funds and citizens

The Belgrade Stock Exchange In Step with the regionâ&#x20AC;&#x2122;s stock exchanges

68 Register

Guide to the Serbian Banking Sector - 2007

FOREWORD

Waiting for the Government

s in previous years, the “Guide to the Banking Sector of Serbia“ has again found its place amongst other appreciated publications at the Business Forum of the Annual EBRD Assembly. The Guide to the Banking Sector of Serbia is a unique edition. For years it has given a complete picture of banking sector operations from the preceding year, as well as documenting plans for the future. The Annual EBRD Conference, along with its Business Forum, is one of the few places in the world where over 2,500 of the most respected banking and finance representatives are assembled in one day. This time, the Guide also covers other segments of the financial sector: the insurance industry, stock exchange, investment funds, etc. Our intention is to offer potential investors a chance to become acquainted with the financial sector of Serbia in one convenient place. The publication of the guide has been marked by another unusual situation, namely that it has been published when the Government of Serbia still hasn’t been formed. To be precise, when the guide entered the printing house an agreement concerning the formation of the Government of Serbia still hadn’t been achieved between Serbia’s leading political parties. In an interview for the latest Banking Guide, Radovan Jelašić, Governor of the National Bank of Serbia, states that the National Bank does not expect any ‘catastrophic’ happenings in the country as a result of the failure to form a Government. However, foreigners are reasonably and impatiently waiting for the parties’ final agreement and for the green light to invest their money. For this reason, Vesna Mukaetova, Acting Director of the EBRD for Serbia, says that foreign investors have grown ‘impatient’. On the other hand, the evaluation of officials and bankers in the country is that Serbia has if not the most regulated, then one of the most regulated banking sectors in the region. Thirty-seven banks completed the 2007 fiscal year in Serbia and, according to announcements and mergers happening both without and within Serbia, by the end of 2007 one should expect a further decrease in the number of banks. Despite the NBS’s restrictive monetary policy, 28 banks achieved a positive balance in 2006 – which is an encouraging indicator and proof of the expertise, persistence, and good planning of the top management: the people leading the Serbian banking sector. Therefore, the current situation in Serbia should be understood not only as a historical turning point, but also as a challenge for the Serbian banking sector and for the people comprising it - for Serbia to enter European flows in the very near future. Tatjana Ostojić

Guide to the Serbian Banking Sector - 2007

The Serbian Banking Sector: Overview

COMPETITION STRONGER AND “The number of banks decreases as a consequence of mergers, agglomerations, and various forms of partnering,” says Veroljub Dugalić, the Association of Serbian Banks’ Secretary General

By Danijela Jovanović

anks in Serbia ended 2006 with a proﬁt of 16.5billion dinars. Out of a total of 37 banks, 28 ﬁnished last year with a positive balance sheet. Nine of them operated with a negative

result. A report on the banks’ operations during the last year has been fervently expected, because by the middle of 2006 this most developed domestic sector had recorded a loss. Many quoted a restrictive monetary policy implemented by the National Bank of Serbia

Guide to the Serbian Banking Sector - 2007

(NBS) as the cause. By the end of September the situation had improved so that a ﬁnal gain was attained on the sectoral level. Namely, for the ﬁrst time after a series of unsuccessful years, the banks in Serbia achieved a positive result of around

The Serbian Banking Sector: Overview

IS GREATER, HARSHER 7.5 billion dinars (RSD) on the level of the whole sector in 2005. The first half of 2006 wasn’t quite good for the banks: the six-month result was negative: RSD3.8billion in the final score on the level of the overall sector. Bankers claimed that the monetary policy of the NBS influenced that as well, namely the increase of mandatory reserves for certain foreign sources of funds. According to the NBS’s data on 30th June 2006, out of six banks with the biggest debt abroad in the first half of the year, three of them presented profit and three losses. At the same time, of three banks that had in that period presented the biggest loss, one is state-owned and primarily uses domestic sources, while two are with majority foreign capital. MARKET SHARE AND ASSETS Serbia has a total of 37 listed banks with a working license, 22 (or around 60%) of which have a majority foreign capital. Seven banks are in majority ownership of domestic citizens or companies, while in eight banks the majority owner is the Republic of Serbia, directly or indirectly. No bank has a market share exceeding 15 per cent, while the market share of the five largest banks is 53 per cent. Therefore, the first ten banks in Serbia control a little less than 80 per cent of the market.

On 31st December, 2006, the total balance sheet assets of the Serbian banking sector were RSD1,169.3billion. That represents 394 billion more compared to the end of 2005, in other words RSD96billion more in relation to September 2006. The biggest part of the assets (almost 50 per cent) represents receivables per approved credits and investments (investments approved to banks in the country, investments to customers and receivables for interest rate and compensation). In balance sheet liabilities for the banking sector, 81.5% represents borrowed funding sources and 18.5% is capital or its own sources of funding. The biggest part of borrowed resources is foreign currency, making around 57 per cent of total liabilities. Judging by the amount of assets, the top bank is Raiﬀeisen Bank with RSD144billion. Following in second is Banca Intesa with RSD125billion and HypoAlpe-Adria Bank with RSD112billion. Komercijalna Bank has balance assets of RSD102billion and Unicredit (previously HVB Bank) has RSD68billion. These ﬁve banks with the highest balance sheet total at the end of 2006 participate with 47.2% of the entire balance sheet total for the banking sector; looking at the top 10 banks, this percentage of the share increases to 67.6%. In the overall balance sheet total, banks in majority foreign ownership

cover RSD920billion, or 78.7%. The banks in majority state ownership cover RSD174billion, that is, 14.8%, and the banks with predominantly private ownership have RSD76 billion, or 6.5%. DECREASE IN THE NUMBER OF BANKS The privatisation of Vojvođanska banka was completed in the fourth quarter of 2006, when it was acquired by the National Bank of Greece. This sale all but ended privatisation of the greatest

STOCK EXCHANGE Bank shares are the most traded shares on the Belgrade Stock Exchange, and they have also recorded exceptional price increases. During the first three months the Stock Exchange’s trading, the biggest part of all shares, which exceeded RSD39billion, were shares from the financial brokering sector. Niš AIK Bank is a record holder for the first quarter of this year, with a turnover exceeding RSD6.5billion. Following is Agrobanka, with RSD3.6billion, then Metals Bank with RSD2.8billion of achieved turnover.

Guide to the Serbian Banking Sector - 2007

The Serbian Banking Sector: Overview

part of the state-owned banking sector. In 2005, three state-owned banks were privatised and last year three more – thus bringing the share of state-owned banks in the balance sheet of the banking sector down from 36.1% - as it stood at the end of 2004 – to 14.9% at the end of 2006. The end of last year was also marked by bank acquisitions: Hungarian OTP Bank acquired Novi Sad’s Kulska Bank and Zepter Bank from Belgrade. The NBS has already given a permit for the merger Kulska Bank with Zepter Bank and Niška Bank, which has been under Hungarian ownership from the beginning of last year. This merger will further decrease the number of banks operating in Serbia. Veroljub Dugalić, Secretary General of the Association of Serbian Banks, recognises this, among other factors, as one of the main tendencies in the further development of the banking sector in Serbia. “The number of banks decreases as a consequence of mergers, acquisitions, agglomerations, and various kinds of partnering,” says Dugalić. He adds: “Three years ago I said that very soon we shall have around thirty banks. Now their number is a bit higher, but shall decrease by the end of the year. This tendency will continue in the future. And the main reason for that is the strengthening of competition, which is becoming greater, stronger and harsher.” CAPITAL AND COMPETITION The balance sheet capital of banks by the end of the last year reached RSD216billion (in 2006 it increased by 71.9% and during the last quarter by 25.4%). “Banking capital growth is yet one more of the tendencies of further development in the banking sector. Ownership transformation and privatisation, which began two or three years ago, shall also continue. Currently, 22 banks have majority, or complete, for-

Guide to the Serbian Banking Sector - 2007

eign capital. And the State shall, most probably during this and the next year, depart from the remaining banks where it used to be a majority owner. By that I mean Credy Bank from Kragujevac, Privredna Bank from Pančevo and others. Moreover, a decision will probably be passed on what to do with the State’s share in Postal Savings Bank and Serbian Bank, because the intention of the State was to unite those two banks.

BUDGET FIRST A decrease in the mandatory reserve will wait for a restrictive budget – a message from NBS. Therefore, banks can hope for a decrease in the mandatory reserve and a further drop in reference interest rate, but not before the passing of the new budget.

MOST DYNAMIC DEVELOPMENT The banking sector is one of the rare, and some may say only, sectors in the country with dynamic development and an increase in the number of employees. Last year, banks opened 291 new branch oﬃces, aﬃliates, or business units – bringing the current total to 2,158. Moreover, record growth in the number of employees in the banking sector has been marked: 2,412 new workers (9.4%) were hired by banks in Serbia during 2006, bringing the total number of employees in this sector to 28,092. The average monthly earning in the banking sector in the last year was RSD70,626 (+/-€875).

Guide to the Serbian Banking Sector - 2007

The Serbian Banking Sector: Overview

That process has been held up a little bit due to the undefined situation on the government’s formation after the Parliamentary elections,” says Dugalić. According to the Secretary General of the Association of Serbian Banks, an increasingly stronger competition between the banks will also manifest itself by a general drop of interest rates. Of course, this assumes that the situation in the country continues to be normal, one-digit inflation with political influences not dominating. “Decreased risk, decreased inflation and greater competition have to influence a drop in interest rates. What else is essential? That by its policy of mandatory reserves the NBS encourages that a part of credit potential of the banks be freed because, through the obligatory reserve and other forms of reservation, more than 1.6 billion euros have been seized. What remains for the banks? To collect on interest rates from the remaining part of credit potential,” Dugalić points out. CREDITS During the last year banks in Serbia approved around 25.5% more credits in relation to the previous year – amounting to RSD110.7billion. When we look at the sector’s structure, the biggest part of credits has been approved for corporate clients (59.2%) and the retail segment (35.9%). Credits to the population have increased the most (by RSD18billion) and this is the first year when the growth of credits to citizens was greater than the growth of credits to the economy. Furthermore, over the last three years the share of the population opting to take credits from banks has increased from 15.3% to 35.9% which, according to NBS estimations, is still not worrisome. However, as NBS Governor Jelašić has himself stated, in order to prevent the banks in Serbia from turning into specialised institutions for retail operations, the NBS has decided

Guide to the Serbian Banking Sector - 2007

that credits to citizens must not exceed twice the capital amount. Evaluating the last year from a crediting aspect, bankers point out that the growth of credits to citizens has slackened. “As a consequence of increasing mandatory bank reserves with the NBS, the growth of crediting for citizens has declined, which has led to a decrease in bank earnings and the partial appreciation of credits”, says Ivan Radojčić, member of UniCredit Bank’s Executive Board. He adds that “the previous year was marked by a significant drop in the dinar’s reference interest rate – which was 25 per cent at the beginning of 2006 – in order to reach the current 10 per cent. That has already influenced the decrease of interest rates on dinar credits, and if the NBS continues this kind of policy it is realistic to expect that still more significant decreases of interest rates shall ensue.” Radojčić also points out that a decrease of credit rating is also obvious

BALANCE SHEET TOTAL Over the past three years the balance sheet total in the banking sector has grown by an average of 47.1% annually, while the growth during 2006 (RSD393.9billion or 51 per cent) is greater than the overall balance total at the end of 2003. Due to an enforced restrictive monetary policy, the level of deposits with the National Bank of Serbia (mandatory reserve plus securities) has reached RSD406.7billion – that is 34.8% of the balance total of the entire banking sector! The level of deposits with the NBS has partially “squeezed out” clients’ investments in 2006 (from 55 per cent in 2005 to 46.6% in 2006).

The Serbian Banking Sector: Overview

for companies, because big companies are increasingly using so-called ‘cross border’ financing. “We previously used deposits or drafted money from abroad and invested it here. However, the NBS has increased the mandatory reserve for those funds and the money has become pretty expensive. Domestic companies, thus, started to take credits from banks abroad because they don’t have the cost of a high mandatory reserve. As a result, a situation arose which sees the UniCredit Group now financing companies from Serbia with the funds of UniCredit Slovakia or Czech Republic or Bank Austria Creditanstalt, as opposed to using the funds of UniCredit Bank in Serbia,” explains Radojčić. The total credit debt of the banking sector abroad (covering the credits received from foreign banks and foreign citizens and companies) is RSD186.2billion. The debt us completely in foreign currency and 97.9% of it has a maturity term over one year. Although the last three months of 2006 saw bank credits abroad decrease by three billion dinars, the total increase in the last year was still RSD78.1billion or 72.4%. INTEREST RATES AND DEPOSITS According to NBS data, the achieved positive result in the banking sector is due to the growth of net exchange rate differentials and net interest rate revenues, especially in the second half of the year. Namely, in the second half of the year net exchange rate differentials were almost three times higher than in the first half, while interest rates revenues increased by 28 per cent. Simultaneously, the growth of expenditures from direct write-off of investments and reserves has decreased. While revenues from commissions have increased in the last three years by only 71 per cent – from RSD16.6billion to RSD28.4billion – interest rate revenues have been growing three times quicker

(230 per cent) from RSD23.3billion to RSD76.9billion. Banks have again started to pay more serious interest rates to their clients on deposited funds. This means that, based on interest rates from the banks, citizens last year collected RSD28.7billion. (This amount in 2005 was RSD14.4billion). Total deposits by the end of the last year were RSD666.29billion. Almost half of the deposits in the banks derive from citizens, while the share of dinars has again shwn growth and currently around one third of total deposits are in domestic currency. Demand deposits are dominant (47 per cent) and short-term deposits (46.8%). Otherwise, total deposits grew by 37.5% in the last year, or by RSD181.6billion. From that amount, foreign currency deposits cover 96.4 billion, and the rest is in dinars. The NBS expects an increase of interest rates on savings in dinars, while the citizens taking credits in euros and Swiss francs can expect further appreciation of those loans. PERSPECTIVES According to bankers, the consolidation of the banking sector will add to the competitiveness of bank oﬀers, to better servicing of clients, as well as to competitive interest rates, both for credits and savings. “We expect that during this year the biggest operations will be in relation to credit cards, though in that segment of banking operations conditions will improve – as will the products themselves,” says Radojčić. He continues: “in terms of monetary policy, and bearing in mind that the restrictive measures of the National Bank have brought about a decrease in inﬂation, a decrease in reference interest rate has occurred. I, therefore, believe that interest rates on credits in dinars will decrease and the repayment term will be extended. That should provide incentives for our citizens to opt to take credits in dinars,

ACQUISITIONS, MERGERS AND NEW PERMITS During the last year, Novi Sad’s Panonska banka was sold to the Italian Group San Paolo IMI, which has merged at the global level with Banca Intesa. The National Savings Bank was acquired by the EFG Eurobank and Vojvođanska banka was sold to the National Bank of Greece. By year’s end 2006 the term had lapsed for harmonisation of the other financial organisations (covering savings banks, savings-crediting organisations and savings-credit co-operatives) under the provisions of the new Banking Law. So, out of the existing six, the National Bank of Serbia has revoked the operating licenses of five and granted its consent for transformation to one organisation. It will become the Opportunity International Savings Bank from Novi Sad. because they are the only ones without any foreign currency risk, bearing in mind that in Serbia salaries are disbursed in dinars, not in euros or Swiss francs,” states Ivan Radojčić from Unicredit Bank. With the further decline in interest rates, Veroljub Dugalić says, we should expect an expansion of the network of new banking products. “These are different services that banks perform for their clients. So, it is not only classical, traditional banking: You enter the bank, they approve a credit to you and that’s it. Banks increasingly offer a wider spectrum of services for their clients. For instance, investment banking, securities operations, issuing of various permanent orders,” says Dugalić.

Guide to the Serbian Banking Sector - 2007

SUCCESSFUL YEAR FOR PIRAEUS BANKING GROUP “Although Piraeus Bank has only been present in Serbia since 2005, we are extremely satisﬁed with the results we have achieved in such a short period.”

Michael Colakides, Vice Chairman and Deputy CEO of Piraeus Bank Group, Athens

ow would you describe Piraeus Banking Group as an organisation? Piraeus Bank, the holding company of the Group, has been in operation for 91 years and currently operates a group of companies covering a broad range of ﬁnancial activities and banking operations in the Southeast European market (Romania, Bulgaria, Serbia, Albania), as well as the Eastern Mediterranean (Egypt and Cyprus) and in London and New York. The Piraeus Bank Group has the highest growth rate among large banks in Greece. When the bank was sold through privatisation in 1992 it had only 12 branches, 200 employees and total assets of €80million. Today, our business network includes 545 branches in Greece and abroad, and we employ more than 9,800 people in nine countries. Piraeus Bank is the 4th largest bank on the Greek market and is one of the top 10 companies in the country, in terms of market capitalisation. In relation to client and employee satisfaction, we are pleased to be ranked among

the top firms in Greece. What were your business results in 2006? Last year was another successful year for us, as we have exceeded the goals of our strategic plan. Overall assets at year’s end amounted to €31billion, or as much as a 31 per cent rise year-on-year, while net profits recorded an increase of 65 per cent, to €435million. In comparison to 2005, loans rose by 31 per cent to around €21billion. We have a strong capital base of €2billion and investment grade ratings from all agencies with Moody’s giving us an AI rating at the end of April. This financial performance once again confirms the trust of our clients, the expertise of our employees and the efficiency of our management. As a result, we have established solid foundations for the implementation of our new Four-Year Business Plan. Namely, Piraeus Bank Group anticipates that the group’s assets will reach €65billion by the end of 2010, which equates to twice that of the current figures. Loans will reach €52billion, net profits will hit one billion euros and the number of branches in all the countries where we operate will reach 900. In addition to its dynamic retail sector business, Piraeus Bank in Greece is also known for crediting small and mediumsized enterprises (SMEs). Our vision is to be a distinguished provider of financial services in our regional market of SE Europe and the Eastern Mediterranean. Piraeus Bank intends to continue to be a leading bank for entrepreneurs and businessmen with SMEs, while simultaneously providing modern, dynamic and top-quality banking services for the consumer sector in our region. We are also expanding our strong Cor-

Guide to the Serbian Banking Sector - 2007

porate, Shipping and Investment Banking activities across the region. We recognise the huge potential of this market, as one of the fastest growing markets in Europe. It has been two years since Piraeus bank began operating in Serbia. Although Piraeus Bank has only been present in Serbia since 2005, we are extremely satisfied with the results we’ve achieved in such a short period. Owing to our significant experience in all forms of financial and banking operations, and our constant commitment to clients and employees, Piraeus Bank in Serbia operates according to the highest international business standards and values, and provides high quality banking products and services. By implementing the latest technologies and employing highly qualified personnel, Piraeus meets the needs of a modern market and its clients. Piraeus Bank in Serbia represents an ideal combination of international experience, excellent insight and understanding of the local market. During 2006, Piraeus Bank SA Athens increased the shareholders’ funds of Piraeus Bank Belgrade by €13.2million, and made additional investments of €7million in the bank’s expansion. And in 2007 we have already increased the shareholders’ funds by €40million, while we also plan to invest in the bank’s further expansion with an additional €10.7million. Our total assets are now in excess of €300million; and our branch network has reached 30 units. These figures clearly illustrate our determination to become one of the leading banks in this area. Our wish is to position the bank among the highest ranking in this market during the upcoming period.

PIRAEUS STRENGHTHENS ITS POSITION IN SERBIA During the three-year period 2007-2009, Piraeus Bank plans to sustain the growth rate of its loan portfolio, as well as the rate of capital return after taxation at a level of ďŹ ve to 11.5 per cent. Piraeus also plans to increase its market share in basic business categories by 2.01% and 6.06% through the constant growth of its client base.

hat were your business results in 2006? In its second year of doing business on the Serbian market, Piraeus bank PLC Belgrade has achieved constant growth in all business segments, and in that way has strengthened its position on the market. Key indicators of our successful business operations during 2006 are the increase in total assets, which reached the amount of â&#x201A;Ź291.3million at the end of 2006 â&#x20AC;&#x201C; compared to â&#x201A;Ź100.6million at yearâ&#x20AC;&#x2122;s end 2005 â&#x20AC;&#x201C; and represented growth of a full 189.5%. The Bankâ&#x20AC;&#x2122;s plan is to reach total assets of â&#x201A;Ź544 million by the end of 2007, meaning an increase of 87 per cent in comparison to last year. Operational income in 2006 increased by 40 per cent compared to 2005. During the course of this year we plan to increase our operational income by 111 per cent. Good business results have been achieved thanks to the increase of the credit portfolio for the retail sector, SME clients and larger businesses. A high growth rate and proďŹ tability have been marked in our co-operation with the National Bank of Serbia, based on REPO transaction. How are you planning to advance your standing in the coming period? These results provided a solid foundation for the implementation of the Bankâ&#x20AC;&#x2122;s

three-year plan, which envisages an increase in total capital of â&#x201A;Ź100million. By the end of the period 2007-2009, Piraeus bank plans to have increased its retail and SME loan portfolio to â&#x201A;Ź448million â&#x20AC;&#x201C; representing growth of 717 per cent â&#x20AC;&#x201C; and enlarged the corporate placements to â&#x201A;Ź600.8million i.e. growth of 400 per cent. Also during the three-year period 2007-2009, the Bank plans to sustain the growth rate of its loan portfolio, as well as the rate of capital return after taxation, at a level of 5 to 11.5 per cent. We also plan to increase our market share in basic business categories by 2.01% and 6.06%, with constant growth of our client base. The excellent results of 2006 were achieved thanks to our skilled and professional employees, eďŹ&#x192;cient business operations and the constant improvement of our services with the support we get from the Piraeus Group in Greece. This has been conďŹ rmed by the conďŹ dence that the clients have in Piraeus bank. Do you plan to expand your network in Serbia further? In the course of 2006, Piraeus bank opened 12 new business units. We currently operate out of 30 branches and sub-branches throughout Serbia. By the end of 2007, the Bank plans to expand its branch network to 45 business units, and

%UDQLPLU 0DUNRYLĂ˝ Chairman of Executive %RDUG 3LUDHXV %DQN Belgrade to 70 business units in total by the end of 2009. Through the dynamic expansion of our business network in the course of 2006, an increase of 55.4% in the number of employees has been recorded. The bank currently employs 413 banking experts, and the plan is to increase that ďŹ gure by 21 per cent during 2007. What are the main goals of the Piraeus Bank in the next period? Besides increasing our market share, the main strategic goals of Piraeus bank a.d Belgrade are the improvement of our services and the satisfaction of the needs of our modern clients; the creation of new services, the further positioning of the bank in the retail and SME segments, development of a wider service range and the initiation of new real estate and leasing companies. And, last but not least, we plan to achieve greater proďŹ tability.

Guide to the Serbian Banking Sector - 2007

AKTIVBIZ LOANS FOR SMEs Piraeus Bank AD Belgrade offers a wide range of products for short and long-term lending, as well as quick micro loans offered with the aim of facilitating business operations of entrepreneurs and SMEs with an annual turnover up to three million euros. AktivBiz loans are characterised by very flexible terms tailored to the customers’ needs and business activities.

Konstantinos Vagiotis, Retail banking and Operations Deputy General Manager of Piraeus Bank

iraeus Bank AD Belgrade offers a wide range of products for short and longterm lending, as well as quick micro loans offered with the aim of facilitating business operations of entrepreneurs and SMEs with an annual turnover up to three million euros. AktivBiz loans are characterised by very flexible terms tailored to the customers’ needs and business activities. “Doing business with small and medium-sized enterprises is of great interest to our Bank. It is for our clients that we have launched a package of credit products for small and medium-sized businesses, as well as for entrepreneurs. There are standardised loan products for working capital, investments, equipment, business premises (offices, factories, workshops, laboratories) and also letters of guarantee and a business overdraft. “The total package includes favourable conditions for payroll accounts and deposits,” explains Mr. Konstantinos Vagiotis, Re-

tail Banking and Operations Deputy General Manager of Piraeus Bank. Explaining further, Vagiotis says that the micro loans of Piraeus Bank for general purposes and ﬁnancing in working capital, with currency clause, are approved in the amounts from €500 to 2€0.000, with NIR of nine per cent (EIR of 9.71%) annually. Dinar (RSD) loans without currency clause are approved at NIR of 18.5% (EIR of 20.54%) annually. The repayment term of these loans is up to 84 months with a grace period of up to 12 months. Long-term investment loans for the purchase of machinery, equipment and investment in industrial facilities, with a currency clause, are approved at NIR of 8.75% (EIR of 9.22%), with a repayment term up to 120 months and a grace period up to 12 months. Long-term loans for the purchase and construction of business premises, also with currency clause, are approved at NIR of eight percent annually (EIR of 8.35%), and with a repayment term even up to 180 months, while the grace period for these loans is extended to 18 months. The minimum amount for such loans is €10,000 in RSD counter value. Loans for working capital, with a currency clause, are approved at NIR of 8.75% (EIR of 9.32%) annually, while loans without a currency clause are approved at NIR of 18.3% annually (EIR of 20.15%), with a repayment term up to 60 months and a grace period of up to 12 months. The minimum amount for these loans is also €10,000 in RSD counter value.

Guide to the Serbian Banking Sector - 2007

Within the AktivBiz offer for SMEs, Piraeus Bank also offers revolving loans as well as loans for working capital. The revolving credit line is intended for financing in working capital and is approved with NIR of 0.8% monthly for loans with currency clause (NIR of 1.55% monthly for loans without a currency clause). The loan usage term is up to 36 months. Piraeus bank clients are approved an overdraft facility on their transaction account to a maximum of €30,000.

FIRST QUARTER 2007 RESULTS At the end of March 2007, Piraeus Bank Group had a network of 545 branches (302 in Greece and 243 abroad) and its equity capital amounted to €1,914million. The clients’ deposits, repos and retail bonds issued amounted to €19,639million and total assets were €34,486million. The loan portfolio expanded by 34% on an annual basis, while deposits grew by 28%. It is characteristic that the Group’s deposits in the first quarter reported an increase of €1.7billion, while the loan portfolio growth exceeded €2billion, out of which 26% stems from international operations. Core profit before tax grew by 48%. The performance of this period in terms of operations and profits is in line with the growth rates provided by the Group’s 2007-2010 Business Plan. Recognition of the Bank’s progress is the recent upgrade of its credit rating by Moody’s by three notches to A1 from Baa1. The significant improvement in Piraeus Bank’s ratings in the following period will lead to lower funding cost, as well as the broadening of its debt.

Guide to the Serbian Banking Sector - 2007

FIRMLY IN POSITION The overall banking oďŹ&#x20AC;er and competition are very pronounced. Each bank is ďŹ ghting to increase its market share, which demands that we act extremely vigilantly. We are endeavouring to satisfy clientsâ&#x20AC;&#x2122; needs through the type and quality of our oďŹ&#x20AC;er, as well as through the eďŹ&#x192;ciency and congeniality of our staďŹ&#x20AC;.

'UDJLQMD Ä?XULĂ˝ President of the ([HFXWLYH %RDUG RI %DQFD ,QWHVD

ollowing the merger of Banca Intesa with San Paolo IMI, and the acquisition of Panonska Bank by San Paolo, have any notable changes taken place in the operations of Banca Intesa?

The merger of Banca Intesa and San Paolo has resulted in the signiďŹ cant improvement of the positioning of the bank on the European and global level. Although Banca Intesa was already the top bank in Italy, this merger has

Guide to the Serbian Banking Sector - 2007

strengthened our position even further. Prior to this merger, San Paolo acquired Panonska Bank, but for the time being nothing has happened from the legal standpoint. We can expect the joint appearance [of Intesa and Panonska] on the Serbian market, and we do see that already: weâ&#x20AC;&#x2122;re in contact regarding our combined approach to customers, primarily with regard to the Vojvodina market where Panonska Bank is primarily positioned. In the coming period we can expect to see expansion in the scope of products oďŹ&#x20AC;ered by Panonska Bank â&#x20AC;&#x201C; primarily with the kind of retail banking products that have made Banca Intesa recognisable â&#x20AC;&#x201C; and we have already reached certain agreements in this regard. In essence, as a joint system our market position will be improved. Acting alone, Banca Intesa has managed to maintain the important second position in the Serbian banking sector â&#x20AC;&#x201C; a position we have held in spite of the appearance of many other banks and despite our own restructuring and the reorganisation of some sectors linked to the takeover. As such, I consider the fact that we have maintained and strengthened our position as being quite important.

What are the current priorities of Banca Intesa in Serbia, in terms of both the retail and corporate domains? It is obvious that we are becoming more recognisable among retail clients than is the case in the economic field. I would say that this is merely because we have already solidified our position in the part of economy, both in terms of depositing potential and the crediting section. We completed the last fiscal year with significant growth of our crediting portfolio, which increased by almost 62 per cent and stands at a little under €800million. Our focus on small and medium-sized companies (SMEs) has become a factor of recognition and, thanks to our parent bank Banca Intesa Milano, we have gained access to funds intended to aid local self-development from the Council of Europe Development Bank. It is worth noting that this is the first time a private bank has received such funding in Serbia – such funds are generally granted directly to governments or self-governance bodies. Our parent bank allocated those funds to us and, thanks to that, we have significantly increased our credit portfolio: primarily for mediumsized companies and bodies of local self-governance, but also for small enterprises. We have also significantly expanded the scope of our services to retail clients. These include mortgage credits, property adaptation loans and non-specific real estate credit options. Simultaneously, we are constantly attempting to offer interest rates that are appropriate to the current market conditions. The overall banking offer and competition are very pronounced. Each bank is fighting to increase its market share, which demands that we act extremely vigilantly. We are endeavouring to satisfy clients’ needs through the type and quality of our offer. We also intend to deepen co-operation with our Italian partners yet further, whilst also inviting more Italian companies to invest in Serbia. Indeed, we plan to be even more active in this direction in the coming period. Do you plan to introduce some new products for your retail and business clients? We have started to implement factoring with corporate clients. We are in preparation

for international factoring and are contemplating the introduction of a pension and investment fund, though we are yet to decide whether to develop this independently or with some of the existing pension funds. Investmen funds Based on our direct, continuous contact with corporate clients, we are constantly kept up-to-date on their potential needs. Moreover, we are expanding our offer of mortgage credits for retail clients, as well as loans for property adaptations and the purchase of non-specific objects. We are the current market leaders in the credit/debit card sector and are the only bank in the country that is authorised to issue American Express cards. We are about to introduce a new American Express card, called Amex Blue, intended to young affluent clients. How would you assess the business results of Banca Intesa in Serbia? Our balance sheet total for 2006 stood at €1.6billion, which is a 53 per cent rise in relation to the previous year. However, [in regional contrast] the second ranked bank on the Croatian market – Privredna Banka Zagreb – boasted a balance sheet total of €7.5billion, while Serbia’s entire banking sector has only around €15billion. Last year the banks deflated interest rate in the same time when they had increase expenses for their business network. They had to resign some of their income because obligatory reserve but for else expenses. That reduced results the whole banking sector in the end of last year. Bearing in mind the market all of these, In this circumstances, I would have to say that we finished our business year in a positive manner and our shareholders are duly satisfied. The offer of banking products in Serbia is still basic. Thus, the earnings is mainly generated from interest rates and provisions. The basic revenue in Serbia comes from interest rates and compensation, while in Croatia, Hungary, and other neighbouring countries, banks can earn a profit on the more developed capital markets. At a time when the capital market is more developed, interest rates and compensation levels are brought lower and lower in an effort to sustain competition from other banks and

attract new clients. All this is again confirmed by our substantial credit portfolio growth, the growth of deposits and growth in the scope of our operations. Would you agree with claims that the banking sector is the most regulated sector in Serbia? It is well known that the banking sector is the most regulated sector in our country, and I think that the measures of the NBS have been positive – regardless of the restrictive monetary policy that has been implemented in order to stabilise prices and exchange rates. The banking sector has been regulated through the cleansing of the balance sheets of other banks, and with the privatisation of 80 per cent of the total banking sector – with just a few other banks (Čačanska, Privredna Bank Pančevo and Credy Bank) remaining. I would really praise the efforts of the NBS, and I would also praise the Bankers Association for easing the situation within the banking sector, through the Crediting Bureau, and providing a clear picture of every potential debtor within the banks. Because of that, today we do not have a population overburdened with debt, and almost 100 per cent of loans are repaid on time. Will we witness the further consolidation of the Serbian banking sector? We completed the last fiscal year with a total of 37 banks. But I think some logical mergers will be coming up and, indeed, that list [of 37 banks] included some banks that have technically merged already. We can’t yet be sure what the exact number of banks will be, but the further consolidation of the banking sector is certain to ensue. It is a fact that 50 per cent of the total balance sum on the Serbian market is controlled by the top five banks, and it is important to note that a major battle for market share and client growth will be fought between these five banks. This situation obliges the banking sector as a whole to be very proactive in its work, with each bank ensuring it takes care of its clients, maintains quality services, enhances staff efficiency and develops strong client relations and optimal communication methods.

Guide to the Serbian Banking Sector - 2007

STRATEGIC CLIENTS: MICRO, SMALL, AND MEDIUMSIZED COMPANIES ProCredit Bank is a development-oriented full-service bank offering excellent customer service and a wide range of products. ProCredit Bank has been on the Serbian market since April 2001, when it opened three initial branches in Belgrade, Novi Sad and Niš. At that time, and until recently, it was the first and only bank with a complete offer for MSME sector, starting with tailor-made loans to all other services used or demanded by small shops, pharmacies, mechanics, small production businesses etc. Apart from MSME segment, ProCredit Bank also services the agriculture sector, with invested € 71million so far outstanding, mainly short-term and long-term 20-year loans for the purchase of arable land. All of these excellent results could not have been possible without the professionalism of the almost 1,500 employees in our current 53 branches across 32 cities in Serbia.

Mirjana Zakanji, Member of the Executive Board of ProCredit Bank

re you satisfied with your business results after six years operating in Serbia? The right question is whether our shareholders, clients and employees are satisfied. If they are satisfied, then we are also satisfied. The shareholders are definitely satisfied, because we ended 2006 with half a billion euros of banking assets. That figure shows that

we are growing constantly, and much faster than the whole banking market. ProCredit Holding, as one of the major shareholders of ProCredit Bank, has 18 banks in the group. There is a separate business plan for each bank that makes up the ProCredit network, and the business plan for ProCredit bank in Serbia has been exceeded. As regards clients, at the end of 2006 we had 180,000 clients, i.e. we managed to attract 80,000 new clients during 2006. We are trying to attract new clients with new and high quality services. The idea is to gain as many new clients as possible, but also to keep the old ones too.

Guide to the Serbian Banking Sector - 2007

The main goal for us is long term co-operation with our clients. We invest funds and resources to make products which will be interesting to our clients in the long term and will correspond to their needs. ProCredit Bank is still remembered as the bank that approved loans at a time when other banks would not, is that not the case? That was our competitive advantage from the very beginning. As early as 2001 we gathered all clients who were not ‘welcome’ in the former banking sector. Things have changed a great deal

since then. Now there are possibilities for greater choice and the challenge for us is to do business in such surroundings. However, at that time those were all micro, small or medium-sized companies, craftsmen, entrepreneurs, farmers, a very wide group of clients who simply did not have an open door in other banks, nor were they interesting to other banks from any aspect of banking services. Our strategy and business policy is to engage clients who can satisfy all their banking needs in our bank. We start from the current account, then try to understand their way of operating and on the basis of that understanding we estimate the possibility of issuing loans. Clients respect that openness and the possibility of discussion. On the other side, a much more realistic picture about the clients’ business can be obtained on the basis of talks with them than on the basis of inspecting their bookkeeping documentation. Is ProCredit Bank’s focus still on financing micro, small and mediumsized companies? Yes, ProCredit Bank ended 2006 with a credit portfolio of €307million, out of which 90% was invested in the economy – micro, small and medium-sized companies, and agriculture. Ten per cent is for our retail clients, of which five percent are loans for the adaptation of flats and mortgages, and five per cent are banking cards. How would you evaluate the micro business and SME sector in Serbia? Since 2001, we have been trying to place an accent on, and give attention to, those very clients, those companies and that target group – whenever we have seen the possibility of doing so in order to send a certain message. What we did first was to open the bank and then broaden our network, so that we have 53 branches in Serbia today. The second channel we employ, in an attempt to positively influence the business climate for such clients, is the of-

ficial government, governmental agency and ministerial channel. Here we enjoy excellent communication and, in conjunction with these official bodies, we make efforts to use working groups, roundtables and bespoke publications to achieve the legal environment required to ensure our clients’ businesses will develop. Thirdly, we use the media route. Accordingly, two years ago we established co-operation with the Economic Journalists Club, whose idea was to determine and announce the most successful micro, small and medium-sized compa-

we are not directly connected with the analysis of this sector, but are more users of the data – which is provided by various non-governmental and governmental agencies – the thing we all look at is the growth of gross domestic product. When we look at GDP we assess that things are good, and when we look at the second area – foreign direct investments – we also assess that things are good, but could be better. The arrival of major foreign direct investment here is reviving certain segments of the economy which have been fading away. Those big global players

nies. We worked everything out together, but the challenge was to ﬁnd a solution for the selection itself: to judge and appraise the success of these companies – a task we do every day. This year we even included companies that are not clients of our bank in the group of selected companies. It is our wish for this selection to be really widespread. It is important for it to become a tradition and for applicants not to come only from our bank. Since

need local suppliers and a local network – one that particularly comprises micro, small and medium-sized companies. What was very frustrating was reading how the number of micro, small and medium-sized companies decreased merely as a result of pre-registration with the Agency for Economic Registers. At that time the number of such companies decreased from 220,000 to 150,000, i.e. 60,000 less. The reasons were, ﬁrstly, that we had many inactive

Guide to the Serbian Banking Sector - 2007

companies and, secondly, there were many unpaid liabilities. We certainly expect the number of enterprises to increase. More jobs are being created every day and there will be more and more self-employment.

paying the principal amount. Agriculture currently contributes 26 per cent to bank’s crediting portfolio, while trade covers 36 per cent, other industrial branches have 17 per cent and services account for 19 per cent.

Does ProCredit Bank offer start-up loans? Yes, but these are not classical start up loans because we do not approve such loans to individuals who come with their business plan but don’t have a single day of operating and don’t have registered premises. What we do offer, however, are specific loans for entrepreneurs who have accrued a minimum of three months of work. Initially, those are short-term loans that are gradually extended. We are considering the introduction of real start-up loans, but we think that even the sector we are servicing at this moment is not sufficiently satisfied. We think that this is an area where budgetary resources should be allocated – as opposed to going to existing companies that are subsidised by the State. That should be left to the banking sector. However, it is a great challenge to systematically develop the institution. If you look at ProCredit Bank’s operations over the last six years, apart from the clients and market an area that has been one of our biggest challenges is finding ways to motivate our 1,400 employees. This year we plan to open 17 new branches, which means that by the end of 2007 we will have 1,600 employees.

Is Serbia’s banking sector facing further consolidation? I believe so, particularly because we see that this is happening on the international plain: we have recently heard talk of the possible merging of Societe

Is it correct that you are one of the few banks which finances agricultural production? Those are clients who had very negative relations with banks, and it has been four years since we started investing in communications with them. Because of our desire to ﬁt into the agricultural production cycle this year, we oﬀered them a fantastic product – the bio loan for planting, with the possibility of a 10month grace period repayment scheme, where they pay only the interest without

Generale and Uni Credit banks. Such things will certainly happen in Serbia too, especially since Serbia has 10 smaller, regional banks. Many have commented that the number of banks in Serbia is high – simply because [they ask] how can 38 banks operate successfully in a country with this number of citizens and this relatively small number of commercial entities. But 38 banks are not active – every quarter sees banks losing their participation on the market, banks that are not growing at all or are growing much more slowly than the banking sector as a whole. That index predicts a diﬃcult future for those banks. They will either have to modernise, merge with bigger

Guide to the Serbian Banking Sector - 2007

systems or perhaps specialise. However, I can say that the banking sector as a whole is organised particularly well. In comparison with our colleagues in other countries, I must say that we have very good regulations. Apart from transparency, the other important thing is the National Bank of Serbia’s determination to prevent the overburdening of citizens, which it knows is very dangerous. The percentage of our loan repayments is 99.5%. That is a result which not many countries in the region have, especially when we talk about loans to retail consumer clients. What is ProCredit Bank’s position in relation to the competition? ProCredit Bank always grows faster than the sector. We have faster growth of both savings and investments than the average in the banking sector, which leads us to the conclusion that we are on the right path. There is part of the competition with which we can hardly compare to, because our business policies diﬀer. Thus, we do not compete there. Where we struggle and win the battles is in the quality of our services, transparency towards clients and the development of mutual trust. We will not always be the cheapest, but at every moment we will have the most acceptable ratio between prices and services. We have our market and clients who appreciate such an approach. What innovations are in the pipeline for this year? The new thing we are doing now is constantly training our employees. We have noticed that our clients are increasingly more demanding and have various needs, and we put an eﬀort into having a standardised and high quality service. The innovations in products are bio-loans for planting; at the end of 2006 we introduced loans of over 20 years for purchasing agricultural land, and the mid-2006 introduction of loans for the adaptation and purchasing of business premises will be developed further.

Guide to the Serbian Banking Sector - 2007

Interview

MARKET PROMISE 5DGRYDQ -HODĂ¤LĂ˝ Governor of the National Bank of Serbia

â&#x20AC;&#x153;The banking sector ďŹ nished the last year with a proďŹ t. Two thirds of the banks showed a proďŹ t and only a third suďŹ&#x20AC;ered a loss. However, even more importantly, the banking sector has continued with expansive growth. That means that even those which suďŹ&#x20AC;ered losses still maintained growth.â&#x20AC;? By Tatjana OstojiÄ&#x2021;

he unique evaluation of bankers in Serbia is that we have an exquisitely well-organised banking system and that bankers in Serbia, compared to their colleagues in certain other countries, ďŹ nd it much easier to work. This was one of the reasons for the following interview with Radovan JelaĹĄiÄ&#x2021;, Governor of the National Bank of Serbia. What were the results of the banking sector in the last year? The banking sectorâ&#x20AC;&#x2122;s balance sheet total increased by about 50 per cent during the last year, while the capital base in this sector was signiďŹ cantly strengthened. In 2006, we had a credit increase of more than 100 billion dinars (RSD). Therefore, we have marked a growth in net credits, including an appreciation eďŹ&#x20AC;ect, and if that hadnâ&#x20AC;&#x2122;t been so then the

number of credits would have automatically been even higher. In the ďŹ nal quarter of the last year we initiated the tendency to decrease interest rates, which conďŹ rmed the National Bankâ&#x20AC;&#x2122;s promise that as the inďŹ&#x201A;ation rate decreases, so shall we decrease the referral interest rate, and therefore the price of credit. If this tendency were to continue, we would most probably achieve an additional decrease in interest rates on dinar credits by the end of the year, and simultaneously see an increase in interest rates on credits for all those who took credits in euros and Swiss francs. One of the factors leading to that would be that central banks in foreign countries increased their reference interest rates. Over the last year the number of the banks has decreased and we expect a smaller number of banks also in the future, due to announced mergers that should be implemented: Kulska and OTP Zepter Bank, the National Bank of Greece and VojvoÄ&#x2018;anska Bank, Panonska Bank and

Guide to the Serbian Banking Sector - 2007

Banca Intesa. The banking sector as a whole completed last year with a proďŹ t. Two thirds of the banks were proďŹ table, while only a third showed a loss. However, still more importantly is that the banking sector has continued with expansive growth. That means that even the banks that experience losses continue to grow â&#x20AC;&#x201C; thus showing that they are still sure the Serbian market is promising. Close to 3,000 new employees were hired in the last year alone â&#x20AC;&#x201C; meaning that this is the only sector in Serbia that is now hiring. We saw the opening of 260 units of business banks, which again provides proof that the people are optimistic, not to mention the bank securities that are today traded on the Stock Exchange. All this is proof of the positive direction of banking sector development. It would be good if instead of boasting the people in charge of other sectors used their authority to follow in the footsteps of the banking sector. Truly, we have made the biggest cuts already from the

Interview

very ďŹ rst day and, of course, as the transition continues it becomes increasingly diďŹ&#x192;cult and more complicated to make such cuts. Why did a third of banks record annual losses? The losses that occurred in a third of banks, which was noted in both small and big banks, is partly due to the high costs of expansion. Namely, even in the smallest towns in Serbia, where the economy still has problems, the only thing reminding us that weâ&#x20AC;&#x2122;re in the 21st century is bank aďŹ&#x192;liates. The second reason is the clearing of the balance sheets. When a bank is acquired, a large number of new owners want to use that moment to clear the balance sheet. Besides that, bank costs also grow very quickly. There is a great need for quality bankers, the industry pays fairly well and, thus, prices of the real estate are unrealistically high, especially to rent facilities in desirable areas, so that today it is still more expensive to rent a business space in Belgrade than it is in Budapest or Prague. Moreover, this network of aďŹ&#x192;liates has been constructed not for today, but for something is to happen in two or three years, because taking into account the number of transactions that are made by the average depositor in Serbia, the number of employees and the number of aďŹ&#x192;liates are too high. But branch oďŹ&#x192;ces are made for the future. The new law oďŹ&#x20AC;ers banks the opportunity to also work as representatives, to sell life and non-life insurance policies, which we consider as being very positive. In the last couple of months thereâ&#x20AC;&#x2122;s been an increased interest in voluntary pension funds, where the banks play the key role, and that will also add to the engagement of the whole network.

You mentioned a further decrease in the number of banks. Do you consider that the number of banks in Serbia is inadequate for the domestic market? By the end of 2000, we had 87 banks operating in one economically totally ruined country. Today, with GDP three times higher in dollars and twice as high in euros, we only have a third the number of banks and the scope of operations is, of course, much greater. As we become increasingly integrated into

5DGRYDQ -HODĂ¤LĂ˝ Governor of the National Bank of Serbia global ďŹ&#x201A;ows, we come under the inďŹ&#x201A;uence of things happening out of Serbia, as was the case with Panonska Bank and Banca Intesa. That means that the number of banks depends, ďŹ rstly, on world events and, secondly, on what the State decides to do with the remaining majority share it has in, for instance, PoĹĄtanska, Credy Banka, Privredna Banka PanÄ?evo, as well as what it wants to do with the banks in which is has a minority share, such as Ä&#x152;aÄ?anska, Komercijalna, Agrobanka and others. This also depends, of course, on the interest of potential partners who want to enter Serbia now and on whether they want a greenďŹ eld license or are interested in purchasing the remaining private/state-owned banks, as is the case with acquisition of A Banka by KBC, which occurred with the NBSâ&#x20AC;&#x2122;s consent. In your opinion, what is the attitude of the State regarding this issue? I do not know what the State wants to do. The State has certainly already sold the greater

part of, I think, a total of six banks. But there is still potential and one can still inďŹ&#x201A;uence the appearance of the banking sector. For the National Bank of Serbia, the money is negligible. We are interested only in the new entrants being high calibre, experienced regional players. How much money the shareholders will take doesnâ&#x20AC;&#x2122;t interest the National Bank, although we are aware that the less qualitative entities always oďŹ&#x20AC;er more. The last big player that entered Serbia was KBC and, of course, it would be good if some other larger players would come. As such, the opening of Citibankâ&#x20AC;&#x2122;s Representative OďŹ&#x192;ce is promising because it means that they are also thinking things over. Simultaneously, Russian banks have shown an interest. The National Bank is primarily interested in the quality, bearing in mind that we think it is sometimes beneďŹ cial if you have various players representing various regions, which allows you to evaluate who is the best. What will become of the two big insurance companies that remain to be privatised?

Guide to the Serbian Banking Sector - 2007

Interview

One is DDOR Novi Sad and the other is Dunav (Danube). I sincerely hope that only a short delay has occurred in the privatisation of DDOR, but I am not asking any questions regarding the necessity of privatisation. There is great interest in the issuance of greenfield licenses in the field of insurance: we have already issued a license to Crédit Agricole Life and there are also other interested foreign companies. Of course, all of them would prefer to buy some insurance company, but it’s up to the State to decide how things should be handled further. What we do know is that insurance premiums have doubled in the last two years, and that the share of life insurance has increased to reach some ten per cent of the total premiums. This sector holds significant developmental potential, but it is still more conservative than banking. With DDOR’s privatisation, the insurance Sector in Serbia would undergo significant changes - depending on who buys it. So, the question is will DDOR be sold to someone who is already here or to someone coming in from abroad. From the standpoint of competition, it is better to sell to someone from outside. We already have Uniqua, Wiener Städtische and Delta Generali, then Kopaonik from Slovenia and so on. The dinar exchange rate has now been stable for some time. What are your expectations for the coming period? The exchange rate is related to inflation, which is very important to foreigners because we have finally returned this inflation rate from an adverse position to a regional level. We have achieved this not based on the Foreign Currency Board or by price control, but rather this comeback has come from a detrimental position by using monetary policy, inflation targeting and a floating exchange rate. The NBS will not risk what it has already accomplished – i.e. price stability – in any way. In the end, we have a legal obligation to “achieve and maintain price stability“. We have achieved this and now we only have to maintain it. Of course, price stability is easier to maintain with the support of the budget and the State. However, we in Serbia have available sufficient mechanisms for maintaining the existing stability. A floating exchange rate

really floats in Serbia. The National Bank has significantly decreased its interventions on the market. This stability has been achieved independently of all political challenges and we guarantee that it will also continue in the future. The NBS’s restrictive monetary policy has been forced, but we do think that it would be better to use some other more efficient means (primarily the policy of public spending) which is still not restrictive enough. However, taking into consideration the tendency to decrease inflation and the reference interest rate, and depending on the new government and the new budget, we will be ready to decrease the level of restrictiveness. However, we can do that only when the achievement of our goals is guaranteed – which is possible by decreasing inflation. The NBS campaigned to decrease the number of approved citizens’ credits during 2006. Why was this? It would be best to learn from the mistakes of the others. However, that is not easy to implement in Serbia. We constantly speak about that in relation to mortgage credits over a 20

During 2006 you asked that the banks go to the market with effective interest rates? An effective interest rate is one of our key tasks, because that is the basis for a more transparent market, and a more transparent market is a prerequisite for even bigger competition. or 30-year period. Safety is greater if citizens owe money using a ﬁxed, not a variable interest rate. However, that is understood by a very large number of people in Serbia only when they have to pay up. The reference interest rate of the European Central Bank has in the meantime increased from two to 3.75%, and is set to rise even more. Just now people are beginning to grasp what that means. The same thing happens with Swiss francs. In Austria, which had a negative experience with the Swiss franc and the Japanese yen, it insults the client’s intelligence if someone oﬀers them credits in any other currency than euros. However, in our country it seems that citizens have to again be faced with some crisis or be hit in the pocket in order for them to under-

Guide to the Serbian Banking Sector - 2007

stand that. Therefore, we think that the State shouldn’t additionally support irresponsible loans in Swiss francs, especially not over a 20 or 30-year span. The key here is education for citizens to understand what it’s about. Besides offering more complex financial products, Serbia has a ‘hole’. Real market banking didn’t exist in Serbia in the ‘90’s. On the contrary, a huge demand was created that is only now being met and, of course, when you sell ‘limited goods’ it is also reflected in the prices of those goods. Nevertheless, Serbian citizens are still not overburdened with debt and the percentage of credit repayment is high? The role of the central bank is to prepare itself for the worst case scenario, hoping that it will never arrive. When the majority of credits are denominated in euros and you have a year of appreciation, plus an increase in nominal earnings of 20 or even 30 per cent, it would be strange to present in one such time the problem of credit return. However, that will also happen and therefore still additional education is needed – not only by NBS but also by the commercial banks, because that is their long term goal. When should one expect lower interest rates? A decrease in inflation and in reference interest rates will bring this about. Simultaneously, knowledge that a domestic company like Telekom takes credits abroad with interest rates of only one or 1.5% above the reference interest rate automatically poses the question about the conditions under which subsidiary banks in Serbia are taking credits from their parent banks. Such transactions are truly proof that there are no reasons for the daughter banks to take more expensive credits from their parent company than Telekom of Republic of Serbia, one semi-state-owned institution from a country with a credit rating of 2B minus. However, it is certain that is not happening because of the economy but rather solely because of politics; politics is also determining the margins and the amount of money and credit period. Due to an increase in reference interest rates, the allowed minus in Germany goes

Interview

up to 14 per cent, and non-allowed up to 20 per cent, in euros. My suggestion to citizens is that there are very big diďŹ&#x20AC;erences between the conditions oďŹ&#x20AC;ered by the banks and that they should be selective and haggle. In your opinion, will investment funds attract citizensâ&#x20AC;&#x2122; savings? I doubt that a great move will happen. However, I think that it is very important for all those in charge of monitoring the capital market to separate the wheat from the chaďŹ&#x20AC; as soon as possible, to insist that the companies be listed as soon as possible, like Tigar did, and that those in charge of monitoring investment funds ďŹ nd a way to coerce them into buying a larger part of listed companiesâ&#x20AC;&#x2122; shares. That, of course, makes proďŹ t much safer and lowers the possibility of the downward movement of shares. The NBS has done that and we will also do it with voluntary retirement funds. We will insist that the quoted shares be purchased. We will make negative selection and say that if one purchases â&#x20AC;&#x2DC;ordinaryâ&#x20AC;&#x2122; shares, one needs a certain amount of money in reserve. Three months after the general elections, Serbia still doesnâ&#x20AC;&#x2122;t have a Government. As we stated in the National Bank, we havenâ&#x20AC;&#x2122;t had any major disturbances regarding inďŹ&#x201A;ation or the exchange rate since the elections. Of course, because it hasnâ&#x20AC;&#x2122;t happened up to now we do not expect any larger movements in the second or third quarter. The NBS can and must keep everything under control. However, already three months after the elections â&#x20AC;&#x201C; or more precisely since October last year â&#x20AC;&#x201C; nothing has happened. There are no new laws, no signiďŹ cant plans or actions related to restructuring, and privatisation has been at a standstill. DDOR is just one example. That means that by the end of this year, and during 2008, we will experience a decreased â&#x20AC;&#x2DC;outcomeâ&#x20AC;&#x2122;. Citizens should not expect any kind of negative scenario over the short-term, but Serbia shouldnâ&#x20AC;&#x2122;t let herself allow the luxury, as she has already done, to lose seven or eight months during a transition process. It would be really important if we could have in power the people who do not want power for the sake of power but, rather, are actually ready to do

5DGRYDQ -HODĂ¤LĂ˝ Governor of the National Bank of Serbia something. Unfortunately, that doesnâ&#x20AC;&#x2122;t always happen. What is needed to attract more foreign investments? Unlike many others, I think that laws are much more diďŹ&#x192;cult to implement than to pass â&#x20AC;&#x201C; as has been conďŹ rmed in the last two to three years. I claim that the non-existence of the Assembly is no excuse not to do certain things during the transition process. Of course, for certain things you need laws, but besides that I think certain things should be done in Serbia. The banking sector can be

an example of that. Individuals are not performing their jobs related to restructuring of large pubic companies, for instance, to attract foreign direct investments, where I am convinced that tax relief cannot and shall not play a key role. One should only create a positive environment. Serbia doesnâ&#x20AC;&#x2122;t have any more time, which was conďŹ rmed at the last Assembly of IMF and the World Bank. Our growth in the last year was on the level of the average growth in the region. That means that the speed of growth is not compensating for the gap created in the â&#x20AC;&#x2DC;90s. We should be running much more quickly than we are.

Guide to the Serbian Banking Sector - 2007

CA MERIDIAN BANK Meridian Bank has been present on the domestic market for nearly 16 years (since 1991). However, the key moment in the development and operations of Meridian Bank occurred in September 2006 when CA Meridian Bank became a fully-owned subsidiary of the Credit Agricole Group. This takeover led to Meridian Bank Credit Agricole Group expanding its capacities and portfolio of banking services, as well as advancing the level of services oﬀered.

redit Agricole is the biggest banking group currently operating in Serbia. It is the second banking group operating on the global market for banking and insurance services, and symbolises the presence of the successful French economy in more than 70 countries worldwide. This powerful ﬁnancial group is

present on markets using a total of 50 languages. Credit Agricole Group is a huge family of ﬁnancial experts, gathered around the same values and goals, consisting of 157,000 employees. Despite the decentralised structure of the Credit Agricole Group and the diversiﬁed locations in which the Group operates, Credit Agricole’s

Guide to the Serbian Banking Sector - 2007

banks appear fully harmonised at all locations due to the simple fact that employees endeavour to constantly respect the highest values nurtured within the group: • Responsibility in relations with clients, business partners and employees, but also in the global community within which the Group operates;

• Unity of all member companies and the regional centre of the Group in applying all principles of doing business and working together; • Sincerity in oﬀering services of the highest standard to all clients. All over the world, the name of Credit Agricole is a synonym for size, success and business reliability. Credit Agricole Group’s regional centres nurture a strategy of stable and continuous growth through the combined approach of regional banks on the market and a network of combined specialist banking sectors within the Group.

Thanks to its size and strength, coupled with the application of the basic values of responsible business operating, Credit Agricole Group oﬀers stable support and provides numerous possibilities for the further development of the Meridian Bank Credit Agricole Group in Serbia. The support of Credit Agricole Group, with exceptional ﬁnancial potential for Meridian Bank Credit Agricole Group in Serbia, equates to safe investments and good

preconditions for a stable position on the extremely competitive domestic banking market. As a result of the maintenance of constant communication with head oﬃce, including regular exchanges of experience with other Group members, Meridian Bank Credit Agricole Group is able to apply the latest achievements in the banking sector and add new innovations to its operations by following world trends in the banking sector. The combination of local banking experiences with global experiences has proved very successful and has given exceptional results in a very short period of time.

Serbia that comprises more than a hundred branches/offices. Here around 1,000 employees endeavour to meet the needs of all clients on a daily basis – led by the Group’s basic objective of satisfying all needs of their clients. With the clear aim of expanding its market share, Meridian Bank Credit Agricole Group continually harmonises the network and constantly adds new innovative services that are adapted to the special needs of the clientele. Simultaneously, the Bank’s co-operation with the head office enables its young, talented employees to improve their banking skills and gain new knowledge about improving the level of services through numerous seminars and training courses. In order to provide clients with swifter and easier access to their money, Meridian Bank Credit Agricole Group has invested serious assets and exerted efforts in order to ensure its branches are equipped with sophisticated technical equipment. It was also the first bank to provide electronic banking services able to cater to the needs of modern living. In order to allow its clients to make cashfree payments at many locations, Meridian Bank Credit Agricole Group has more than 2,000 POS terminals and over 200 ATMs located all over Serbia which are accessible 24-hoursa-day – thus allowing clients to access their account and make withdrawals anytime.

EXPANDING THE BUSINESS OF MERIDIAN BANK CREDIT AGRICOLE GROUP Even though Credit Agricole Group is one of the most important players on the global banking market, the Group is set on maintaining good local practices. Meridian Bank Credit Agricole Group currently has a network in

A policy of providing high quality services and establishing long-term relationships of trust provide the proof of Meridian Bank Credit Agricole Group’s dedication to caring for its clients. Every client of the Bank is treated with the same dedication and

Guide to the Serbian Banking Sector - 2007

clients’ demands are always responded to in a timely manner in line with the Bank’s principles of satisfying client needs and constantly expanding service capabilities. Meridian Bank Credit Agricole Group oﬀers packages that are adapted

and credit cards that can be used in the country and abroad, the bank also offers special conditions for domestic and foreign currency savings, as well as consumer and cash loans that are adapted to the needs of the population – such as anniversaries and oneoff celebrations. In addition to the aforementioned services offered to the public, Meridian Bank Credit Agricole Group also takes care of its business clients by offering short and long-term credits (domestic and foreign currency) in amounts determined by the needs and projected possibilities of the applicant business. With a watchful eye on the changing needs of the constantly growing domestic market, Meridian Bank Credit Agricole Group offers special possibilities for young people and those employed, in order to help them solve their housing problems. These special packages will help young couples establish a home, develop new possibilities of investment for those thinking of their future and provide finances to cover the costs of schooling children.

to the individual needs and demands of more than 180,000 clients (retail customers and businesses of various sizes). Besides standard retail banking services and maintenance of domestic and foreign currency accounts, as well as authorised overdraft facilities

Insurance company CA Life has received permission from Serbia’s central bank – the National Bank of Serbia (NBS) – to oﬀer insurance services at special counters in the premises of Meridian bank Credit Agricole Group.

Insurance packages including CA Life Guardian, Benefit and Perspective – allow clients to offer a secure future for themselves, their family members, and to ensure the safety of their children. Meridian Bank Credit Agricole Group has become the first bank in Serbia where clients can satisfy both their banking and insurance needs in one place. Recognizing the potential of the Serbian market, the plans of Meridian Bank Credit Agricole Group are focused on improving its position on the competitive banking market and providing strong support to the further economic development of the local population. As the Bank is part of the community in which it operates, and is duly aware that business is a whole comprised of many small elements, Meridian Bank Credit Agricole Group is active in many projects that support the local community. Helping the community is mostly about spreading cultural spirit and supporting cultural manifestations, in developing sport habits through programmes of recreation and about investing in conditions for a better and happier childhood. Investing in the community and assisting in its development is one of the main priorities of Meridian Bank Credit Agricole Group.

LOCATION

ADDRESS

TELEPHONE

FAX

Belgrade Novi Sad 8åLFH Niš âDEDF .UDJXMHYDF

Hotel “Moskva” %UDüH 5LEQLNDU 'LPLWULMD 7XFRYLüD %XO 1HPDQMLüD &YHWQL WUJ % 5DGLüHYLüD

011/3621-547, 011/3621-537 021/4876-965 031/510-096,410-496 018/202-292,202-524,538-505,538-510 015/301-180, 303-540, 348-492 034/336-033; 302-825; 330-743

011/3621-547 021/4876-971 031/ 516-136 018/202-292 015/ 301-181 034/ 331-731

Guide to the Serbian Banking Sector - 2007

FIRST YEAR IN SERBIA “Findomestic Banka is part of BNP Paribas, one of the largest banking groups and the leader in consumer lending in Europe.” How did Findomestic Banka end last year? Are you satisfied with results? Last year was a very important year for Findomestic Banka, since it was our first year in Serbia. After acquiring Nova Banka, Findomestic Banka completed the name change in April 2006 and began the process of corporate identity building and incorporating the new logo and other elements of the new visual identity. Moreover, in 2006 Findomestic Banka undertook structural, operational, and technological changes all of which, on one hand, prepared the bank for its core business activity – consumer lending – and, on the other, enabled the upgrading of classic banking products and services. Findomestic Banka, with a reinforced financial structure, now operates with more efficiency, is accessible throughout Serbia, and provides high quality services to both corporate and retail clients. We believe that satisfaction with the achieved result is yet to come. Did you adapt the strategy you initially started with? The strategy of Findomestic Banka to develop the consumer lending market in Serbia remains the same, given the fact that this is our core business. Even though the credit market for citizens already exists in Serbia, Findomestic Banka – as the only bank in Serbia spe-

Guide to the Serbian Banking Sector - 2007

cialised in this banking segment – with its scoring system, automated and innovative products, reinforces the new way of granting loans. Findomestic Banka is part of BNP Paribas, one of the largest banking groups and the leader in consumer lending in Europe. The experience, know-how, and technical support we are bringing to Serbia, together with the people working here in our bank, leaves no doubt that we will achieve our goal and become the leader in consumer lending in Serbia. How are you planning to compete on the Serbian market in the coming period? Findomestic Banka oﬀers a full range of services for both corporate and retail clients, but it is the only bank in Serbia that specialises in consumer lending. Thus, we do have the exclusive possibility to oﬀer unique and customised credit solutions to citizens. Moreover, we believe that the way we communicate with our clients will also set us apart from other banks in Serbia.

Eric Blanchetete President of the Executive Board of Findomestic Banka

How do you see the banking sector in Serbia developing in the future? At the global level, there is a clear tendency for mergers. Some regional banks will undoubtedly follow the lead and the eﬀects are sure to be noticed on the local market as well.

Guide to the Serbian Banking Sector - 2007

INTERVIEW

EXCELLENT COď&#x161;şOPERATION WITH BANKS C

9ODGLPLU Ä?RUÄ&#x20AC;HYLĂ˝ Visa representative for Serbia and Montenegro 34

an you tell me something about the history of Visaâ&#x20AC;&#x2122;s development in Serbia? Visa has been active in Serbia since 1984. Twenty-three years is a long time for such a young industry as the payment-card industry to be present in one place and, obviously, weâ&#x20AC;&#x2122;ve had to adapt through diďŹ&#x192;cult situations in Serbia. This has seen us have to halt operations in various periods. However, because weâ&#x20AC;&#x2122;ve been here for such a long time the VISA brand is very well known and well trusted in the country. As such, when we resumed activities again in 2001 we were starting from a stronger position than we would have been if we were entering a completely new market. In the ďŹ ve years since we returned to Serbia, weâ&#x20AC;&#x2122;ve experienced incredibly fast percentage growth and reached a million cards in less than three years. Thatâ&#x20AC;&#x2122;s the kind of growth you only see in China! The payment-card industry as a whole has done very well here, and the government has been very proactive in promoting cashless payments. Overall, itâ&#x20AC;&#x2122;s been both interesting and diďŹ&#x192;cult at times for Visa during these past 22 years, but since 2001 itâ&#x20AC;&#x2122;s been extremely rewarding and the growth has been very strong.

Guide to the Serbian Banking Sector - 2007

How pleased are you with your results in Serbia last year? We are very pleased with the 2006 results, which are in accordance with the success we have had so far in the country. In general, all indicators are increasing steadily - number of cards, expenditure, number of merchants, number of ATMs, utilisation of cards for e-commerce. According to Visa Internationalâ&#x20AC;&#x2122;s statistics, the payment card market in Serbia is becoming more sophisticated. Visa card usage in Serbia and Montenegro continued to grow during 2006, and by yearâ&#x20AC;&#x2122;s end last year Visa cardholders from Serbia and Montenegro had spent more than U.S.$1.3billion â&#x20AC;&#x201C; representing a 109 per cent year-on-year increase compared to 2005, thus proving the increased awareness of convenience and security of payment cards among people in Serbia. Most impressive was the fact that the usage of credit cards at merchant locations increased by 246 per cent, when compared to the same period in 2005. Visa cardholders from Serbia and Montenegro spent more than U.S.$124million using their credit cards at Visa merchant outlets. This shows that the Serbian and Montenegrin card market is becoming more mature and that

INTERVIEW

Serbian and Montenegrin Visa cardholders realise the increased benefits of credit products and the increased purchasing power they offer. One of the key reasons for our growth is the use of the credit card to replace the post-dated cheque, which was abolished at the beginning of 2006. We expect to see this trend continuing in the future with the overall growth of the economy. We have been present in the country for more than 20 years and have worked hard, with our Member banks, to develop cashless payments. Visa is a strong brand in Serbia and Montenegro, and recent statistics support Visa’s growing trust in Visa as a product and brand. How would you compare the paymentcard business in Serbia to those of other countries in the region? Compared to their neighbours in Southeast Europe, people from Serbia are experiencing strong percentage growth. The number of Visa payment cards in Serbia recorded growth of 42 per cent during the 12-month period ending December 2006. In regional comparison, the number of Visa payment cards in Serbia has increased 37 per cent more than in Croatia and 34 per cent more than in Bosnia & Herzegovina. The percentage increase in merchant spending in Serbia and Montenegro during 2006 was ahead of many former Yugoslav republics: increasing 120 per cent more than was the case in Macedonia, 109 per cent more than Croatia and 117 per cent more than in Bosnia and Herzegovina. This data indicates that Serbia’s consumers are turning their backs on old fashioned cash and cheque-based payments and are beginning to understand and appreciate the benefits that cashless payments offer. Serbian spending habits are now coming in line with many of the country’s European neighbours, where the majority of Visa cards are used at POS rather than ATMs. Recent statistics also show that Serbian people are using the internet for buying goods and services with their Visa cards.

Are you satisfied with the co-operation you enjoy with banks in Serbia? What are your future plans with regard to Serbian market? Our co-operation with all our 31 member banks in Serbia is excellent, whether they are domestic or foreign. Obviously, different banks have different types of customers and different priorities, and we would like to ensure that our Members have all the tools in place to provide safe and convenient payment cards to their customers. As you know, the most successful reform in Serbia is the reform of the banking sector, which has increased the competition amongst banks to the benefit of consumers. I cannot recall any negative experiences, as the banks do co-operate on non-competitive matters, such as combating fraud.

Visa has a dedicated team for Serbia at all levels (business development, fraud management, chip migration, marketing, etc) and this is very much appreciated by the banking community. Visa will continue to work on developing new products designed speciﬁcally for the Serbian market. The growth of the issuance and usage of new products, such as credit cards and instalment cards, is encouraging the development of more new products for the Serbian market, especially since the post-dated cheque was abolished. I expect to see more cards designed speciﬁcally for businesses, particularly SMEs. Card products are extremely useful for businesses, not only as a cost-cutting measure but also from an administrative and cash management point of view.

Guide to the Serbian Banking Sector - 2007

Crediting Bureau

CONFIRMING REPUTATION The ﬁrst report was issued in November 2004, today all reports are accessible to both citizens and companies. By Danijela Jovanović

o loans can be given today in Serbia without the bank first requesting the Crediting Bureau’s report, in which the crediting history and the loan applicant’s ‘reputation’ can be clearly seen. The Crediting Bureau issued the first report for citizens on 18th November 2004, while since 1st October 2006 it is also possible to get those reports for enterprises and companies. The Crediting Bureau is the central national register of data on citizens’ and companies’ liabilities and their regularity in paying off those liabilities to banks, leasing companies and other service providers. The Bureau is organised within the framework of the Serbian Banking Association, and all the banks, leading insurance companies, state funds, leasing companies and other creditors that provide data to the Bureau are simultaneously responsible for the accuracy of the provided data, which is presented in the Crediting Bureau reports. The Crediting Bureau does not have its own database, but is made up of data from all member banks (all banks in Serbia are included), leasing companies and other mentioned institutions which are obliged to update the data on their clients on a daily basis. Therefore, the banks are in fact the owners of the Crediting Bureau because they established it. As such, we can say that there are around 1,700 Crediting Bureau workers who are authorised to access this system by using

the so-called smart card. Those banks which have the B2B software solution can withdraw the Crediting Bureau report about a certain person or company in four seconds. Banks (and thus the Crediting Bureau) have data on 3.85 million citizens, their clients, while there are around 454,000 SMEs and companies in this speciﬁc database. It is important to note that a bank can access the Debt per capita = €320 The total debt of Serbian citizens at the end of 2006 was RSD 195,435 billion, i.e. €320 per capita. The participation of loans in the GDP of the country is below 10%. Citizens and companies in Serbia belong to the group of regular payers, thus according to the data from 31st December 2006, only 1.42% of citizens are late with the repayment of the remaining debt. This percentage (the participation of tardiness in the rest of the debt) is 5.5% for citizens and 3.43% for enterprisers.

Crediting Bureau data only with the exclusive written approval of the client – citizen, entrepreneur or company legal representative. The Crediting Bureau manages data on citizens’ current liabilities: loans, credit cards, loans on current accounts, endorser’s liabilities, leasing … Then data on the nonregulations in paying oﬀ those liabilities, such as late payments and disputable liabilities regarding the amount and time of unpaid matured liabilities. As regards SMEs and companies, apart from liabilities based on various loans, the data is managed on the basis of activated guarantees, uncovered letters of credit and

Guide to the Serbian Banking Sector - 2007

guarantees on debt securities. Potential liabilities are also visible: issued guarantees, received guarantees… and, of course, irregular payments. For citizens, tardiness is defined as being 60 or more days late in paying off liabilities, and for SMEs and companies the negative item is recorded as matured and unpaid liabilities of 15 or more days. Both citizens and companies can request a so-called ‘personal report’ from the Crediting Bureau, for a personal insight into data about them, and for any eventual reclamation on the accuracy of the data. Possible mistakes are corrected by submitting demands, and the banks (or some other service provider) is obliged, if the demand is justified, to make the correction within 15 days, but to implement it in practice within three days. The Crediting Bureau does not make any decisions, but its reports serve the banks, leasing companies, insurance companies, etc., by providing an insight into the level of debt of some person or company. That is a resource which presents an added bonus to good and regular customers during the application for a new loan or similar. The Crediting Bureau’s report is complete, in contrast to many countries where not all banks are included in the work of such bureaus, or in contrast to many countries where various private agencies deal with this task. The Crediting Bureau states that their characteristic is the “universality of data, minimal price and maximum speed”.

YEAR TO REMEMBER ,YLFD 6PROLý, President of the Executive Board of Komercijalna Banka 3UHGUDJ 0LKDMORYLý, PhD, Deputy President of the Executive Board of Komercijalna Banka

t is difficult to start a conversation with a banker without asking about the results of the previous period. Even though we have set high standards for planning our business, it is not at

all boastful to say that we have exceeded our objectives for the previous year. In the last year, the Bank increased the volume of operations for 43 percents and it reached € 2 billion. The capital of the Bank was

Guide to the Serbian Banking Sector - 2007

raised by 78 percents amounting to € 200 million. Deposits reached the figure of € 1 billion and thanks to well managed lending activities and increased quality and efficiency of business operations the profit

of â&#x201A;Ź 11million was generated implying the growth of 68 percents. We are especially proud of the fact that retail sector savings â&#x20AC;&#x201C; the best indicator of trust of our customers â&#x20AC;&#x201C; continued to grow with unwavering pace of almost 50 percents per annum and presently exceeding â&#x201A;Ź 650 million. In this respect, our Bank is an unchallengeable leader at the Serbian ďŹ nancial market. Qualitative indicators of operations have also been signiďŹ cantly improved, ROE has nominally increased by two percentage points, ROA by 0.15 percentage points, capital adequacy by nearly two percentage points, and we have also improved the ratio of costs and revenues... In your opinion, what marked the year 2006 in the banking sector of Serbia? The process of privatisation of Serbian banks was practically completed giving rise to severe competition for almost every customer. The banking sector is the ďŹ rst, or among the ďŹ rst sectors in Serbian economy which can be characterized as being standardised. This sector is obviously ruled by strict ďŹ nancial discipline which also improved overall conďŹ dence and thrust in banks publicly. Healthy competition among banks resulted in substantial growth of banking products and services on the one hand and in the fall of interest rates and fees and commissions on the other hand. This proved beneďŹ cial to both corporate and retail customers. The struggle among competitors raised marketing and media presence of banks which additionally improved reputation of banks. What will the year 2006 be remembered for in Komercijalna Banka? This year will be remembered in Komercijalna Bank not only because of high quality ďŹ nancial performance but also because of several important events. In June, the world renowned European Bank for Reconstruction and Development (EBRD) became our second largest shareholder with 25 percent stake in the Bankâ&#x20AC;&#x2122;s equity. In addition to signiďŹ cant increase of capital, we automatically beneďŹ ted form the inďŹ&#x201A;uence that the EBRD has all over

a very successful bank in Montenegro in an exceptionally short time we established and put on healthy grounds a bank in Bosnia & Herzegovina with the head oďŹ&#x192;ce in Banja Luka in the Republic of Srpska. At the same time, we obtained the licence from BaFin as the ďŹ rst and up to now the only bank to open a branch in Germany which will transfer money from Germany and surrounding countries to Serbia. We also completed organization of the Bank to conform to the modern European model. At this moment, we are intensively introducing adequate procedures which will ensure on the long run standardisation and top quality of our services. This accompanied by appropriate marketing and media activities will contribute to the signiďŹ cance and authority of the Bank which will continue to grow with unrelenting tempo.

,YLFD 6PROLĂ˝ President of the Executive Board of Komercijalna Banka the world and wide opened doors to all markets where the EBRD traditionally and successfully operates. One of our ďŹ rst joint projects concerns the implementation of the Institution Building Plan. Their assistance is apparent in a very important process of raising corporate culture. At the end of last year, our shares were listed at the Belgrade Stock Exchange and trading with our shares started. Buyers are interested in acquiring shares of Komercijalna Banka not only because of overall reputation but also because of excellent performance. This had an impact from the very beginning on the constant and substantial increase of share price. With all reserves towards methodological simpliďŹ cations, based on the current market price of our shares, at this moment we are the bank with the largest market capitalisation in Serbia. The third important course of activities which marked the year 2006 concerns our recognition and expansion not only in Serbia, but also in the region. In addition to

In your opinion, what will the Serbian banking Sector look like after a few years? Do you see there being a place for Komercijalna Banka? The process that we have already mentioned and experience of neighbouring and other European countries with the same or similar banking and economic structure show that intensiďŹ ed and growingly expressive competition will lead to further integrations at the banking market. This is supported by current and future integrations of banks in Europe of which Serbia is an integral part. Therefore, we expect development of banking with few new players however with many new products and services in the oďŹ&#x20AC;er and with a changed structure of portfolio towards the growth of retail services, transactions with securities and substantially reduced pricing for products and services. The Bank is well positioned and it is ready to maintain its market share of nine to ten percents under these conditions, as well as the position among top three banks by all banking criteria for measuring the size and success. Moreover, the Bank is continuing with its regional expansion programme, especially at the territories of countries with which our customers have well developed cooperation.

Guide to the Serbian Banking Sector - 2007

You have already mentioned that you have banks in Budva and in Banja Luka, as well as representative offices in Zagreb and Frankfurt. How do they operate and do they make easier business of your customers in the country? Your question contains a major part of the answer. The results of our banks in Montenegro (Budva) and then in Bosnia & Herzegovina (Banja Luka) have encouraged us to continue expansion in the region. The needs of our clients have helped us to choose our locations and the priorities for our network development. Today, many of our clients are also expanding their businesses in the region the same as we have done and at this stage of development our Bank provides special support which is not only ďŹ nancial. Who are the clients of your Bank? All people who live and work in Serbia and in other countries in which we operate. We are a universal bank that provides all types of banking services and this along with the most widespread branches and outlets in the country has contributed to the fact that w also have the largest number of customers. Among our 600,000 clients and 1.2 million active accounts, there are also 100,000 corporate customers. Our customers vary form entrepreneurs, small and medium size enterprises and some of the largest Serbian companies in almost all ďŹ elds of economy. We are traditionally the Bank of diplomatic and consular oďŹ&#x192;ces, international humanitarian organisations, the most prominent sports, musical and other art institutions and the most distinguished individuals. Although we have numerous special customers, we never forget that there is not a single less important customer, which is probably the key reason that we enjoy the greatest trust. What makes Komercijalna Bank different from others banks in Serbia? It is certainly the most widespread business network in the country and the fact that we are one of the biggest banks which has a head oďŹ&#x192;ce in Belgrade, Serbia, it is also an unusual corporate colour and the

The fact is that the Bank has increased the volume of operations and qualitative performances. It has also improved organization, procedures and other things to the extent that its value is even now very close to the ďŹ gure which has been planned for the period of a few years. Therefore, it is not at all important who will buy its shares in a few years time: numerous small shareholders through the initial public oďŹ&#x20AC;ering ore some of the large ďŹ nancial players and banking institutions.

'U 3UHGUDJ 0LKDMORYLĂ˝ Deputy President of the Executive Board of Komercijalna Banka longest traditionâ&#x20AC;Ś However, we think that the most important is that although a bank with a long tradition and with conventional ownership structure, we have maintained ďŹ&#x201A;exibility and ability to constantly strive towards innovations, changes and challenges. We have preserved a desire to compete and courage not to lag behind world renowned banking players who have come to our market. Komercijalna Banka has remained as the only large domestic banks that have not been privatised yet. Is that the final decision or it will be taken over by a foreign bank? This is a question for the Bankâ&#x20AC;&#x2122;s owners and not for the management. Part of the answer lies in the contract signed between the Serbian Government and the EBRD â&#x20AC;&#x201C; according to which the present ownership status will be retained for a period of at least three years. But, we consider it both personal and joint success that this issue is not at all important any more.

Guide to the Serbian Banking Sector - 2007

Is Serbia still a high risk market and is that the reason why interest rates are still very high for both retail and corporate customers? The cost of capital indicated through the interest rate depends on risks but it also depends on the costs of funding and the demand and supply at the market. The fact is that in the last two years lending interest rates have fallen for 20-30 percents in Serbia and even more in some segments of the credit portfolio. This shows that the supply of capital has improved and that its ďŹ&#x201A;ow has been mitigated both from the international market and from domestic reserves. These two things indicate that generally speaking the country risk has been reduced. We can say that today it is at the level of other countries in the region. But we cannot run away from the fact that international capital will continue to carefully analyse information coming from local, primarily political levels and, depending on derived conclusions, it will be decided how much capital to allocate to this market.. But, relatively high interest rates are not a reďŹ&#x201A;ection of the country risk, but rather of a credit risk associated with loan beneďŹ ciaries. Banks have to open four eyes when approving loans and in cases when it is not possible to be 100% certain that loans will be repaid, risk management in that respect will have to be partially compensated by interest rates which are fairly high, as you have just said. This will be the case for quite some time and all in hope that possible measures of creators of credit and monetary policy and authorities will not incur additional costs and pressures.

Guide to the Serbian Banking Sector - 2007

DYNAMIC Stavros E. Ioannou, Chairman of the Executive Board of Eurobank EFG Štedionica The overall results of your Bank in Serbia in 2006 appear extremely impressive. Would you agree with such a statement or is your target much higher? Eurobank EFG group is recording excellent results in all countries were we operate, and it is equally important to us to have the same strategy of dynamic development on the Serbian market as well. The fact that we have so far invested more than €350million proves that the domestic market has a strategic significance for us, and we will continue to invest and develop our operations further in the forthcoming period. Following our legal merger with the former Nacionalna Štedionica in October 2006, and the conclusion of the operational merger by end of April this year, Eurobank EFG Štedionica is now functioning as a unique system with the same visual and functional identity, operating through the third largest network in the country. Since the completion of the merger process, the clients of the former NSB have gained the full product and service palette of our international banking organisation, whose benefits will be even more improved in the forthcoming period. Similarly, clients of Eurobank EFG now have access to a network covering the whole territory of Serbia, due to the fact that their bank has become more powerful. Eurobank EFG is extremely active on the market with a lot of new, different products. Which ones would you highlighting as having the most importance? All the products of Eurobank EFG Štedionica were created in accordance with the needs of the clients and demands of the market, according to the highest international standards of operat-

ing. The strategy for 2007 was directed mostly towards retail deposit products, consumer and small business lending. Existing data on the position we currently hold shows that we are on the road to accomplishing this objective. Based on results from the first quarter of 2007, the integrated Eurobank EFG Štedionica is achieving the 6th position in assets volume with overall funds to the value of €0.8billion. Moreover, with total lending worth €486million we have assumed the number one position. We are the second biggest financer of small businesses; third for mortgage lending and fourth in citizens’ savings. Which of the products would you recommend to clients seeking the most useful and efficient product to cater for their everyday needs? In accordance with this year’s strategy, our deposit products and the palette we have developed have gained the trust and confidence of our clients. Euro 8% is the clear example. This

Guide to the Serbian Banking Sector - 2007

offer was special for April and we had to prolong it for a week simply due to the extremely high client demand. In Serbia, a country that is still in the transition period, it is very important to encourage citizens’ trust in banks by offering them tailor-made products with clear message on how they can benefit from their usage. I would also mention the high demand for, and attractiveness of, the “5 star payroll account Euro PLATA”, with offers specific benefits such as more favourable cash credits, mortgage loans, free for life credit cards and service network covering the whole territory of Serbia. Taking into consideration that you have already spent a lot on the developing the logistical, technical support and infrastructure side of your business, what will be your next step towards developing the bank further? By concluding the operational/system merger, one of the major players on the Serbian banking market - Eurobank EFG Štedionica has been created. All of our clients will have multiple benefits from this creation. In accordance with

DEVELOPMENT our strategy of maintaining intensive growth on the domestic market, new investments, the continuous opening of new branch offices and the renovation of existing ones, coupled with the introduction of innovations in products and services, should follow. As the third largest banking network in Serbia, according to size, with more than 1,500 skilled employees, we have fully accomplished the announced strategy of fast expansion – a strategy we plan to continue in the future. Our objective is to have more than 150 branches throughout Serbia by 2009, and to serve our clients in the most professional manner in order to keep them satisfied with the Bank they have chosen. Your bank prides itself on being dedicated to meeting the needs of its clients, but what is your major client target group? Operating as universal banking institution and a very dynamic bank that has gained leading positions in the most significant banking fields on the Serbian market, we are always trying to meet our clients’ needs, both in the corporate and retail sectors. Moreover, belonging to a large international banking organisation we are constantly endeavouring to provide innovative, tailor-made products and services. It is for this reason that we are also active through nonbanking subsidiaries such as leasing company EFG Leasing, real estate company EFG Properties and brokerage firm Prospera Securities. In short, we can satisfy all of the financial needs of all of our clients on the Serbian market. What will provide the main focus of your business plan for 2007, in terms of strategy and products? We will focus on becoming one of the top three banks on the market in terms of total assets, the first choice bank for citizens, and one of the key players in the corporate area. We will also focus on continuously improving the quality of services and one of our major priorities is

maintaining long-term relations with our clients. I shouldn’t fail to mention that we also intend to continue with our extensive CSR projects in order to demonstrate responsibility and success not only through operations on the market, but also by contributing to the society through our main pillars of education, health and environment. How would you describe the current state of the Serbian Banking Sector from the perspective of your own bank and through the experiences of Eurobank EFG? Serbia is undergoing a transition process and the banking market is highly attractive for development and new investments. The volume of investments of Eurobank EFG Group in this country conﬁrms that our business development in Serbia is of strategic importance. However, the time lag between the elections and constitution of the new Serbian, pro-European government is not a positive sign to current and potential investors. I have noticed the statement from SIEPA noting that the number of potential investors calling them on a daily basis this year is signiﬁcantly lower than it was last year. Some clients of our Group, such as construction companies and international hotel chains, have postponed their decision on whether to invest in Serbia. If the country fails to reach political consensus, Serbia risks seriously furthering delays in its EU integration process and causing a slowdown in its economic revival. Returning to our banking organisation, the operational merger of Eurobank EFG Štedionica will bring into existence a strong and dynamic banking organisation – one of the largest on the market. Competition is strong and aggressive, but we are certain that with an expansion of our branch network, an increase of the bank’s capital and the creating of new jobs, we are safeguarding the further development of Eurobank and strengthening an already strong position

among the country’s most successful banks. By the end of 2007, I see the Serbian banking sector as being more concentrated, with 25-30 banks active on the market. In this situation, service capability and quality will greatly favour the side of the consumer. On a closing note, since your arrival in Serbia, Eurobank has made numerous donations and contributed to humanitarian activities. How important is corporate social responsibility to you? Eurobank EFG Group believes that it is very important to support the local communities of all the countries where we operate through various social responsibility areas which don’t have to be directly linked with our business operations. Within the CSR programme “We Invest in European Values”, we have invested over €2million so far. In accordance with this programme, all ﬁnal-year students and senior undergraduates with an average grade above 9.5 have received The Eurobank EFG scholarship worth €1,000. The restoration and upgrading of Narodna Bašta Park in Pančevo – a town which is facing great ecological problems – was able to commence thanks to our donation of six million dinars. The Jevremovac Botanical Garden in Belgrade was granted a new Eurobank EFG Garden paid for by funds we donated to this very beautiful green oasis in Belgrade. We should also mention the foundation of the PET centre in the Clinical Centre of Serbia, which will make important contributions to the development of early cancer diagnostics and improvement of medical services in this ﬁeld. Besides these projects which are in progress, we are always alert when it comes to local community’s needs because we truly wish to be both a dynamic and responsible member of the local community in which we operate every day, in addition to achieving good business results.

Guide to the Serbian Banking Sector - 2007

COALITION WITH VOJVOĐANSKA BANK The National Bank of Greece (NBG), the oldest and one of the biggest Greek banks, has been the leader of the Greek economy for years. In recent years, however, NBG has opted to spread its wings and expand in southeast Europe and the Mediterranean region. Through NBG’s constant dedication to achieving its goals – as evidenced by the Bank’s constant investments in assets and human resources – it has been possible for NBG to achieve success in Serbia, Montenegro, FYR Macedonia, Romania, Albania, Cyprus, Egypt and Turkey. NBG opened its ﬁrst branch oﬃce in Belgrade – then the capital city of Serbia & Montenegro – in January 2002. assets will depend on the payment of risky credits loaned to domestic enterprises by Vojvođanska Bank.

he National Bank of Greece’s clients are oﬀered a wide range of products and services for doing business with both the retail and corporate sectors. Having identiﬁed the Serbian market as a strategic market for NBG, in September 2006 the Bank succeeded in becoming the owner of 99.44% of the assets of Vojvođanska Bank – for a price of €385million. Upon completion of the acquisition, NBG became the second largest

bank in the country in terms of quantity of branch offices, and Serbia’s sixth largest bank in terms of total balance assets. NBG’s takeover of Vojvođanska also saw the bank gain Vojvođanska’s market share of five per cent and customer base of around 700,000 existing clients. On the basis of the purchase agreement, NBG paid €360million in the first three months following the takeover, with the remaining €25million placed on a special account until 2008 – the release of these

Guide to the Serbian Banking Sector - 2007

Also in accordance with the purchase contract, NBG plans to extend credit of €25million to the Serbian Development Fund for a period of seven years with a favourable rate of interest. Moreover, NBG plans to investment a further €40million into Vojvođanska’s technology and the expansion of Vojvođanska’s branch network, and NBG does not plan to make any of Vojvođanska Bank’s 2,415 employees redundant in the next three years. In the case that employees opt to leave, they will receive a fixed special payment as defined in the purchase contract. NBG plans to maintain the existing Vojvođanska Banka name and head office in Novi Sad, and will also give an offer for the remaining shares. Together, Vojvođanska Bank and the National Bank of Greece are making it possible (from April 2007) for their clients, and other citizens, to use promotional cash and credits to refinance loans from other banks. With this offer, NBG and Vojvođanska have made a combined entrance on the market and met the needs of their clients.

Guide to the Serbian Banking Sector - 2007

Interview

LOBBYING WITHOUT JUDGEMENT Alexander Picker, Member of the Foreign Investors Council (FIC) Board, President of the Executive Board of Unicredit Bank Srbija plc.

By Mark Pullen

year has passed since our last interview. Do you still believe that Serbia is the land of commercial opportunities? Yes, I still believe it is – in the general sense that Serbia has been advancing very well economically since 2001 and sooner or later (and I hope it’s later) an economic downturn will come. We all know that economies move in cycles, and here in Serbia we haven’t seen a negative economic trend since the year 2000. So the downturn will come, but from the economic standpoint it ﬁnds itself at now, Serbia will be able to weather that downturn. Yes, admittedly, everyone is complaining that things are going badly in Serbia from an economic point of view, though I cannot conﬁrm that. On the contrary, I have some data linked to a survey that’s about to be released by the German Business Community here in Serbia which is

quite positive; and from my personal perspective in banking here, I can say that things are going well in our bank and, more importantly, it is evident that our customers are doing well. In your opinion, what has changed for the better with regard to the business climate in the course of the last 12 months, what remains unchanged and needs changing, and what has changed for the worse? That’s the easy question. Among the positives we have inﬂation, the strong Dinar and the budget surplus, quite sustainable growth, growing industrial production and so on. So, if one goes through all the macroeconomic indicators one will ﬁnd that the situation has got better. What remains to be changed, as always, is related to questions like “if there had been a stable, or more economy-oriented,

Guide to the Serbian Banking Sector - 2007

government, could things have been even better?” The answer, of course, is that we’ll never know. Nevertheless, I certainly believe that we are in a very good cycle. I also believe that with a more proactive approach from the Government, in terms of ﬁnding quicker solutions in privatisation with fewer regulations, we would achieve even higher growth, better production results, etc. That said, I couldn’t really identify what’s going wrong in Serbia. One can always hypothesise about what could have been better, but we have to admit that it could have been much worse. There are other countries that manage to do worse, despite going through a positive cycle. The point is that the investors who are here do like the country, but we are not in a position to eﬀectively get this message across. For example, it’s a fact that there aren’t enough German investors; big and

Interview

small Italian investors are only coming in slowly; investments from other countries are only trickling in. I think much more potential would be realised if we could just sell the country better. That said, I donâ&#x20AC;&#x2122;t see the situation as being bad. With selling the country as an investment location in mind, what advice would you give to those speciďŹ cally tasked with re-branding Serbia? I see the image and the branding of the country as the icing on the cake. Accordingly, one should ďŹ rst bake the cake before adding the icingâ&#x20AC;Ś nice decoration might be attractive and appealing, but if you cut into the cake and ďŹ nd it is rotten then nobody will want to eat it. This last year has seen signiďŹ cant change with the FIC, with a change of presidency, changes to the boardâ&#x20AC;&#x2122;s structure, etc. Has the role of the FIC also been addressed and amended? As with all larger organisations, within the FIC we are constantly asking ourselves: 1.) are we doing the right things; and 2.) are we doing the things right? The ďŹ rst question is the more important one, because this is a question relating to the actual role of the organisation. In terms of the change of the presidency, it is important to note that, as we are the Foreign Investors Council, there are a lot of foreigners who tend to stay for only a certain period of time. Mike Ahern [former FIC president] decided to leave after spending four or ďŹ ve years in Belgrade, and we were very proud that we were able to ďŹ nd a replacement of the calibre of BoĹĄko KostiÄ&#x2021;. Heâ&#x20AC;&#x2122;d retired after a very successful career with RaiďŹ&#x20AC;eisen â&#x20AC;&#x201C; which, as a competitor, is something I admit through gritted teeth â&#x20AC;&#x201C; and, for us, provided the perfect match of being both a Serb and someone who has spent much of his career working abroad; he provided the fusion of the international community and the Serbian community and we were very proud that he accepted the position. In terms of the structure and direction, even before Mike Ahern became the pres-

$OH[DQGHU 3LFNHU 3UHVLGHQW RI WKH ([HFXWLYH %RDUG RI Unicredit Bank Srbija plc. ident we were rethinking our impact, and the hows and whats of our activities. And, as BoĹĄko KostiÄ&#x2021; himself said in one interview, â&#x20AC;&#x153;we really hope that the FIC will one day cease to existâ&#x20AC;?. Why? Because in a stable economy you might need an AmCham or a German Chamber of Commerce, but you certainly donâ&#x20AC;&#x2122;t need a lobby organisation like the FIC. I think itâ&#x20AC;&#x2122;s a good idea for us to have just a temporary function. This point brings me on nicely to the White Book â&#x20AC;&#x201C; the latest issue of which will be published soon. We were, in fact, discussing when we are going to publish the White Book just yesterday, simply because we want someone in the government to be there to pick it up and follow it through. This year weâ&#x20AC;&#x2122;ve made the White Book more user-friendly, i.e. more concise and readable, whilst still comprising all the knowledge scattered among our more than 120 member companies and

the contributions of the best brains. These contributors are there to present something to the government that is our way of saying â&#x20AC;&#x153;these are the issues. Please do something about them.â&#x20AC;? Following the change of presidency and changes to the board membership, is the FIC still really a council of foreign investors â&#x20AC;&#x201C; considering that there are more domestic representatives than before? I would say that that is a normal development. You start oďŹ&#x20AC; with foreign foreigners, then as things develop you start to take in repatriated nationals whoâ&#x20AC;&#x2122;ve been working abroad â&#x20AC;&#x201C; such as SrÄ&#x2018;an JanjiÄ&#x2021;ijeviÄ&#x2021; who has been working in Russia and elsewhere, or MiĹĄa Crnobrnja, whoâ&#x20AC;&#x2122;s been all over the world, or Nenad VuÄ?eniÄ&#x2021;, who could be Swiss or Austrian or Serbian â&#x20AC;&#x201C; as a natural way of ensuring

Guide to the Serbian Banking Sector - 2007

Interview

that more so-called ‘home-grown’ professionals take more responsibility. Our bank is also an example of this: at the peak time we had more than 15 expats from various countries working here, now we are down to just three. And I think that trend is the right way to go. Could you give us an example of how successful the FIC has been in influencing representatives of the Serbian Government? This is a good and difficult question because if, for example, we encourage the government to do something that is seemingly obvious and then it is done, the question arises over whether this was down to the efforts of the FIC or not. That said, I do think that we have managed to bring some very obvious issues to the fore: if you take a look at the editions of the White Book over recent years, you will note that a lot of the issues raised in them can now be ticked off as being ‘done, done and done’. I am modest enough to admit that these steps have not been achieved purely through the efforts of the FIC, but I do think the FIC’s added some weight to some of these questions and I think this represents the major impact of the Council. There are, of course, other so-called lobbying organisations here, and with them we are trying to pull on the same strings: we work together with AMCHAM, the German Business Association, the Italians, the Austrians, the French, you name it. We also work closely with SIEPA and the Serbian Chamber of Commerce. And I suppose the cross-over membership is also an advantage? There is significant cross-over membership, but also institutional co-operation, particularly with the IMF, the World Bank, the EBRD. Indeed, I really think these organisations are not competing but rather complimenting each other by pulling on the same strings and dividing their focus. For example, we recently had a joint dinner for AmCham and FIC members at which we basically agreed who was doing what on which committee and with whom.

The new White Book is almost ready. Could you give us some insight into how it has evaluated the current economic situation in Serbia? I think we can give you some ideas, but I think the most important thing to note is that the White Book doesn’t give any judgements on anything. We are not going to say whether we think the government is doing well or performing poorly, we are simply going to publish our opinions on what should be done and what we think should be a priority for the government, government institutions, the National Bank of Serbia and so on.There is no general assessment of progress in the White Book and we are we not there to praise or criticise the government. That said, I personally think the outgoing government has done quite a fair job and have been good in a lot of instances. However, I do think a lot could have been done better – as is the case with every government. And how exactly does the White Book attempt to alter priorities and get certain issues oﬀ the government’s backburner? Basically, if it’s not mentioned in the White Book it is not considered as being

many potential foreign investors. How much of a factor is the White Book’s influence on potential investors? I think its influence is real, which is why we have been thinking about what we could do to help potential foreign investors, for whom the White Book is of limited value. This is why we decided that from this year, in addition to the White Book, we will be publishing the so-called ‘Green Book’ as a guide for foreign investment in Serbia; a publication that will provide the route to the green lights for greenfield investment. Away from the FIC, how would you assess the current state of the banking sector in Serbia and what do you expect to take place in the near future in this sector? The situation has come as a big surprise to me. A year ago I was saying that I expected quick consolidation of the banking sector. That has yet to happen. What does this mean? Well, as in nature, the storm that follows an extremely long dry period is even heavier than a normal storm. So, I am concerned about the potential for a heavy consolidation than that which has been predicted. For me, it’s not a question of if this consolidation will happen but

Internally, the FIC still tries to cater for the needs of its members and, although we have held fewer events during the past year, I think that the events we have staged have had added value and impact. that important by the foreign investment community in Serbia. And if it is mentioned, it is our way of saying ‘this is important to the investors’ community’. In a way, we are here to help the government put its money where its mouth is; they said ‘we want foreign investment’, so we say ‘here we are. We’ve done the investing, now you can (for instance) lower the entry level, tackle the overregulation that is evident in a lot of cases, deal with the tax issue that makes it diﬃcult to get money out of the country, etc.’ The White Book is authored by existing investors and aimed at Serbia’s state and government institutions, but it is still considered as essential reading by

Guide to the Serbian Banking Sector - 2007

simply when. 37 banks is far too much. Funny things have also happened: banks have bought other banks and done nothing with them. For instance, the National Bank of Greece bought Vojvođanska banka some time ago, but it was only the other day that I saw the announcement that they are going together; OTP has bought three banks in the country, but as yet I don’t see the consolidation. There are even new entrants: one of our large foreign competitors, KBC, has come in and bought A Banka, and Citibank is also coming here. So, it’s cutthroat competition here on the market. This, at least, is good for the customers, but the pace at which the banks are moving now makes it is very diﬃcult to say who will survive on this market.

Guide to the Serbian Banking Sector - 2007

SOLUTIONS IN A TRANSPARENT,

Panagiotis Vlasiadis, President of the Executive Board ALPHA BANK SRBIJA A.D. (plc)

hat is your evaluation of the overall banking sector in Serbia? This sector is emerging from the transition period much stronger than before. The quality and ﬁnancial strength of the majority of the participants is unprecedented for Serbia. The number, though, of participants is still relatively high compared with the evolution of the ﬁnancial requirements of the economy. This relatively high number of banks

results in market fragmentation. At the end of 2006 almost 13 banks had a market share of three per cent or higher. Competition at the “high-end” of the market (quality borrowers) is very strong. The relatively limited range of “true products” and the relatively low sophistication of the market have led the majority of banks to focus competition merely on the pricing of products and services. Unfortunately, some of the participants operate at cost, or even below that, in their quest for “market share”. This fact will soon cause some of the banks to redevelop their strategy for Serbia. It is not reasonable to have 16 banks claiming that they target a ten per cent market share. We are quickly approaching the stage where “mass products” (like consumer credits and cash loans), will lose their appeal due to the end of the catching-up period. The recent example of ten-year consumer credits is just an example of banks trying to keep alive a serious of products that no longer fit the true requirements of the consumer. The next stage will see more specialised offers by banks; offers that focus on providing solutions to clients as opposed to just disbursing loans. This stage will require a different set of employees as well. Now the need for “customer service” in a transparent manner becomes pertinent. In my view, it is the stage of development that will allow the separation of the “market leaders” from the “participants” in the Serbian banking market. How would you assess the operations of Alpha Bank over the course of the past two years?

Guide to the Serbian Banking Sector - 2007

Alpha Bank in Serbia had its own transition period: the conversion of a passive yet relatively healthy bank (Jubanka) into a modern, client-focused operation. This is by no means an easy task. We had to work a lot (and we still are) with our people. Training and customer service attributes are the areas we focused on more, as well as a multilevel eﬀort to simplify processes and increase eﬃciency. We are growing steadily, but the most important thing is that the growth is well founded on knowledge, the ability to judge and a focus on client require-

ments. We build for the future. For a bank which has been operating successfully for 166 years, we can expect nothing less. The very philosophy, the business model of the Alpha Bank Group is “MAZI” / Together / Zajedno. We do this in a transparent, responsible and reliable manner wherever we operate. Alpha Bank bought the then well known Jubanka. How would you now value that takeover; was it really a good move for your bank?

FOR CLIENTS RESPONSIBLE AND RELIABLE MANNER The acquisition of Jubanka in 2005 provided the impetus for the operations of the Group in Serbia. Despite the complex and difficult transition period, we are confident that the expanded presence of the Bank, and our model of operation, will yield fully satisfactory results in the years to come. We already, as transition ends, see extremely healthy volume increases. What is more important, though, is that such increased volumes are coming from the activity of our existing staff, and they are a result of confidence and knowledge. With such qualities we will continue growing sensibly. Are you considering purchasing any other smaller banks in Serbia? We have now achieved nationwide coverage. This year we will have 130 branches and that number will grow further in the years to come. As we have the power to grow organically at a very fast pace, I do not see the need for the acquisition of a smaller bank simply because such a bank does not have anything that we do not have (including systems and people). We cannot, though, be dogmatic on such issue. We regularly review the market and participants to assess opportunities, although some banks are coming at a price which is now unjustifiable for Serbia. Considering the number of Greek banks present in Serbia, we can conclude that the Serbian market is extremely interesting to Greek bankers. Why do you think that is so? South Eastern Europe as a whole is extremely interesting for Greek banks and, in fact, features very high in their strategic plans. The growth of these markets is

expected to be much higher and to last much longer than the one on the Greek market. Greek banks believe (and perhaps rightly so) that they are closer to the mentality of the countries of the Balkan peninsula and it is a fact they can relate to the prevailing conditions in these markets much more easily than any other bank. I ﬁrmly believe that Greek banks are here

to stay and grow substantially. How are you planning to compete in the already very competitive Serbian market in the coming period? Our strategy on competition is “solutions for our clients in a transparent, responsible and reliable manner”. I believe that sentence says it all.

Guide to the Serbian Banking Sector - 2007

Interview

SERBIA INTERESTING TO Vesna Mukaetova, Acting Director Serbia, EBRD

„It is obvious that the consolidation of the banking sector in Serbia will continue. EBRD will support this consolidation, as this is one of the Bank’s priorities in the next period.“ By Tatjana Ostojić

hat are the priorities of EBRD for Serbia in the next period? EBRD prepares a Strategy Paper for its activities in the country every two years. This is a public document that we coordinate with the authorities here in Serbia, that is, with Government officials in charge we determine the priorities for the next two-year period. The EBRDs’ Board of Directors approved the new Strategy Paper for Serbia on the 20th February this year. This is the latest document on our strategic orientations in the next two year period. Our focus will be on three main areas: the so-called corporate sector, then infrastructure and financial institutions. In the previous two-year period our focus was mostly on financial institutions. However, as this is the sector, where the reforms and privatization are almost complete, our focus in the next two year period, shall be on the corporate sector. This, however, does not mean that we shall

cease our investments in the financial sector, but it means that we shall focus more on the Serbian corporate sector. Basically, our focus will be on financing local, private, successful companies. Also, EBRD plans to support the privatization and post-privatization restructuring of companies, since our goal is to encourage foreign investors as much as possible, to come to Serbia and to work together with us, especially in the field of post-privatization restructuring of companies. We would also like to encourage foreign investors to invest in new green field projects, for which Serbia offers excellent opportunities. Our task is to encourage them to come and work with the local companies, while we will offer financial support to such investments. We shall also focus on the possibilities for crossregional expansion of local companies. Namely, there are companies in Serbia that, over the past period, have reached a certain level of development which enables them to consider expansion within the region. We have witnessed the same tendency in the previous pe-

Guide to the Serbian Banking Sector - 2007

riod with companies from Slovenia and Croatia, and now we see that the same trend is also present in Serbia. EBRD is interested to monitor development of those companies and to support them financially with a set of financial instruments, ranging from loan to equity. Such cross-regional projects contribute not only to regional expansion of those companies and increased employment but also to overall economic and political integration of the region. There are already examples of companies in Serbia that have expanded regionally. For instance, Hemofarm is among the first companies that has expanded regionally, through its successful investment in Russia. Another example of a successful regional expansion is Sintelon that has a joint investment in Russia and in Ukraine with its French partner. What are the EBRD planned activities in support of SMEs? Within the corporate sector financing, we plan to intensify financing of small and medium size companies. Beside the traditional forms of financing

Interview

CONTINUES TO BE FOREIGN INVESTORS

Acting Director Serbia, EBRD that we support through credit lines with local banks, EBRD has also established a new ﬁnancial instrument, the so-called Western Balkan Facility (ﬁnancing earmarked for the Western Balkan countries), which involves cer-

tain amount of ﬁnancing mobilised by the EBRD together with the Italian government in support of SME investments, primarily through equity ﬁnancing. This instrument has been intended primarily for successful small

and medium size companies that need financing through equity investments, due to lack of similar financing available locally. We would like to promote this new financial instrument in Serbia. In support of SMEs the Bank has also

Guide to the Serbian Banking Sector - 2007

Interview

developed other instruments like for example the TAM and BAS program, financed through technical assistance, that provide assistance to companies in the form of advice for reorganization of operations, management training and planning, advice on product range improvement, technical improvements, as well as assistance in preparation of business plans, in order to present themselves for financing in the best possible way. This assistance enables the companies to become more competitive on the domestic, but also on foreign markets. The TAM and BAS programs are within the EBRD, although independent from us; there is a correlation in our operations, in terms of identification of successful companies for financing. Talking about sectors that we are interested to invest in, the agribusiness and the primary sector are two traditionally well developed sectors in Serbia. We see possibilities to consider financing of certain companies in the agribusiness, but also in financing companies in the property sector ranging from residential to business facilities, hotels ect. What are the EBRD priorities in the infrastructure sector? Speaking about infrastructure, we shall continue to focus on the transport sector projects (roads and railways primarily). This particularly refers to Corridor 10, that links the northern part of Serbia with the south, from the Hungarian border to the border with Macedonia and Bulgaria. We would like to complete the Belgrade by-pass project and also identify similar projects with other, larger cities in the country. As you are aware, we have a successful cooperation with the City of Belgrade on infrastructure projects and we would like to replicate those projects, if possible, with other bigger cities in Serbia. We shall continue to focus on energy sector projects, everything that has to do with energy savings,

and of course, we hope to continue the dialogue with the Government regarding reforms in this sector. What are the EBRD priorities in the financial sector? The ﬁnancial sector is a part of our strategy, and has been in our focus especially in the previous two years. The results of the drastic reform that

of these regulations might inﬂuence the possibility for new projects with the banks. I refer primarily to the minimum reserve requirement, which is quite high for borrowings from abroad (around 45 percent), and which generally does not diﬀerentiate between the intended use of funds, be it consumer loans, mortgage loans or SME loans. As agreed in our strategy, the EBRD will

Vesna Mukaetova the Government implemented at the beginning of 2001 are obvious today. There is a strong, fast growing and stable financial sector with good financial standing. The competition is strong on the financial market. There is a large number of foreign and local banks in the Serbian banking sector today, in total 37 of them. The supervision performed by the National Bank of Serbia is very professional; there are strong regulations and a number of controls, which is a good thing. However, some

Guide to the Serbian Banking Sector - 2007

continue its eﬀorts to ﬁnance SMEs, as well as to increase further the number of credit lines for mortgage loans. There is a considerable number of banks on the market, 37 of them, with total assets of approximately EUR 15 billion. On the other hand, when you look at the structure, the top ten banks have total assets of around EUR 10 billion, or more precisely, they control 67 percents of the market. The last 15 banks on the other side, have less than one percent market share each, represent-

Interview

ing in total around ten percent of the banking assets. The reason why I emphasise this, is that is obvious that the consolidation of the banking sector will continue. One of the things we plan to assist with in the next period is in this consolidation. We also plan to assist the banks with introduction of new financial products, in order to develop the financial market. We will primarily focus on various credit lines for energy saving projects, as well as for financing public utilities at municipality level, instruments for risk sharing, securitization, etc. In the non-banking financial sector, we see that reforms that have been implemented in the banking sector are now extended also to the insurance sector. The EBRD supports the Government policy in this sector, and we believe that with privatisation of the large insurance companies this process shall be largely completed. The EBRD will also consider cooperation with non-banking financial sector, in the field of insurance, pension funds and leasing companies. What are the results of EBRD so far? Over the past six years in Serbia, our total cumulative business volume reached more than EUR 1 billion, for a total of 69 projects. Only in the last two years we have almost doubled our exposure, by investing some EUR 545 million. Our portfolio is still dominated by the investments in infrastructure, since we have invested significantly in infrastructure projects, followed by financial institutions and corporate sector. Our total portfolio in the financial sector is EUR 206 million, and those are mostly credit lines to banks and equity investments. We have invested in different credit lines, like for mortgage loan, SME and various funds. If we exclude mortgage loans from our total portfolio in financial institutions, around

EUR 170 million have been invested in the corporate sector. This amount also includes big companies, but it mostly refers to SMEs. EBRD finances the corporate sector also directly, not only through local banks. These are mostly large companies, and so far 25% of our total portfolio, or over EUR 240 million, is in financing companies from the general industry, agribusiness sector, telecoms and property. Our focus in the next period will be on the corporate sector as a whole, including small and medium size companies by credit lines to the local banks, as much as the regulations will allow. EBRD policy is to foster competitiveness and develop capital markets, and our financing has market conditions with regards to pricing. Does EBRD plan to finance micro enterprises, as well as to offer startup loans? The total commitments of EUR 170 million in the corporate sector via local banks also include financing of micro enterprises. Total of EUR 25 million was only for financing exactly those enterprises. EBRD finances small and medium size companies through credit lines to local banks. The Bank provides a credit line to a local bank for a particular use and agrees the basic parameters for financing with the local bank. However, it depends on the local bank’s policy to what type of business it will direct those funds. Start-up credits are included especially in micro-financing. Therefore, if the business plan is feasible, I believe that the banks will be interested to finance it. Is Serbia interesting for foreign investors? I think Serbia has been very interesting to foreign investors from the beginning, even before the changes in 2000. Although foreign investors tend to get very cautious when there is a certain

political uncertainty in the country, as for example the current lack of Government, and how this can aﬀect the investment climate; then resolving of Kosovo issue and so forth. EBRD has always promoted Serbia, knowing its investment possibilities, institutions and business in general. Existence of one stable political environment is necessary. I believe that when the Government is in place, many foreign investors will be encouraged to consider Serbia as a potentially good regional market with big economic potential. Serbia is a big country in the region, and due to its large market, it should attract interest of foreign investors. However, the reforms are also very important. A great deal of reforms have already been carried out, but we hope that the new Government will be reform oriented, and that the reform process will intensify, like for example the privatization of large companies, that is still pending. EBRD would like to work with foreign investors, and we think that the investment climate in Serbia will continue to be favourable for foreign investments. It is true that the reform process has been slightly delayed due to the lack of government, but this doesn’t mean that it has stopped. Everybody is in expectation; the EBRD has had contacts with few potential investors, who are also waiting for the Government to be in place, in order to undertake the next steps for the business they want to start. Process of restructuring and privatization of large public utilities. Speaking of public utilities, I think that much has already been done, especially in the energy sector, railways, roads and ﬂight control. Restructuring of public utilities is complex process and can not be completed fast, overnight. The experts have already started the process, we expect it to continue and we are encouraged by the results so far.

Guide to the Serbian Banking Sector - 2007

YEAR OF A year after the contract between Serbia’s Delta Insurance and the Generali Group was signed, Nebojša Divljan, Chairman of Delta Generali Insurance Administration, says that the expectations of both the domestic insurer and its foreign partner have been fulﬁlled. “During the takeover we made a medium-term plan. The plan for this year has been exceeded by all parameters,” says Divljan, who is also Chairman of the Management Board of the Association of Serbian Insurers.

Nebojša Divljan, Chairman of Delta Generali Insurance Administration and Chairman of the Association of Serbian Insurers

What are the positive effects of the co-operation established between Delta Insurance and Generali? The company’s image has certainly been improved, simply because Generali is the third largest European insurer. Trust is the number one factor when it comes to insurance, and the whole industry had a questionable image in the past. It is precisely the entry of Generali, and some other European companies, as the owners of domestic insurers that has led to the elimination of any question marks over trust and security. The second benefit we have brought is a list of clients obtained via the contracts that Generali has with those clients’ parent companies in Europe. The third advantageous effect is the technological contribution, i.e. improvements to products. With the entry of Generali and a couple of other European companies, we can say that every client in Serbia has received an offer of insurance at a level comparable to serious European markets.

Guide to the Serbian Banking Sector - 2007

GOOD RESULTS Could Delta insurance have survived on the domestic market without this partnership? We had great faith in market development based on our own [Delta Insurance’s] strength. As the insurance market is still dominated by simple products, we could develop well for at least for some time, and without any technological improvements. We also have sufficient capital of our own, which is why we didn’t offer our company for sale on the market, at least in a classical sense. The only company we negotiated with was Generali. They were determined to enter the Serbian market, but their first ‘picks’ were state-owned companies. However, once they became acquainted with Delta they recognised us as a company with clear balance sheets, without any dubious past activities and a team of employees that spoke their business language. Admittedly, the previous acquisition of Delta Banka by Banca Intesa had a certain influence, because Intesa and Generali enjoy close co-operation – a fact that is itself a very important argument for the perspective of our insurance company. How would you evaluate the current competition on the insurance market? The reform of the insurance sector started three years ago with the passing of the new law and the establishing of the supervisory body within the National Bank of Serbia [NBS]. For the first time in many years, this was organised in such a way that it now facilitates the comprehensive supervision of this very complex industry. Objectively speaking, our reforms started a couple of years later than those of the banking sector, but they were equally energetic and have been led by an institution [the

NBS] that has also proved very successful in the reform of the banking sector. Many speculative players were eliminated from the market and, afterwards, the NBS attempted to improve the functionality of the insurance industry by combining classic supervision and control, with education. The initial results are already there and, for the first time in the recent history of this industrial branch, insurers really do have a level of reserves that they can use to invest in the capital market. As such, the rating of the industry itself is improving within the national economy and the industry’s recuperation can also be witnessed by looking at profits recorded in 2006. In truth, a fair portion of overall profits have been derived from the increased value of shares in portfolios –

this especially pertains to bank shares. The proﬁles of market participants are, though, still varied: we have two big state-owned companies, while all the others are private and the majority of them are controlled by foreign capital. The market game was greatly enhanced by the passing of the Law on Public Procurements. I tend to say that this law should have been invented for insurance services alone, if for nothing else. Prior to that, it was almost impossible to envisage private companies insuring large “corporate” clients. Nowadays, though, the market is active even in the corporate sector, while in the retail sector competition was always present. It is essential in that sector of insurance to always apply the rules of market participants equally and fully

DELTA GENERALI PRIVATE HEALTH INSURANCE Keeping pace with developing market needs, back in 2005 Delta Generali Insurance became the first insurance company to include private health insurance packages in its wide offer. This type of insurance provides privileged treatment coverage to policyholders of Delta Generali Insurance; payment for all costs of treatment performed in the network of health institutions, or in health institutions of choice. For foreign citizens working in Serbia, this represents a comprehensive solution for their health insurance. For the time being, private health insurance can be provided by employers for their employees and family members. Until the end of the year, private health insurance will also be offered to the general public. The maximum health coverage insurance policy is represented by the sum of €100,000. Delta Generali Insurance’s network of health institutions covers over 120 eminent state-owned and private clinics in Serbia. Holders of the company’s private health insurance receive privileged treatment at all health institutions that have a Co-operation Agreement with Delta Generali Insurance. In order to improve the provision of private health protection to policyholders, a call service has been established: ‘Medic Call Centre’ through which health professionals offer complimentary medical assistance 24-hours-a-day, 365-days-a-year, to all Delta Generali private health policyholders.

Guide to the Serbian Banking Sector - 2007

for all. Not everything is ideal, but it should improve in time. How do you envisage the Serbian insurance market a couple of years from now? The total insurance premium in Serbia is around 2.1% of total GDP, which matches our level of development. That penetration will rise to three per cent when average income per capita reaches U.S.$6,000. For the time being, annual growth rates for the insurance market are 10-12 per cent, but as the GDP per capital nears the level of U.S.$5-6,000 that growth will also accelerate. We are aware of that, but all the other potential investors in the insurance market in Serbia are also aware – thus the reason for such a large number of acquisitions. At present, there are no major aspirations for greenfield investments. The only possible developments are in new insurance products based within banks. In truth, though, there are two more European companies planning greenfield entry into Serbia, though I feel that they will fail to flourish. The number of players will more or less stay the same. There are two or three Serbian insurance firms that could still be purchased by larger insurance companies, but their owners’ expectations are exaggerated. Indeed, they are expectations based on the evident lunacy of prices on the Belgrade Stock Exchange. Professional insurers, undoubtedly, will not pay those prices. Are you satisfied with your business operations in 2006? Last year we experienced growth of around 45 per cent in all lines of operations. Our highest growth – of 80 per cent – came in the life insurance sector. We have invested much effort into developing our life insurance sector and this is already yielding results. We also had excellent growth in fullcoverage insurance, but that is becoming the most risky sector. Other insurers share that opinion, simply because

ance package oﬀers almost unrestricted funds for health insurance needs during a year. Our network of clinics and hospitals covers the VMA (Military Medical Academy), Bežanijska kosa, GAK Narodni front and all private clinics. Of course, this insurance is not yet available to the public: we sell it as a corporate package, paid for by the employer, and have achieved excellent results in insuring foreign companies, representative oﬃces and some large embassies. The future will see us pay even more attention to this type of corporate insurance. The entire industry is set to experience fresh incentives and a growth spurt in the life insurance sector – though this will come only after the establishing of an adequate legal climate. In my opinion, it is crucial to develop tax incentives for investors in life insurance, because they are a factor in the development of the country’s economy.

Nebojša Divljan the last two years have seen full-coverage insurance experience a boom related to its obligatory nature for vehicle purchases. Despite that boom, though, leasing companies have quickly grown accustomed to battling on their market for the last drop of insurers’ blood. They constantly look for actions, so-called ‘free comprehensive insurance’, which has caused prices to deteriorate markedly. The epilogue to this will be substantial price growth in the coming period. Where will Delta Generali focus its attention in the near future? We will focus on the whole life, pension and health insurance sector. Many people aren’t aware that we were the ﬁrst insurer on the market to launch complete private health insurance packages – as early as 2005. This insur-

Guide to the Serbian Banking Sector - 2007

How would you compare the Serbian market to other markets where Generali operates? Generali has companies in ten Central and Eastern European countries, which are operated via Generali Holding in Vienna – under the one hundred per cent ownership of Generali Italy. Here at Delta Generali Insurance we expect to end 2007 with a 14 to 15 per cent market share, which would place us in third place behind our colleagues from Austria and Hungary. According to returns related to invested capital, however, we are currently generating the most proﬁt. In terms of the absolute volume of premiums, we expect to yield €70-75million this year, placing us somewhere in the middle [of the leading Generali insurers]. In contrast, Generali Hungary will have a similar market share but will yield around €500million. This is a reﬂection of the size of the market. So, the market is still small, but exciting nonetheless… Like everything else in this country.

Guide to the Serbian Banking Sector - 2007

INSURANCE

GROWTH IN FOREIGN PARTICIPATION In the last year the Serbian insurance market has been adjudged as being very dynamic, and such a trend is extremely likely to continue in the future.

By Lela Saković

t could be said that the Serbian insurance market developed rather dynamically in the last year, and there is a genuine expectations that such a trend will continue in the future. Several foreign insurance companies bought major shares blocks in domestic insurance companies and yet more interest still exists: one greenfield licence for the field of life insurance has been granted and it is expected that there will be more. Furthermore, experts predict the consolidating, i.e. merging, of smaller domestic companies as a way of surviving in the face of stiff foreign competition. The positive story would be rounded-off if the privatisation of DDOR Novi Sad - one of the two biggest domestic insurance companies with major state ownership, controlling a third of the total market – had been completed. However, the plan to sell DDOR was postponed ‘until further notice’ and for the time being we can only guess what the further development of this case will be. The purchase of several domestic compa-

nies by major international companies has caused a new balance of power in insurance: only three years ago the participation of foreign ownership in domestic insurance companies was only one per cent, but at the end of last year it had reached a whopping 50 per cent! As regards their participation in the full premium, at the end of the third quarter of last year (according to oﬃcial data of the National Bank of Serbia (NBS) where the supervision of insurance companies is carried out) those companies with major international ownership participate with 26.4%, and in the total capital they participate with 25.5%. Simultaneously, they occupy 83.5% of the life insurance market. Not that long ago, more than 40 insurances companies operated in Serbia, and more than half dealt exclusively with compulsory vehicle insurance. The biggest complaint could be heard regarding the inadmissibly low premiums which later caused the non-payment of damages, and the ‘good business’ was the transfer of money through connected companies. More than half of those companies have

Guide to the Serbian Banking Sector - 2007

since lost their licences. Soon after, foreign companies started to show an interest in penetrating the Serbian market – initially by purchasing shares of domestic companies, and later through greenﬁeld investments. While previously only three companies were owned by foreigners (Wiener Städtische, Grawe and Millennium) now, apart from Dunav and DDOR, only a few of the existing 14 insurance companies have remained in domestic hands. Firstly, Italian company Generali announced the purchase of 50 per cent (plus one) of shares of Delta Osiguranje – a company that, in terms of size, was the third biggest nsurance company in Serbia and the biggest private insurance company in the country. The price actually paid by Generali Group remained a business secret. However, the motivation of the Italian company – the third biggest in Europe – to come to Serbia was ‘the favourable economic ﬁgures and low level of the presence of insurance in the country’. The next acquisition came with Uniqa’s purchase of 80 per cent of Zepter Insurance for a price of €16million. Zepter Insurance

INSURANCE

was most represented in the ﬁeld of life insurance, which accounted for 70% of their business. Uniqa is the biggest insurance company in Austria. According to this company’s commercial director, Gerald Miller, what attracted them to Serbia was the “growth of the GDP, the positive economic situation and positive expectations regarding the issue of the sustainability of economic development”. Slovenian company Triglav, which previously operated on the whole territory of the former Yugoslavia (and left behind companies which they are now re-buying), became the owner of 95 per cent of Kopaonik Osiguranje – its own ‘successor’ in Serbia. Kopaonik controls around three per cent of the Serbian market, and the global determination of Triglav, which has over 42% participation on the market in Slovenia, is to control around 10% of the market everywhere in the region where the company operates. Another Slovenian company, Sava-RE, became the owner of almost 99 per cent of Polis Osiguranje, which participates on the Serbian market with around 1.7%.

At the end of November, the NBS granted the first licence for greenfield investment in the insurance sector to Credit Agricole Life, the life insurance company whose founder is the French Credit Agricole SA – the third company in France for all kinds of insurance and the second for life insurance. According to some estimates from the end of last year, the market in Serbia is worth around €480million per year, and even though the official data on insurance companies operating in 2006 is still not complete, it is estimated that the growth was between 10 and 15 per cent. The same rate is also expected for the current year. The growth trend started as far back as 2005, when total premiums increased by 53 per cent and life insurance premiums rose by 96 per cent in comparison with the previous year. In the same period, the participation of the insurance premiums in the GDP increased from 1.7% to 2.1% and the total premium per capita increased from €38 to €55 (it is estimated that this amount will reach €70 in 2006). According to NBS data from the third

quarter of 2006, the total insurance premium was €363million, which represents growth of 12 per cent in comparison with the previous year. The participation of non-life insurance (89.3%) showed a drop in comparison with the same period in the previous year (from 92 per cent). The life insurance premium increased in comparison with the previous year by 49 per cent, and its current participation in the total premium is 10.7%. This is a signiﬁcant improvement in comparison with the previous period, but is still low when compared with developed European countries. With the involvement of banks in the sale of insurance policies, the growth of life insurance is expected to mirror the experiences that European Union country members have had. Growth is also evident in voluntary health insurance, where the participation in the total premium increased from 2.2% in 2005 to 3.3% in 2006. The faster development of this kind of insurance can, however, only be expected after the detailed reform of health insurance. The ﬁve leading insurance companies, according to the achieved total premium, cover

Guide to the Serbian Banking Sector - 2007

INSURANCE

as much as 85 per cent of the market, and the first two among them cover as much as 65 per cent of the total premium and 71 per cent of non-life insurance, which shows that the concentration of the market is very pronounced. The total assets of companies in this domain increased by 37 per cent at the end of the third quarter in 2006, in comparison with the same period in the previous year, while the balancing sum was unequal by companies. Car insurance, which is compulsory, encompasses around 1.8 million citizens, and at the end of the third quarter in 2006, 20 companies were dealing with this. In this segment too there is an obvious concentration of portfolios because the two biggest companies cover as much as 58 per cent of the market. The whole story would have had an interesting conclusion if the sale of the major block of shares in DDOR Novi Sad, which was announced for 12th December last year, had continued: in spite of the great interest, at the end of November the Agency for Insurance Deposits decided to postpone this process until March 2007. Namely, the Agency firstly announced the tender for the sale of 80.12% of the shares in DDOR, where apart from the 50% of state shares, 30% of the shares belong to the Slovenian company, Publikum. A total of 13 candidates applied for the tender, which also included the ‘international elite’. The unofficial favourite was the German Allianz, whose annual gross premium is around €100billion, they were closely followed by French company AXA, which has shown major growth particularly through acquisitions: Italian Generali, which has €60billion in gross premiums. They were followed by France’s Groupama, Italian Fondaria SAI and Dutch Eureko (which withdrew from the game very quickly), with around €10billion in gross premiums. Then there were also Wiener Städtische, Swiss La Baloise and Belgium Group KBC, which are similar not only in terms of gross premiums (€3.5billion) but also in terms of their ambitions for the Central and Eastern Europe region. The appearance of the companies Czech Pojistovna and German VHV (annual gross premium €1-2billion) was surprising for some people, considering that their current priorities were geographically distanced

from Serbia. Finally, Greek Ethniki and Slovenian Triglav were also interested, even though they have an annual premium of less than €1billion (this tender was the reason for Triglav’s capital share increase of €200million) but are strongly present outside their native countries and their motive is obviously expansion in the region. The assumptions were that the state could have collected almost three billion euros from this transaction. A solid contribution to the good sale prospects of this company were its good business results in 2005 – a year which saw DDOR achieve a gross premium 34 per cent higher than in the previous year, with increased assets of 37.33%. Since the privatisation has been postponed until further notice, some previously interested investors have already announced that

Guide to the Serbian Banking Sector - 2007

they will give up, and the question is whether the price will be able to be maintained at the previous level. According to last year’s announcements, the privatisation of the second major stateowned insurance company, Dunav, will not be up for debate. Finally, what should be expected this year is the division of those insurance companies which deal with life and non-life insurance into separate companies which, in accordance with the Law on Insurance, has to be completed by the end of 2007. This will lead to another “shuﬄe of the deck”, at least as regards the number of participants on the market. Moreover, optimists are hoping that the Law on Compulsory Insurance, for which we have been waiting several years, will be adopted this year.

Guide to the Serbian Banking Sector - 2007

SUCCESSFUL GREENFIELD PROJECT 0RPLU 7DOLĂ˝ Executive Sales Manager of Wiener StĂ¤dtische Insurance

ow well developed was the Serbian insurance market when Wiener StĂ¤dtische Insurance commenced operations here? Wiener Stadtische Insurance received its operating licence on 4th February 2003. At that time the market was pretty unregulated and relatively underdeveloped, while the number of insurance companies was much greater than it is today. Self-responsibility was the dominant insurance option, while comprehensive full-coverage insurance premiums were much lower, as was citizensâ&#x20AC;&#x2122; trust in insurance houses. SigniďŹ cant changes have occurred in the meantime. Principally, I would highlight the role of the National Bank of Serbia, which has inďŹ&#x201A;uenced the regulation of the insurance market in a very constructive way. Regulations passed by this institution have raised the general level of the insurance industry in terms of the accountability of all participants in the insurance market â&#x20AC;&#x201C; be they insurance companies, representatives or insurance brokers. The number of insurance companies has been halved, while full-coverage insurance premiums have grown, life insurance premiums have increased and insurance products have developed.

achieving an overall third place. How does operating in Serbia compare to operations in other countries in the region? In comparison with the operations of other companies within the Vienna Insurance Group, the portfolio share of self-responsibility (i.e. mandatory vehicle insurance) in the total premium of Wiener Stadtische a.d.o Belgrade is much smaller than in the other markets, while legislative changes are also much more dynamic here than on neighbouring markets. The main diďŹ&#x20AC;erences between the banking market in Serbia and those of other countries in the region are that short-term consumer loans are very popular here, while long-term mortgage loans dominate elsewhere in the region. As such, the development of insurance products â&#x20AC;&#x201C; particularly those related to property and life â&#x20AC;&#x201C; and the total premiums derived from long-term credits is much lower in Serbia. This, however, is expected to change soon. Our advantage is that we use the groupâ&#x20AC;&#x2122;s know-how and adapt already tried and tested products to the Serbian market. Furthermore, we are constantly developing new products and enriching our oďŹ&#x20AC;er, which has proved very successful so far.

What is the current position of Wiener StĂ¤dtische Insurance in Serbia and are you satisfied with your standing? After our third year of operations, we have succeeded in placing ourselves in ďŹ rst place in the life insurance sector; we hold third position in full-coverage insurance and we are the market leader in insuring bank interests â&#x20AC;&#x201C; a position we intend to keep. According to our market share in the insurance market, we are the fourth biggest insurance house. We consider all that to be a major success, particularly because we started as a greenďŹ eld project. Our plans are to maintain the number one position in the life insurance ďŹ eld, while increasing our overall market share to more than ten per cent in the next three to ďŹ ve year period and

What can Wiener StĂ¤dtische Insurance offer the market at this moment? There were two ways we could go: the ďŹ rst would be to have price war â&#x20AC;&#x201C; that is short-term strategy â&#x20AC;&#x201C; and the second was to develop innovative products that suit the needs and wishes of policyholders. We selected the second option, whilst also taking care to price our packages appropriately. Through this method we have developed products for small and medium-sized companies, including insurance packages for property and family members, comprehensive full-coverage insurance products and numerous life insurance options. By taking care of our representative and brokersâ&#x20AC;&#x2122; network, we have also adapted and developed products to cater for their needs.

Guide to the Serbian Banking Sector - 2007

Today, we have 34 branch oďŹ&#x192;ces, aďŹ&#x192;liates and sales points throughout Serbia and we employ a staďŹ&#x20AC; of over 700. The key to our development is also reďŹ&#x201A;ected in our employee training programmes. Our development is characterised by the introduction of new technical solutions developed in conjunction with our clients â&#x20AC;&#x201C; be they retail or corporate clients, ďŹ nancial institutions or representatives and insurance brokers. The best example we have is in the sales of travel health insurance, which has been developed to be available via our web application. We can also be classed as being an absolutely secure and eďŹ&#x192;cient insurer when it comes to meeting our obligations â&#x20AC;&#x201C; as conďŹ rmed by the fact that we concluded over 86,000 insurance contracts last year and were recently awarded with the Belgrade Chamber of Commerceâ&#x20AC;&#x2122;s Kapetan MiĹĄa AnastasijeviÄ&#x2021; Prize for the best insurance company in 2006. Nurturing the principles of social responsibility, we participate in various projects of national importance â&#x20AC;&#x201C; such as the â&#x20AC;&#x153;Babyâ&#x20AC;&#x2122;s comingâ&#x20AC;? project, supported by the European Agency for Reconstruction and the OďŹ&#x192;ce of the President of the Republic. We also traditionally invest in the development of sports and culture. How do you envisage the Serbian insurance market developing in the next couple of years? We expect the further development of bank insurance and of general insurance options related to ďŹ nancial institutions. We also expect to see the growth of full-coverage insurance premiums and life insurances, coupled with the development of voluntary pension and health insurance packages. With the arrival of foreign investors, the non-life property insurance segment will be improved. A couple more major players are certain to appear in Serbia, which will only serve to further enrich the insurance market. Accordingly, we intend to regularly monitor market trends and update our product portfolio.

Guide to the Serbian Banking Sector - 2007

Voluntary private pensions

GREAT INTEREST OF FUNDS AND CITIZENS The previous year was marked by changes as regards private pensions – the wheel was set in motion and will certainly not stop easily. By Lela Saković The new Law on Private Pension Funds and Pension Plans came into effect in April last year, and those companies which dealt with private pensions prior to the law’s introduction had to adapt their businesses accordingly. This all came because a few years earlier three domestic companies in Serbia set in motion the story of “saving for old age” – private pensions. The fact that there was no appropriate law governing this issue was not reason enough for these companies to avoid the industry because, according to their claims, “they based their businesses on European standards” which this law must abide by. What was necessary to do after the adoption of the Law was to receive the licence from the country’s national bank – the National Bank of Serbia (NBS) – for carrying out this business – one of the conditions of which was to establish a special association for managing voluntary pension funds. ‘The stumbling block’ was the engagement of portfolio managers, because Ser-

bia had a distinct lack of options in this profession. Delta Generali received the first official licence for managing the voluntary pension fund as early as June, and at the end of the year the second licence went to DDOR Penzija Plus, from Novi Sad; the third company that had previously dealt with private pensions, Dunav Penzije (formerly Dunav TBI), was granted a licence in March 2007. Meanwhile, last year saw Raiffeisen Futura (founded by Raiffeisenbank) offiLast year’s research, carried out by Austrian Bank BA-CA, showed that the percentage of those who are investing in private pensions in Serbia is only five per cent cially appear on the scene, along with Belgrade and Garant, whose founders are the Prva pokojninska družba from Ljubljana and EKI Investment from Belgrade. The Slovenian association for management, NLB – whose major owner is the Nova Ljubljanska Banka – was granted a licence. It is estimated that by the end of this year as many as 10 voluntary pension funds could be granted licences, because

Guide to the Serbian Banking Sector - 2007

the interest is not dropping. Last year’s research, carried out by Austrian Bank BA-CA, showed that the percentage of those who are investing in private pensions in Serbia is only five per cent and, accordingly, our country is at the bottom of the scale for the whole of Southeast Europe. On the other side, the participation of this kind of insurance in the total portfolio is 1.9%, which is a step forward in comparison with two years ago, when the participation was only 0.7%. Moreover, domestic estimates show that almost a third of citizens are interested in investments in those funds, therefore it seems that there will be enough business for everybody. According to the deputy general director of the Sector for the Supervision of Associations for Managing Private Pension Funds in the NBS, Slobodanka Pops Dragić, for the time being there are no strictly defined criteria on the basis of which a sufficient number of funds could be established, i.e. the number which Serbia needs: “we cannot say that this is the number of citizens, nor their payment power, but the market and healthy

Voluntary private pensions

competition will establish the optimal number in the best way.” What should the citizens expect from the offer which is coming? Voluntary private pension insurance is saving for old age, and is different from the ‘state pension’, for which the contributions to the state fund have to be paid by law. For an additional pension, citizens can pay from their own accounts and choose themselves the association which will manage that money. Their pensions will depend on the amount they invest, but also on the skills of the selected association. The time for investing in those funds is unlimited, and the accumulated means can be used after the age of 53. For employers who pay private pension schemes for their employees, the favourable element is that they are freed from taxes and contributions for instalments up to CSD3,000. As regards the security of those investments, risk is decreased to a minimum by legal provisions, considering that the assets of the management association are separated from the voluntary pension fund, thus the clients’ fund-based means are protected from the eventual bankruptcy of the management association (if the management association goes bankrupt, another association carries on managing the pension fund). The law regulates in what, and to which percentage, the money from the private pension funds can be invested. This refers to less risky investments; debt securities issued by the NBS, the debt securities issued by the Republic of Serbia or the autonomous province, local self-government and other enterprisers with the guarantee of the Republic of Serbia; securities issued by international financial institutions, debt securities issued by those foreign countries or foreign companies with the minimal ‘A’ crediting rating, mortgage bonds issued on the territory of Serbia, securities issued by enterprises with headquarters in Serbia which are traded on the domestic market, shares in foreign companies and investment funds which are listed on the

stock exchanges in EU member countries, i.e. OECD, cash deposits in banks with headquarters in Serbia… As regards government documentation, there is no limitation of investments because the experience is that they are the most liquid and safest instruments. However, because of the relative limitation of the market material, if the need

the fertility rate and a rise in the average life expectancy thanks to the progress of medicine, thus the number of pensioners is increasing and the number of those who pay pension contributions is constantly dropping. The situation in Serbia is additionally complicated as regards the number of pensioners, because for years the condi-

arises in practice there is the possibility of this decision being corrected. The limitation of 10 per cent exists for investments in securities of one issuer, or in a total of two or more issuers if they are connected entities. Up to five per cent of the assets can be invested in securities issued by the employer responsible for organising and jointly funding the pension plan. Moreover, up to five per cent can be invested in the bank’s cash deposits and, finally, voluntary pension funds may not acquire more than 15% of the ownership of one issuer, i.e. one company, up to 15% can be invested in real estate in Serbia, but not more than five per cent in one property. Private pension funds are not a solution for current pensioners, but for those who can still invest and whose cash can be accumulated until the time of their retirement. That this is a subject worthy of consideration is proven by the fact that the global trend shows a drop in

tions for retirement were very liberal – the age limit was not changed for a long time, thus people could easily take early retirement and it was easy to pay oﬀ the length of service or go onto a disability pension. As such, we today ﬁnd ourselves in a situation that sees the number of employees approaching the number of pensioners, and the state has to subsidise the pension system by around 40%. The situation is similar in other countries too. According to research into the reform of the pension systems in Balkan countries, published in the Pravni Informator, in the majority of Balkan countries during the 1990s there was an increase in expenses for pension insurance in the GDP from 7.58% to 7.68% in only two years; together with the negative demographic trends and the maintenance of the current situation, those expenses could increase to as much as 25 per cent of GDP by 2050!

Guide to the Serbian Banking Sector - 2007

BIG PLANS The initial results of the work of the Delta Plus Fund are more than satisfying. We expect real development of investment funds in the Serbian market within ďŹ ve years.

force in December last year. Delta was the ďŹ rst to prepare itself to take up its strategic position in the Serbian market. Prior to the start of work of the Fund, an expert team performed analysis of the domestic market and monitored the development and functioning of the investment funds in the countries of the region. The basic problem consisted of the lack of licensed portfolio managers. Nevertheless, we have succeeded in gathering a professional team of people responsible for establishing the association of the ďŹ rst investment fund in Serbia. We have waited for two months to receive our license, and on 8th March this year we oďŹ&#x192;cially started our operations.

5DGPLOD %DMHYLĂ˝ General Manager of Delta Investments

e have waited a long time for the establishment of investment funds in Serbia. We have waited two years in Serbia for the adoption and implementation of the Law on Investment Funds: it was adopted in June 2006 and it came into

How satisfied are you with the results of your Fundâ&#x20AC;&#x2122;s work? The ďŹ rst operating results of our Fund are more than satisfying. On 7th May 2007, the net worth of the Fundâ&#x20AC;&#x2122;s assets was 958,293,166.85 dinars, which is â&#x201A;Ź11,775,073.57; the value of the investment unit on that date was 1,329.86 dinars. According to our expectations, the annual rate of yield should be around 30 per cent â&#x20AC;&#x201C; and in the ďŹ rst two months of operations the Fund has already exceeded this value and earned a proďŹ t of 31 per cent, which is the ďŹ rst indicator of successful operations. In the next period we expect to enjoy further growth of the investment unit. The number of Delta Plus Fund members is growing on a daily basis and in the ďŹ rst two months of operations the

Guide to the Serbian Banking Sector - 2007

Fund attracted nearly 1,000 members. Such a big return is an indicator that people trust Delta and its professional and expert team. In the beginning, one of the sales points of the Delta Plus Fund was in Belgrade, at Milentija PopoviÄ&#x2021;a Street 7b, in Delta Holdingâ&#x20AC;&#x2122;s building. This was done in order to develop the sales network with the growth of scope of operations in towns throughout Serbia, through Universal Bank â&#x20AC;&#x201C; as our sales agent. How safe is the Serbian share market? The Serbian Stock Exchange is pretty young and underdeveloped and, thus, there are underestimated shares that diďŹ&#x20AC;er from foreign Stock Exchanges â&#x20AC;&#x201C; particularly those operating in the European Union for a long period of time and where the political, economic and social situation is much better and more developed than is the case in our country. Our economic situation is pretty unstable, because Serbia is still in the transition period leading to oscillations in the ďŹ nancial market, and therefore in the securitiesâ&#x20AC;&#x2122; market. Another major problem is the political situation in our country: the fact that we do not have Government leads to very high risk rate, but it also increases the yield on them as well. Do you also plan to appear on regional and global markets? According to our Law on Investment Funds, assets can be invested abroad up

to the maximum of 30 per cent of the total Fund value. Investments in foreign markets have been planned. However, all kinds of operations with foreign markets are organised through the custody bank of Delta Plus Fund, and the whole procedure of entry and exit on the foreign markets requires much administration and formalities, which requires a certain period of time. In the future, we plan to ﬁrst invest in the markets of Croatia, Montenegro, Bosnia & Herzegovina and Macedonia, and then in the markets of European Union and OECD member countries. What other plans does Delta Investment have for the coming period? The further plans of Delta Investment pertain to expansion of the sales network and the opening of new investment funds. In the next period we plan to open a more advanced fund, as the fund for appreciation of property value, where one will invest solely in ownership securities. Out of all opened investment funds, this fund carries the biggest risk rate, but the greatest yield. Besides the Delta Plus Fund, there is currently only one other investment fund on the market. By the end of the year we expect some ten of them to open up. What is your opinion about that? Based on the experience of countries in the region and the total fund industry, we expect that within 10 years around 100 funds should operate on the Serbian market, and by the end of the year we also expect around 10 investment funds to open up. The strong start to the operations of the Delta Plus Fund is a sign for competitors to enter the Serbian market of investment funds. How is Delta planning to deal with its future competition? Delta Plus Fund has a team of top experts with rich experience, both in the domestic and the foreign ﬁnancial market. Detailed analysis and long-term

5DGPLOD %DMHYLý knowledge of conditions and operations on the Serbian market have enabled investment of Fund property into securities with the highest expected growth rate. What is your forecast: how is the Serbian market going to look in the

next couple of years when investment funds are in question? We expect the net value of investment funds in Serbia to be around two billion euros within three to four years, but the real investment funds’ development in the Serbian market should follow within some ﬁve years.

Guide to the Serbian Banking Sector - 2007

Investment Funds

THE LAW PROTECTS, BUT RISKS REMAIN Author: USAID Serbia Economic Growth Activity

t present, people in Serbia with some extra money at their disposal do not have a lot of options for investing those funds. They can make ﬁxed-term deposits in banks, purchase securities directly or invest in the products of Serbia’s ﬂedgling life insurance industry.

Two investment funds have been licensed in Serbia since the Law on Investment Funds has come into force. But by the end of the year there are expected to be ten licensed funds. Based on experience from other countries in the region, banks are likely to be the most important players in the market, as they diversify into new products to oﬀer to their clients.

The amounts of money involved are noteworthy – foreign currency savings in banks have reached €3billion, not to mention the funds kept out of banks. All things considered, there are large sums of money available which could be placed in more profitable investments to the benefit of both the investors and the economy. However, individual investments demand significant knowledge and time. There is also the problem of a lack of transparency

Guide to the Serbian Banking Sector - 2007

in domestic securities issuances, because the information required for an investor to make an informed decision is often unavailable. Investment funds are an excellent vehicle for small investors: they provide diversiﬁcation and professional management, and the fees they charge are relatively small. Even if an individual possessed adequate knowledge to invest directly, the costs would still be higher.

Investment Funds

Investment funds offer a variety of potential returns associated with different levels of risk. Open-end funds are the most common – they attract the largest number of investors. This is logical, since they provide constant liquidity (of great importance for small investors), have lower costs, and usually entail less risk than closed-end funds. The primary goal of the law that regulates the investment funds, and adopts international “best practices,” is to safeguard the interests of small investors: the people who want to generate higher earnings on some of their savings than they can get from banks and are willing to accept a higher level of risk. Protection of investors employs several mechanisms. First of all, assets of a management company are held separate from the assets of the fund, and are thus not subject to seizure if the management company goes into bankruptcy. All the assets of a fund are kept with a custody bank, which executes investment orders received from the management company only when ascertaining that they are not in contravention of the law and investment policy of the fund, as set forth in its prospectus and relied upon by investors. In addition, the assets of a fund are evaluated on a daily basis, to determine the value of the fund’s investment units - ensuring that investors are buying fund’s investment units at the market price (custody bank confirms the price on a daily basis). Furthermore, a management company is legally required to notify investors and the Securities Commission daily about the value of investment units, and periodically about the activities of its fund. The law also provides for different types of investment funds, ranging from those bearing the least to the greatest risk. Funds are classified according to their investment policy and the risk entailed. For the purposes of protecting the interest of investors, prospectuses and advertising materials must have warnings as regards the potential risk to investors: this makes it easier to choose funds in accordance with one’s investment goals and risk tolerance. The management company must fully in-

form investors about the charges and fees associated with the fund, since these can signiﬁcantly reduce the potential returns from their investment in the fund. Under the law, the Securities Commission is charged with regulating investment funds and supervising their operations to make sure they are complying with the law. The custodians play an important supporting role here, since they are on the front line and generally the ﬁrst to notice if anything is wrong with a fund and provide an early warning. The role of the regulatory agency is to assure that investors have enough information to protect their own interests and the pay attention to the operations of funds, which in turn makes the job of the regulator easier. The safety of investing should increase if citizens know how the capital markets and investment funds function, what to pay attention to when choos-

Emerging regional trend Investment funds have already taken oﬀ elsewhere in the region. The assets of funds in Hungary are around 9% of GDP, in the Czech Republic around 8%, in Poland around 6% and in neighbouring Croatia they are around 4% of GDP. The value of funds in Montenegro reached €300million last year. In the last couple of years, the growth of investment funds in Croatia has been rather conspicuous. The ﬁrst one started operating in 2001 and today there are 75 open-end funds and eight closed-end funds. In the second quarter of 2007, the value of their assets reached almost three billion euros, out of which open-end funds have €2.6billion. Balanced open-end funds are the largest and have a value of one billion euros; growth funds have around €900million; and money-market funds €500million. It is worth noting that Croatia has implemented the three-pillar pension model. Therefore, besides investment funds, there are also 20 private pension funds: four mandatory and 16 voluntary (out of which 10 are closed-end funds). Pension funds hold around €2.4billion at the moment (out of which €2.3billion are in mandatory funds).

ing a fund, what their rights as investors are, and how to exercise those rights. It is crucial that the government entities involved monitor the development of investment funds (as well as similar vehicles such as voluntary pension funds and other institutional investors) and to recognise their needs and problems, in order to react in a timely manner – by amendments to legislation, incentives to develop new financial instruments (e.g. municipal and asset-backed bonds, depository receipts etc.), enforcement of disclosure requirements, development of rating agencies, etc. It is clear that the development of investment funds is inextricably linked with the development of the domestic capital markets. A scarcity of reliable domestic investment products will either bid up the price, which could jeopardise the funds’ financial foundation, or force the, funds to invest in securities abroad, which would lead to capital drain. Comments that are made public often suggest that it is too early a juncture for investment funds to get started, that the capital market is still shallow, and that there is not a sufficient volume of liquid and quality domestic securities available to meet investment demand. Basically this is a “chicken or egg” question. Institutional investors need to be there to create demand for quality securities, and this then creates incentives for issuing securities that meet regulatory requirements and, thus, are attractive to investors. As such, the focus again returns to the role of the regulators in ensuring proper disclosure of information and enforcing the laws and regulations governing the operations of the capital markets and the responsibilities of issuers and investors. If the law is applied fully and consistently, investors will get the necessary information about funds and risks related thereto. However, the law cannot and is not intended to eliminate all of the risks associated with putting money into investment funds. The basic principle to bear in mind is “higher risk, higher return.” It is up to each investor to decide whether a particular fund suits his needs and tolerance for risk, and to recognise the potential for both profit and loss.

Guide to the Serbian Banking Sector - 2007

Interview

LEGITIMATE MARKET MECHANISMS 'U $OHNVDQGDU *UDĂżDQDF director of the Serbian Shareholdersâ&#x20AC;&#x2122; Fund The Shareholdersâ&#x20AC;&#x2122; Fund has so far privatised 998 companies by selling state-owned minor share blocks in those companies, thus increasing the Serbian Budget by â&#x201A;Ź523.5million.

By Tatjana OstojiÄ&#x2021;

t has been ďŹ ve years since the Serbian Shareholdersâ&#x20AC;&#x2122; Fund (SF) put stateowned share blocks on the Belgrade Stock Exchange for the ďŹ rst time. Since then, almost 1,000 Serbian companies have been privatised. Those transactions include some very imposing names, such as Apatinska Pivara (Brewery), Soko Ĺ tark (confectionary), Knjaz MiloĹĄ (mineral water), Beopetrol (petroleum), and some less famous companies. SFâ&#x20AC;&#x2122;s results provided the reason to talk to its director, Aleksandar GraÄ?anac What is the Shareholdersâ&#x20AC;&#x2122; Fundâ&#x20AC;&#x2122;s basic function? With the 2001 Law on Privatisation, a new wave of privatisation started in Serbia. Apart from the Privatisation Agency, as the special institution whose aim is to

privatise companies on the basis of stateowned capital within the framework of three laws (The Law on Privatisation, the Law on Agency and the Law on the Shareholdersâ&#x20AC;&#x2122; Fund), the Shareholdersâ&#x20AC;&#x2122; Fund was given the role of implementing the privatisation process in the second part of the privatisation process â&#x20AC;&#x201C; which is partially carried out under the legal regulations from 1991 and 1997. In other words, SF had a portfolio of around 1,200 companies which were supposed to be privatised from that period until 2008. We had a time limit of six years for the privatisation but, with the amendments to the law from 2005, the limit was extended by another two years. SFâ&#x20AC;&#x2122;s main role and intention is to fulďŹ l its main principles, and that is privatisation in a transparent way. We had the task of privatising, through the ďŹ nancial stock exchange, all those share blocks that the state had leftover after privatisation car-

Guide to the Serbian Banking Sector - 2007

ried out according to the old law. We can say that the main role and intention of SF was to facilitate the inďŹ&#x201A;ow of investments by selling minor blocks of shares in those companies then facilitating the development of the equity market through the sale of securities to maximise the income from privatisation as far as possible and to provide equality for all participants on the market. That was the Shareholdersâ&#x20AC;&#x2122; Fund pioneering job. The privatisation process particularly facilitated the development of the equity market and the Belgrade Stock Exchange. The appearance of the ďŹ rst share from the SF portfolio on the Stock Exchange, on 30th April 2002, could be marked as the beginning of the equity market in Serbia. At the moment we appeared with the ďŹ rst companies, there were no more than three or four companies on the Stock Exchange which were sporadically appearing without real, standardised trading methods.

Interview

'U $OHNVDQGDU *UDĂżDQDF GLUHFWRU RI WKH 6HUELDQ 6KDUHKROGHUVÂˇ )XQG The Stock Exchange at that time was not involved in international capital ďŹ&#x201A;ows. Some people criticised the state for not having an equity market strategy, but the state did have one indeed: it chose to sell the shares leftover after the privatisation process on the Stock Exchange. The state could have made another modality in privatisation in which everything would happen in â&#x20AC;&#x2DC;out of stock exchangeâ&#x20AC;&#x2122; transactions. At the moment, an increasing number of foreign companies and individuals are getting involved in the circulation on the Belgrade Stock Exchange, and that tells us that our equity market has become respectable in the region. The expansion of the equity market in Serbia is yet to happen during the forthcoming privatisation of public companies. I expect the development process of

the equity market to speed up then, and the respectability of the equity market in Serbia will reach a higher level, because that will be the additional impulse for the development of the Belgrade Stock Exchange and for a quality level of inďŹ&#x201A;ow of new investments, new capital and new material of a higher quality will appear. What we have managed to do is to succeed in bringing the real sector of the economy, which could really be interesting and attractive, out from anonymity in some way, and take it to the level where we can now talk about the purchasersâ&#x20AC;&#x2122; interest in buying the shares in those companies, that the capital is circulating and that these days the level of corporate management in those companies is on a much higher level than it was ďŹ ve years ago. The ďŹ gures on the business and ďŹ nancial performances of those companies

prove that this is true. How many companies have you privatised so far? To date, we have managed to privatise 998 companies by selling their minor stock blocks and providing the Serbian Budget with â&#x201A;Ź523.5million. Of those 998 companies, 97% were sold on the Stock Exchange, and the remaining 3% were sold through takeover oďŹ&#x20AC;ers or on tender. Why through takeover oďŹ&#x20AC;ers or tenders? When we started the privatisation process, apart from the three aforementioned laws, we also had the federal law on securities. After two years we realised that this law was bad, and it was clear that it had to be changed. The law was amended, but that was not suďŹ&#x192;cient to sort out the ďŹ nancial market and the equity market in Serbia.

Guide to the Serbian Banking Sector - 2007

Interview

With the new Law on Takeover Offers, which came into effect at the end of 2005, we introduced another methodology, legitimate in every market economy, where the companies are being taken over not only on the stock exchange, but also in ‘out of stock exchange’ sales. According to this law, in order for some company to be taken over outside the stock exchange it is necessary for that company to first circulate on the Belgrade Stock Exchange for three months. In this way we established some sort of market equilibrium in the sense that all those shares can be on the market and that the offer and demand determines the price of shares. Did the ‘off stock exchange’ trade open up the possibilities for speculation on the equity market? We could not stop and restrain some market mechanisms that are legitimate in market economies. If a foreign company does not want to purchase the shares on the stock exchange, but wants to do so through a takeover offer, that company has a reason why it does not want to appear on the stock exchange. The stock exchange and out of stock exchange markets exist everywhere in the world. Those are two parallel, i.e. equal, markets. It is only a matter of the company, what is more profitable for it, and that company chooses what it is going to do. The only thing which was perhaps a mistake at the beginning is that a few companies were sold through the takeover offer, and those companies were never on the stock exchange. At that time there was no limitation moment for that, it was introduced later. There was a stock exchange reaction because of that, because some shares went on sale outside of the stock exchange. However, the SF developed its operational strategy in the sense of establishing the share prices. When we established this institution we were aware of the great dangers and problems which can arise when you are selling the shares of companies for which you do not have any marks. The only mark was the bookkeeping price. From that bookkeeping

pany, Jaﬀa Crvenka, Klas Beograd, Potisje Kanjiža purchased by Austrian Tondah, Pivara Čelarevo – Carlsberg Danska, Aleva Novi Kneževac bought by an American company, Mlekara Zemun, Maltineks Sladara in Bačka Palanka bought by a French company, Dunav Grocka bought by an Italian partner, Zvezda Helios Gornji Milanovac, Knjaz Miloš, that was the strongest transaction, Vunizol Surdulica bought by Knauf, a French company, Kopeks product from Novi Sad taken by Viskofan Spain, Mlekoprodukt Zrenjanin Bongrein, by a French company, Soko Štark, Tehnogas bought by Messer, Fidelinka Subotica and Prvi maj Russian Krstur, bought by the Slovaks it. There is almost no company which has fared badly or collapsed. We only had the case of Elkroj, which purchased Alkroj, its former branch, here, but they had to close it down. That was in the textile industry.

'U $OHNVDQGDU *UDÿDQDF price we reach the corrected bookkeeping price, which is called the balanced value. The bookkeeping price was in many cases overestimated, and sometimes underestimated because we wanted to aﬃrm shares through the balanced value, in order for them to become more attractive. We obtained the corrected bookkeeping value by subtracting the debts and liabilities from the bookkeeping price. At the same time we took care that some shares were not underestimated, thus the starting price could not be less than 50% of the corrected bookkeeping price. How are the companies from the SF’s portfolio doing? An exceptionally good example is Alfa Palm from Vranje, another exceptional example is Banini from Kikinda, then Bambi Požarevac, Apatinska pivara, which was purchased at that time by Interbrew, Palanački Kiseljak Smederevska Palanka – purchased by Kolinska – Ruma Guma was bought by The American com-

Guide to the Serbian Banking Sector - 2007

Who were the most frequent buyers – foreigners or locals? Around 20% were foreigners, the rest were local investors. What was SF’s most successful transaction? The most successful was the sale of Beopetrol, which we sold together with the Agency on tender to Lukoil. The FSF had 44.98 % of the shares and the remaining 30% were state-owned capital. We got €51.3million and that was our best transaction. Knjaz Miloš reached the price of €34.6million, Soja Protein from Bečej €22.3million, Apatinska Pivara €18.5million, Salford paid €17.3million for Imlek, Luka Beograd fetched €16.6million, Vital Vrbas earned us €14.4million, Soko Štark €14.3million, Fabrika šećera Vrbas € 9.8million and Potisje Kanjiža earned us €9.6million. Which sale methods do you use on the stock exchange? At the beginning of the privatisation, in 2003 and 2004, SF used ‘the minimal price minimal quantity’ method. That means that we used to sell the whole block in its entirety, and the starting price was 100%

Interview

of the corrected bookkeeping one. We used that method until the beginning of 2004, and then the Stock Exchange insisted that this method be limited for us and, of course, because of the development of the stock exchange we modified the trade method on the basis of experiences from the privatisation from the ‘80s in Portugal and Spain and EU countries in general. As soon as the stock exchange worked out the method of ‘surmounting the price’ [in 2004], we started using that method. At that time to we were splitting blocks, but if we had a good demand we increased the share value by 20% because we could have good effect. As a result, trade with those shares used to last for a month and a half. If we did not have any competition, we used to stick to a certain price. The third methodology is through a tender. Tenders are organised and carried out by the Agency and, together with the Agency, SF is the signatory of the tender contract. The tender is predicted only for those companies in which the state has over 51% of the shares. We have around ten such companies. Those are, for instance, Lasta, PIK Bečej, Simpo, Župa Kruševac, Venčac Aranđelovac, Progres Beograd, Ikarbus, Jumko and BIP. The Tigar Company recently came onto the Belgrade Stock Exchange’s A listing. How important is its success story? The Tigar Company is the leader of the Serbian equity market, because it recently came to the Belgrade Stock Exchange A listing and it is well known what strict conditions have to be fulfilled to get on that listing. One of the conditions is to issue quarterly reports on its businesses, which is very good for investors. SF currently has 32% of shares in Tigar. Together with the Privatisation Agency and the Tigar Company, last year we signed the protocol on the company’s preparation for the realisation, for the first time, through the modified model of the initial public offer, IPO. That was the first time we were able to implement an IPO for any company.

If we look at the companies from the SF portfolio, then we could say that we that we had a few companies which could satisfy such strict conditions, but the IPO would not be classical because SF does not have 100% of the shares. In 2002 and 2003, when we made our plans, we were thinking of implementing that on Bambi, Simpo and Štark. However, this method considered something else, and that is a high level of investment. You have to have financial sources because it is very expensive. Its implementation takes at least six months and all this costs. It was because of that that we gave up. Which other attractive shares is SF offering for sale? The companies which are on offer and which are attractive are Motins Novi Sad, Dunav Čelarevo, Navip Beograd, Savremena Beograd, Centroproizvod Beograd, where the state owns 20% of the shares, Biser Kumane, Energoprojekt holding, Nova plastika Petrovac on Mlava, Žitoprodukt Kragujevac, Zimpa Ub, Intersilver Beograd, Carnex, with 40% of the shares, and since there is a major owner we expect the price to rise, then Palić Subotica with 40%, Topiko Bačka Topola with 20%, Toza Marković Kikinda with 15 %, Bečej prevoz Bečeja, Jugodent Novi Sad, Jugoelektro Beograd, Asil Arilje and Žitostig Požarevac. Between the end of 2005 and the beginning of 2006 we reached agreement with Tigar and its general manager, Dragan Nikolić, because he understood how much that would mean to the company. The money needed for this project will be provided by Tigar itself. At the same time, Tigar will provide a new share issue. We agreed with that, and it means that even though SF will have a smaller share block its value would remain the same. That would be the modified model of the initial offer, but that is a pilot project. It could be used tomorrow for the privatisation of the state-owned companies to, for instance, establish a strategic partner and let a certain number of shares go through

the initial public offer. International capital would be interested in the shares of those companies as well as small and medium-sized investors, and everything would go through the stock exchange. You recently stated that you are approaching the end of your task. How many companies are left? There are around 400 companies left. Around 150 of these are attractive and will find buyers, while the rest are companies in which the Fund has minor share blocks and those are companies which are transferred to us from the Agency after the tenders and auctions. Apart from that, there are another 200 companies which the Agency transferred to us after the contracts with buyers were broken. A total of 204 contracts have been cancelled and, so far, 183 have been transferred to SF. The state has 70% of capital in those companies, which we will sell on the stock exchange or through the takeover offers. The buyers who purchased those companies on tenders or through takeover bids were so unscrupulous that the companies have been brought to the edge of the bankruptcy. The reasons for cancelling the contracts are most often related to breach of contract, not providing the guarantees for investments within the legal time limit and not having sufficient money to pay off all the instalments. The law predicts that those companies are, by the force of the law, now transferred to SF, and the state now has 70% of the shares and most of those companies now have to be sold through the stock exchange or through takeover bids. Currently, more than 23 of those companies are under bankruptcy proceedings, and so far we have sold 24 of those companies on the stock exchange or through takeover bids. For instance, Autoprevoz Vrnjačka Banja was sold on the stock exchange for 200,000 euros more than the price on the Privatisation Agency auction even after two years. That was the case with other sold companies too. We took the final account from the previous year as the starting price, and we sold the 70% block in its entirety.

Guide to the Serbian Banking Sector - 2007

Interview

EXPANDING EQUITY *RUGDQD 'RVWDQLĂ˝

general director of the Belgrade Stock Exchange

In recent months, the Belgrade Stock Exchange has become the top subject of all economic analyses. The exceptional activities of the companies and investors on the stock exchange are noticeable, and a signiďŹ cant increase in sales has been marked. However, the general director of the Belgrade Stock Exchange, Gordana DostaniÄ&#x2021;, thinks that we can expect the real development of the equity market to commence only when the shares of stateowned companies â&#x20AC;&#x201C; such as Telekom, NIS (petroleum) and EPS (electric) â&#x20AC;&#x201C; appear on the Stock Exchange. By Tatjana OstojiÄ&#x2021;

s the growth of the domestic equity market really noticeable? We are witnessing the expansion of the domestic market, which is also very noticeable in individual companies that

Guide to the Serbian Banking Sector - 2007

Interview

THE DOMESTIC MARKET have started the share capital increase. This means that not only are they joining the secondary market with the existing issues, but they are also working on the share capital increase and in this way gathering new investments. Banks excel in that: they are the first ones to understand that moment. With each share capital increase, we mark a greater demand than offer, which means that there is capital available to be invested in good projects. I think that this is a good moment for the companies from the fields that have proved interesting to all investors around the world in recent years to be placed on the Serbian equity market. Those are companies from the fields of telecommunications, energy, production, electricity distribution and water supply, and I think that this moment of the development of the stock exchange should be particularly used by our companies in such fields. Therefore, offering citizens of Serbia and investors good, quality material for investments, which they are prepared to place on the equity market, the market itself will also be made broader and deeper for potential investors. Which companies do foreign investors most frequently opt to target? Foreigners most often opt for companies which are in continuous trade. Domestic investors are also firstly orientated towards those companies, but they are also interested in companies which have a dominant price and are

less liquid. However, it is certain that the domestic investors have greater general knowledge about what is going on in domestic companies. Foreigners opt for shares in companies in continuous trade because in those cases there is more information about the operations of those companies operating; the companies themselves provide more of their own information because the material is more liquid and because the stock exchange diﬀerentiates on the basis of its own calculations on the liquidity of those shares. What is the current ratio between foreign and domestic investors? Compared with last year’s average, this year seed the participation of foreign investors on the local market decreasing relatively. Last year the average amount was 55% and this year it is under 50%. However, in the absolute amount the participation of foreign investors has increased, i.e. they invest more in this market in the absolute amount while their participation in percentage is dropping. This is because of the increase of the participation of domestic investors, both institutional investors – such as private pension funds, investment funds, banks and insurance companies – and individual investors. It is precisely because of the more restrictive criteria on placing companies in continuous trade that foreign investors opt more for them. In the last year we signed contracts with four big

international data distributors. Those are Bloomberg, Reuters, Teletrade and Telefact. Through their pages, data on trade on the stock exchange and information about companies which are on the stock exchange are really accessible to their clients and it is possible for the investors to have all the data which the Belgrade Stock Exchange has and which the issuer of the securities offered to the public through the Stock Exchange. The problem is that too many companies provide little information. It is not important to the investors what the circulation on the stock exchange is. What are important is the index trend and the movement of prices, but that is not sufficient for serious investment. They need much more prompt information about the company itself. Our companies involved in off the exchange trading are obliged by law to provide an updated prospectus once a year, including annual balance figures. Alongside the companies which respect that, there are also a large number of companies who do not respect that legal provision and do not update their prospectuses. There are companies displaying information dating back two or three years on the stock exchange web page, which means that they are completely inactive as regards investments because nobody can know if the company is doing good business and is attractive to investors. Even those companies which submit data on a regular basis do so by April, when they adopt their final accounts for the last year. But for investors that is al-

Guide to the Serbian Banking Sector - 2007

Interview

ready history. Because of that it is very important that the Tigar Company decided to go on the A listing, because the stock exchange obliges those companies by contract to submit financial reports on a quarterly basis, to inform the public about their businesses quarterly, which again does not mean that the investor gets the freshest data, but this data is much better than when it is obtained through annual reports. Apart from this report, the company is also obliged to constantly provide information on any changes which could influence investment decisions and in this way reduce the risk. That is the only correct way to protect investors. How many companies at this moment have shares on the Stock Exchange? Over 1,400 companies have shares on the Belgrade Stock Exchange. A number of companies are going off the Stock Exchange, transferring to closed public limited companies by reducing the number of shareholders through regular trade or through takeover bids – in this way they fulfil the condition of the number of shareholders when a company can become a closed public limited company. Even if it does not transfer to a closed public limited company, a company can become unattractive for trade because it has a dominant owner, and the capital in the remaining free shares is not enough for liquid trade on the stock exchange. Out of the 1,400 companies which are on the stock exchange, we have around 150 shares in active trade. Between 60 and 70 are constantly active and they have relatively successful auctions. All of the others are sporadic: they do have some auctions but there is no demand, or there is neither the demand nor any offers. Therefore, there are more shares which are not attractive, but have to be on the stock exchange because of the legal circumstances. The opposite can also happen, when a company is dead in one period, and then, for certain rea-

sons, active trade occurs. What is the quality and the essence of the market is the trade with the free, as regards ownership jagged part, of the share capital. What was last year’s circulation? We completed trading with €1.2billion. If the first quarter is any indication of what this year will be like, we will certainly exceed the last one: in 2007 we have already seen trade of around €600million, thus reaching half of last year’s trade in a single quarter. The equity market has started operating. However, I am slightly sceptical. Despite everything positive I have mentioned and the fact that around 50 domestic companies are on the continuous market (set aside as liquid I am not suggesting that the entire capital of those state-owned companies should be put on the stock exchange for anyone to buy, but one of those companies could issue new shares at the level of 10% of its capital and offer that in the primary offer. material), I think the serious participation of international investors will only come with the appearance of major domestic companies from the fields attractive for investment: telecommunications, the energy sector, air traffic and the like. I am not suggesting that the entire capital of those state-owned companies should be put on the stock exchange for anyone to buy, but one of those companies could issue new shares at the level of 10% of its capital and offer that in the primary offer. It could offer that to the citizens in Serbia, domestic investors, portfolio investors, which means without the participation of foreign investors. It could also limit the maximum number of shares one investor can buy through that issue. The company would, in that case, after the primary sale, invest the gathered capital in its revitalisation, planned investments and similar. That issue could be included in the secondary market, in the stock exchange.

Guide to the Serbian Banking Sector - 2007

That would really stimulate the kind of serious free flow which promises good trade on the stock exchange. Then we could definitely stand shoulder to shoulder with the other stock exchanges in this part of Europe. On the Zagreb Stock Exchange, the offer for the takeover of Pliva appeared at the same time as we had the offer for Hemofarm. The Croatian equity market was facing the real danger of remaining without good market material and experiencing a serious outflow of capital invested in its securities. In our county, even though we are really sorry because of the departure of Hemofarm, the participation of Hemofarm’s shares in the whole circulation on the stock exchange was under 10%, thus the situation on our Stock Exchange was less dramatic than in Croatia. Nevertheless, the Croatian state – as the strategist of the development of the equity market – felt the need to offer investors investment material which would pick up the free funds returned from Pliva to investors in the shape of currency. Croatia then offered them INA and absorbed that capital, leaving it on the Croatian market. Sadly, nothing like that happened on the Serbian market to compensate for Hemofarm, nothing that would compensate for Apatinska Pivara or provide reinvestment for the Knjaz Miloš shareholders, regardless of the fact that this company’s shares were not even on the stock exchange for an hour before it was taken over. A large amount of cash could have been paid out to citizens after the sale of shares, but nothing was offered to them apart from spending on real estate, tractors, televisions, cars, savings, the turnover of the capital or part of the capital. Moreover, at that time there were no voluntary pension funds or investment funds and there was no quality material which those people could recognise and invest part of their money in. It was known that there would be a surplus of cash after the sale of the DIN and DIV shares too, but nobody made a cam-

Interview

*RUGDQD 'RVWDQLĂ˝ general director of the Belgrade Stock Exchange paign to oďŹ&#x20AC;er citizens something new. For instance, there could have been a NIS share capital increase and the state or the local administration could have issued bonds or similar. What is the Stock Exchange planning for the forthcoming period? The focus for the further development of the Belgrade Stock Exchange is the completion of the project to redesign the stock exchangeâ&#x20AC;&#x2122;s trade system, which

I think will be of great importance. This project will have an accent on the introduction of the standard protocol for the exchange of data between the participants on the equity market: the FIX Protocol. This Protocol would facilitate electronic communication between all potential clients and investors with the broker representing them on this market and, of course, through the brokers with the Stock Exchange too. That will be revolutionary for our market from

point of view of the organisation of the whole market. Perhaps in terms of connecting the Belgrade Stock Exchange with other stock exchanges in the sense of information exchange, easing our investorsâ&#x20AC;&#x2122; approach to those markets and achieving the penetration of new investors through our brokers to the Belgrade Stock Exchange. What is going to have a very positive inďŹ&#x201A;uence on the further development of the stock exchange is the establishment of voluntary pension funds in Serbia, from the point of view of the importance of domestic institutional investors and the establishment of investment funds. I think that the new investment funds have good potential, because our analysis, which we made at the end of last year and the beginning of this year, shows that a large number of domestic individual investors do not get directly involved in the trade on the Belgrade Stock Exchange. They appear increasingly more on the side of demand, so far they were always present on the side of oďŹ&#x20AC;er, and now saving is increasingly more directed towards securities in the domestic market. The investment funds certainly have good potential there, because not a single individual investor, especially those with smaller amounts of cash, has either sufďŹ cient knowledge or time to follow the trends on the market and change the structure of his portfolio. The expert institutions, such as investment funds, will do that better, of course, and the voluntary pension funds will draw a good part of the savings. Since the institutional investors seek quality market material with minimal risk rates, that will certainly attract other companies, such as Tigar from Pirot, to divide itâ&#x20AC;&#x2122;s shares by quality and to participate on the stock exchange market. In such a way, Tigar â&#x20AC;&#x201C; for example â&#x20AC;&#x201C; would become attractive to completely new institutional investors who are not yet present on this market and have strict criteria in their business policy. Such new investors will certainly arrive on the domestic stock exchange.

Guide to the Serbian Banking Sector - 2007

THE BELGRADE STOCK EXCHANGE

IN STEP WITH THE REGIONâ&#x20AC;&#x2122;S STOCK EXCHANGES By Tatjana OstojiÄ&#x2021;

n the last quarter of last year we analysed the work of the Belgrade Stock Exchange and put it into the context of other stock exchanges in the region. â&#x20AC;&#x153;We compared it with Bulgaria and Romania, because those two countries have been accepted in the European Union, and with Zagreb and Ljubljanaâ&#x20AC;&#x2122;s Stock Exchanges: Ljubljanaâ&#x20AC;&#x2122;s Stock Exchange as a country which is part of the EU, and Zagrebâ&#x20AC;&#x2122;s Stock Exchange as a country which is expecting to accede to the EU. We put the Belgrade Stock Exchange in the context of those four stock exchanges and took several indexes during the years from 2002 until the end of 2006. According to those indexes and the analyses we carried out, the Belgrade Stock Exchange has â&#x20AC;&#x153;nothing to be ashamed of â&#x20AC;?, because its growth of sales and number of transactions shows that the market capitalisation, as well as the market capitalisation in comparison to the gross domestic product and similar,

is signiďŹ cantly stable and representative,â&#x20AC;? says Gordana DostaniÄ&#x2021;, director of the Belgrade Stock Exchange. â&#x20AC;&#x153;Therefore, we cannot be dissatisďŹ ed nor consider our stock exchange as being at the bottom in the region (regardless of all the defects we had), especially considering the real beginning of the work of our stock exchange. Regardless of the fact that it was established in 1989, and regardless of the pe$FFRUGLQJ WR 'RVWDQLĂž WKH %HOJUDGH Stock Exchange did not have any sudden MXPSV LQ GHYHORSPHQW DV ZDV WKH FDVH ZLWK %XFKDUHVW Â˛ ZKLFK KDG UDSLG JURZWK LQ RQH \HDU Â´EXW ZH Ă&#x20AC; QG RXUVHOYHV LQ D GLIIHUHQW SODFH DQG WKRVH LQGH[HV DUH WKH LQGH[HV RI WKH VWDEOH JURZWK RI RXU HTXLW\ market. riod of work with short-term securities during the period of sanctions and high inďŹ&#x201A;ation, the real beginning of the work of the equity market in Serbia started in 2001 and 2002 â&#x20AC;&#x201C; and with the introduction of electronic and long distance trading in 2004. That, in reality, means that

Guide to the Serbian Banking Sector - 2007

we started rather late with the development of the equity market in comparison with other countries, but we are following them well,â&#x20AC;? says DostaniÄ&#x2021;. Capitalisation in relation to the total gross domestic product in Serbia, Croatia and Slovenia approximately concerns around 40% of capitalisation in relation to gross domestic product, in comparison to Romania and Bulgaria which were, at the moment of accession to the EU, approximately 20 to 25% of capitalisation in relation to gross domestic product. â&#x20AC;&#x153;We also monitored the growth of the BELEX15 index of the Belgrade Stock Exchange, which is the index of the most liquid Serbian shares. The trends of this index are also positive in comparison with other indexes, as well as in comparison with the Morgan Stanley index for Eastern Europe. This means that, compared to the other countries from Eastern Europe (which encompasses our region and Czech Republic, Slovakia and Poland) the BELEX15 index is growing faster than the MS index, especially at

THE BELGRADE STOCK EXCHANGE

Stock Exchanges of SEE - Indexes -

the end of the last and the beginning of this year,â&#x20AC;? claims DostaniÄ&#x2021;. The trends evident in the last quarter of last year, insists DostaniÄ&#x2021;, continued in the ďŹ rst quarter of this year. Therefore, there has been a signiďŹ cant increase of sales in, and growth of, the market capitalisation of the Belgrade Stock Exchange. At this moment, the market capitalisation of the Belgrade Stock Exchange is around â&#x201A;Ź15billion, including bonds, and with that framework 12 billion of the market capitalisation of shares only. The permanent introduction of new securities on the market has a certain inďŹ&#x201A;uence on the increase of capitalisation and the increase of prices, of course the oďŹ&#x20AC; stock exchange market too, because our securities are mostly on that oďŹ&#x20AC; stock exchange market as they only go onto the stock exchange by legal obligation. â&#x20AC;&#x153;What satisďŹ es us in all this is that the Serbian securities which the stock exchange itself sets aside through the method of continuous sale are more liquid, and the securities which are found in the BELEX15 index show a signiďŹ cantly faster growth than the total of the whole market. The percentage of participation of trading with those liquid market instruments in the total trade is high,

somewhere around 60%. What I would emphasise in this year as being signiďŹ cant for our economy in general and, of course, for the Belgrade Stock Exchange too, is the participation of the ďŹ rst Serbian company on the stock exchange market. As regards the Belgrade Stock Exchange listing, the listing criteria are rather strict and, in DostaniÄ&#x2021;â&#x20AC;&#x2122;s opinion, they are the strictest in the region. What

recently published the new index of the Belgrade Stock Exchange, BELEXline, with the tendency to fully replace on 1st May â&#x20AC;&#x201C; 30 days after it was established and presented parallel with BELEXfm, the BELEXfm, i.e. to revoke the ďŹ rst index which the Belgrade Stock Exchange produced. â&#x20AC;&#x153;The reasons for that lie in the desire to present the situation on the market in the most realistic way. BELEXfm was the ďŹ rst Belgrade Stock Exchange index

The penetration of Tigar (tyre company from Pirot) on the Belgrade Stock ExFKDQJHÂˇV $ OLVWLQJ LV VLJQLĂ&#x20AC;FDQW IURP WKH SRLQW RI YLHZ RI WKH IXWXUH GHYHORSPHQW RI WKH %HOJUDGH 6WRFN ([FKDQJH IRUHLJQ LQYHVWRUV DQG WKH SRWHQWLDO GHFUHDVH LQ WKH ULVN RI LQYHVWLQJ LQ VHFXULWLHV RQ WKH VWRFN H[FKDQJH PDUNHW EHFDXVH LW VKRZV RQ RQH VLGH WKH FRPSDQ\ÂˇV ZLOOLQJQHVV WR H[SRVH LWVHOI WR HYHU\WKLQJ WKDW WKH PDUNHW DQG LQYHVWRUV GHPDQG L H WKH SHUPDQHQW LVVXLQJ RI LQIRUPDWLRQ IURP WKH FRPSDQ\ LWVHOI DQG RQ WKH RWKHU VLGH WKH IXOĂ&#x20AC;OOLQJ RI VWULFW FULWHULD QHHGHG LQ RUGHU WR EH LQFOXGHG RQ WKDW OLVWLQJ Âľ KLJKOLJKWV 'RVWDQLĂž sets the Belgrade Stock Exchange apart from those of other countries in the region is the introduction of criteria for securitiesâ&#x20AC;&#x2122; liquidity. Only the Ljubljana Stock Exchange has the same criteria, but Belgradeâ&#x20AC;&#x2122;s criteria are stricter. Moreover, the Belgrade Stock Exchange constantly develops new indexes of the situation on the equity market in Serbia. â&#x20AC;&#x153;We are trying to help investors and potential investors to monitor what is happening on the market in Serbia. We

Guide to the Serbian Banking Sector - 2007

and it was the index of all shares listed on the stock exchange, and which in the last several months had at least one concluded transaction. That is a very wide review and can show some small reformatted picture considering the character of the market, namely, that certain shares have really extreme trade through several auctions and very often just one auction, and that after that this security fully fades away and has no more activity any longer. Now we have set aside 100

THE BELGRADE STOCK E CHANGE

shares and we will constantly monitor the growth of selected securities which represent the situation on the whole market. In this first period, by presenting BELEXfm and BELEXline in parallel, we see that the deviations are not that high. For the time being, the BELEXline really represents the trends on the market. On the other side, this is the index of higher quality, because it is of an investment character, is the index by which it is possible to trade and can be used for creating structural products,” explains Dostanić. This year – in line with plans to take the first steps in regional co-operation and extending the market, and within the framework of the Agreement on Understanding with the Vienna Stock Exchange – the first tangible business was created in the form of the Agreement on Issuing Rights to the Vienna Stock Exchange to establish the index for Serbian securities on the basis of the Belgrade Stock Exchange’s data. At the end of February, the Vienna Stock Exchange launched the index on Serbian securities, the SRX Index, which is completely under its ownership.

Market capitalisation/GDP

However, the Belgrade Stock Exchange expects to have retroactivity from that on our market because the Vienna Stock Exchange is a respectable one: it has lots of investors and a large number of vendors – data distributors, through which the securities in the SRX Index are now in the focus of the international investing

Stock Exchanges of SEE Growth rate of the market capitalisation

public interest, and through which certainly the market of the Belgrade Stock Exchange too. If that index appears to be interesting market material for investors, that will also have a direct reﬂection on the growth of liquidity and the increase of trade with securities on the domestic market. In the framework of regional cooperation for this year, the Belgrade Stock Exchange’s plans include agreements with the stock exchanges of the former Yugoslav republics: ﬁrstly regarding data exchange, i.e. in the further development of the joint platform for information in real time. This project originated from the Ljubljana Stock Exchange and through it all stock exchanges provide their members and their public with respectable data about what is going on with the best quality market material in every single stock and on every single one of those stock exchange. Furthermore, the stock exchanges conduct discussions between themselves, co-ordinating criteria on listings, which are under the authority of the stock exchanges, and decisions of stock exchanges and their managing bodies. Stock exchanges are trying to mutually harmonise, and that might be achieved principally through the harmonisation of listings.

Guide to the Serbian Banking Sector - 2007

Ownership Structure and Financial Reports

“A BANKA” AD BEOGRAD

AIK BANKA AD NIŠ

Source: NBS

ZEPTER BANKA AD BEOGRAD

18000 Niš Nikole Pašića 42 11030 Belgrade Požeška 65b ID: 17138669 Phone: 011/30-50-300 Fax: 011/35-40-930 www: www.abanka.co.yu E-mail: oﬃce@abanka.co.yu SWIFT: AAAARSBG Staﬀ: 379 Auditor in 2005: KPMG DOO Beograd Main shareholders (over 5%)

EMG Holdings LTD,Limasol, 24.99% (% of the voters rights), 24.99% TOTAL Amasis d.o.o. Beograd, 24.98% (% of the voters rights), 24.98% TOTAL Pionir Beograd doo, 23.13% (% of the voters rights), 23.13% TOTAL INVESTMENT Net LLC, 5.01% (% of the voters rights), 5.01% TOTAL

ID: 6876366 Phone: 018/507-400 Fax: 018/523-538 www: www.aikbanka.co.yu E-mail: aikb@eunet.yu SWIFT: AIKBRS22 Staﬀ: 320 Auditor in 2005: DELOITTE&TOUCHE Main shareholders (over 5%)

ATEBANK, 19.99% (% of the voters rights), 16.88% TOTAL Irva, Beograd, 13.96% (% of the voters rights), 11.79% TOTAL EAST CAPITAL ASSET, 8.81% (% of the voters rights), 7.48% TOTAL IBT, 6.03% (% of the voters rights), 5.10% TOTAL Vojvođanska banka a.d., 5.59% (% of the voters rights), 4.72% TOTAL

Members of the Management Board

11000 Belgrade Bulevar Mihaila Pupina 117 ID: 6038620 Phone: +381-11-311-3233 Fax: +381-11-311 2672 www: www.banka.zepter.co.yu E-mail: oﬃce@banka.zepter.co.yu SWIFT: ZEPTCSBG Staﬀ: 252 Auditor in 2005: DELOITTE&TOUCHE BEOGRAD Main shareholders (over 5%)

OTP BANK, 75.08% (% of the voters rights), 75.08% TOTAL Home Art&Sales Services ag Woller, 24.91% (% of the voters rights), 24.91% TOTAL

Members of the Management Board Members of the Management Board

Miroljub Aleksić, President of the Management Board Avram Milenković, Chairman of the Executive Board Zoran Denić, Milomir Obradović, Stevan Santo, Snežana Jerinić, dr Miroljub Hadžić, indepedent member, dr Nenad Vunjak, indepedent member

Ljubiša Jovanović, President of the Management Board Jelica Marjanović, Chairman of the Executive Board Miodrag Kostić, Vladan Đorđević, Vladan Đorđević, Radomir Đorđević, Jovan Gorčić, indepedent, Đorđe Đukić, indepedent

Zoltan Dencs, President of the Management Board Aleksandra Mikić, Chairman of the Executive Board Savo Golijanin, indepedent, Snežana Otašević, Momčilo Kujačić, Verica Dujović, indepedent, Diana Gagović

Executive Board Executive Board

Avram Milenković, Chairman of the Executive Board Milomir Obradović, Snežana Jerinić

Executive Board

Jelica Marjanović, Chairman of the Executive Board Vladan Đorđević

Aleksandra Mikić, Chairman of the Executive Board Snežana Otašević

Organizational Structure Organizational Structure

AFFILIATES 17 BRANCHES 26

Organizational Structure

AFFILIATES 17 BRANCHES 21 COUNTERS 12

Guide to the Serbian Banking Sector - 2007

AFFILIATES 11 BRANCHES 9

Ownership Structure and Financial Reports

Source: NBS

ALPHA BANK SRBIJA A.D.,BEOGRAD

11000 Belgrade Kralja Milana 11 ID: 07736681 Phone: 381-11-3234-931,3235-931 Fax: 381-11-32 42 687, 32 47 581 www: www.alphabankserbia.com E-mail: gm-oﬃce@alphabankserbia.com SWIFT: JUBARSBG Staﬀ: 1438 Auditor in 2005: ERNST&YOUNG

BANCA INTESA A.D. BEOGRAD

BANKA POŠTANSKA ŠTEDIONICA AD BEOGRAD

11000 Belgrade Milentija Popovića 7b

11120 Belgrade Kraljice Marije 3

ID: 7759231 Phone: 011/201 12 03, 201 12 00, Fax: +381-11-201-1207 www: www.bancaintesabeograd.com E-mail: bi@bancaintesabeograd.com SWIFT: DBDBCSBG Staﬀ: 2348 Auditor in 2005: ERNST&YOUNG

ID: 07004893 Phone: +381-11-3024-555 Fax: +381-11-3376 777 www: www.posted.co.yu E-mail: razvoj@posted.co.yu SWIFT: SBPOCSBG Staﬀ: 1410 Auditor in 2005: MGI REV.I RAČUNOV.AD

Main shareholders (over 5%)

ALPHA BANK A.E., 100.00% (% of the voters rights), 100.00% TOTAL

Intesa holding international, 93.00% (% of the voters rights), 93.00% TOTAL IFC, 7.00% (% of the voters rights), 7.00% TOTAL

Republika Srbija, 50.52% (% of the voters rights), 50.52% TOTAL JP PTT Saobraćaja Srbija, 41.34% (% of the voters rights), 41.34% TOTAL

Members of the Management Board Members of the Management Board

Spyros N.Filaretos, President of the Management Board Panagiotis H. Vlasiadis, Chairman of the Executive Board Vassilios I. Karaindros, Georgios A. Papaioannou, Charalampos E. Papanayotou, Veselinka Milošević, Georgios N. Kontos, Nebojša Savić, indepedent, Ilija Dražić, indepedent

Members of the Management Board

Gyorgy Suranyi, President of the Management Board Draginja Đurić, Chairman of the Executive Board Massimo Pierdicchi, Silvio Pedrazzi, Paolo Grandi, Dejan Tešić, Adriano Arietti, Dragiša Lekić, Antonio Stillittano, indepedent, Edward Nassim, Milivoje Cvetanović, independent

Executive Board

Nikola Šuljagić, President of the Management Board Srđan Cekić, Chairman of the Executive Board Ljubiša Jevđić, Jelena Mijailović-Milojević, Željko Ivanji, Jasminka Bošnjak, Rodoljub Ranković, Milun Simić, Goran Lončar, independent Executive Board

Executive Board

Panagiotis H. Vlasiadis, Chairman of the Executive Board Georgios A. Papaioannou, Veselinka Milošević Organizational Structure

AFFILIATES 23 BRANCHES 31 COUNTERS 27

Draginja Đurić, Chairman of the Executive Board Silvio Pedrazzi, Dejan Tešić, Dragiša Lekić Organizational Structure

BRANCHES 103 OUTLETS 35 COUNTERS 16

Srđan Cekić, Chairman of the Executive Board Jelena Mijailović-Milojević, Jasminka Bošnjak Organizational Structure

AFFILIATES 3 BRANCHES 19 COUNTERS 1 Guide to the Serbian Banking Sector - 2007

Ownership Structure and Financial Reports

ÿ$ÿ$16.$ %$1.$ $ ' ÿ$ÿ$.

&5('< %$1.$ $' .5$*8-(9$&

Source: NBS

(567( %$1. $ ' 129, 6$'

34000 Kragujevac Kralja Petra I 13 32000 ČAČAK Pivarska 1 ID: 07601093 Phone: 381-32-302-203 Fax: 381-32-225 048, 302-215 www: www.cacanskabanka.co.yu E-mail: oﬃce@cacanskabanka.co.yu SWIFT: CABACS22 Staﬀ: 297 Auditor in 2005: DELOITTE&TOUCHE Main shareholders (over 5%)

Republika Srbija, 38.84% (% of the voters rights), 38.84% TOTAL European bank for reconstruction and development London, 24.99% (% of the voters rights), 24.99% TOTAL EAST CAPITAL ASSETS, 5.04% (% of the voters rights), 5.04% TOTAL Members of the Management Board

Ljubiša Sudimac, President of the Management Board Dragan Jovanović, Chairman of the Executive Board Mrvošević Radovan, Aleksandar Ćalović, Roberto Marzanati, Milanka Mandić, Dr. Zoran Njegovan, independent, Dr. Vera Leko, independent

ID: 07654812 Phone: 381-34-335-617 Fax: 381-34-331-370,336-175 www: www.credybanka.com E-mail: info@credybanka.com SWIFT: kragcs22 Staﬀ: 763 Auditor in 2005: KPMG DOO Beograd Main shareholders (over 5%)

Republika Srbija, 60.54% (% of the voters rights), 60.54% TOTAL Beogradska banka a.d. u stečaju, 8.04% (% of the voters rights), 8.04% TOTAL AD za osiguranje Takovo Kragujevac, 5.94% (% of the voters rights), 5.94% TOTAL Members of the Management Board

Živorad Nešić, President of the Management Board Milovan Bošković, Chairman of the Executive Board Dobrila Hajduković, Jovanka Mačužić, Jovanka Mačužić, Aleksandra Petković, Radovan Simović, independent, Veroljub Dugalić, independent Executive Board

Milovan Bošković, Chairman of the Executive Board

Executive Board

21000 Novi Sad Bulevar oslobođenja 5 ID: 08063818 Phone: 381-21-527-733, 489-0651 Fax: 381-21-529-507 www: www.erstebank.co.yu E-mail: kabinet@erstebank.co.yu SWIFT: NOVBSC22 Staﬀ: 892 Auditor in 2005: DELOITTE&TOUCHE Main shareholders (over 5%)

Erste Bank der Oesterreichischen Sparkassen AG, 99.99% (% of the voters rights), 99.99% TOTAL Members of the Management Board

Reinhard Ortner, President of the Management Board Sava Ivanov Dalbokov, Chairman of the Executive Board Mr. Peter Nemschak, Jasna Terzić, Andreas Klingen, Slavko Carić, Franz Kerber, Ernst-Gideon Loudon, indepedent, Aleksandar Vlahović, indepedent Executive Board

Sava Ivanov Dalbokov, Chairman of the Executive Board Jasna Terzić, Slavko Carić

Organizational Structure

Dragan Jovanović, Chairman of the Executive Board Aleksandar Ćalović, Milanka Mandić Organizational Structure

AFFILIATES 9

Organizational Structure

MAIN AFFILIATES 5 AFFILIATES 12 BRANCHES 18 AGENCIES 3 OUTLETS 6 COUNTERS 4

Guide to the Serbian Banking Sector - 2007

COMMERCIAL CENTER 2 AFFILIATES 36 BUSINESS CENTER 12 PROFIT CENTAR 10 BRANCHES 17

Ownership Structure and Financial Reports

Source: NBS

EUROBANK EFG ŠTEDIONICA A.D. BEOGRAD

FINDOMESTIC BANKA AD BEOGRAD

HYPO ALPE-ADRIA-BANKA A.D. BEOGRAD

11000 Belgrade Kosovska 10

11000 Belgrade Kolarčeva 3 ID: 17171178 Phone: 381 11 206 5880, 3376-600 Fax: 381 11 3027 536 www: www.eurobankefg.co.yu E-mail: oﬃce@efgeurobank.co.yu SWIFT: EFGBCSBG Staﬀ: 1404 Auditor in 2005: PWC

ID: 17076841 Phone: 381-11-3331 701, 333 1722 Fax: 381-3331 775, 3331 796 www: www.findomestic.co.yu E-mail: office@findomestic.co.yu SWIFT: TUBBCSBG Staff: 337 Auditor in 2005: BDO BCEXCEL

11000 Belgrade Bulevar Mihajla Pupina 6 ID: 7726716 Phone: +381-11-222 6000 Fax: +381-11-222 6799 www: www.hypo-alpe-adria.co.yu E-mail: oﬃce@hypo-alpe-adria.co.yu SWIFT: haabrsbg Staﬀ: 723 Auditor in 2005: DELOITTE&TOUCHE

Main shareholders (over 5%)

FINDOMESTIC BANCA SPA, 99.58% (% of the voters rights), 99.58% TOTAL

Main shareholders (over 5%)

Main shareholders (over 5%) Members of the Management Board

EFG Eurobank Ergasias Athens, 94.49% (% of the voters rights), 94.49% TOTAL Members of the Management Board

Piergiorgio Pradelli, President of the Management Board Stavros E. Ioannou, Chairman of the Executive Board Evvagelos Kavvalos, Nataša Kovačević, Nikolaos Aliprantis, Slavica Pavlović, Anargyros Kiousis, Danilo Đurović, Slobodan Slović, indepedent, Kyriakos Xydis, Angelos Tsichrintzis, indepedent, Vuk Zečević Executive Board

Stavros E. Ioannou, Chairman of the Executive Board Slavica Pavlović, Nataša Kovačević, Danilo Đurović, Kyriakos Xydis, Vuk Zečević Organizational Structure

BRANCHES 105

Chiaﬀredo Salomone, President of the Management Board Eric Blanchetete, Chairman of the Executive Board Carlo Fioravanti, Dragica Stojiljković, Marco Pantaleoni, Angelo Scatigna, Jean - Paul Doumeng, indepedent, Radivoj Pejčinović, Virgilio Belli, indepedent, Jasna Jović-Vuković, Aleksandar Sekulović, Vladimir Marković Executive Board

Eric Blanchetete, Chairman of the Executive Board Dragica Stojiljković, Angelo Scatigna, Radivoj Pejčinović, Jasna Jović-Vuković, Vladimir Marković Organizational Structure

AFFILIATES 11 BRANCHES 8 COUNTERS 1

HYPO ALPE-ADRIA-BANK INTERNATIONAL AG Klagenfurt, 99.89% (% of the voters rights), 99.89% TOTAL Members of the Management Board

Dr. Wolfgang Kulterer, President of the Management Board Vladimir Čupić, Chairman of the Executive Board Thomas Morgl, Rade Vojnović, Josef Kircher, Dr. Othmar Ederer, Dr. Christoph Schasche, indepedent, Dr. Dragan Đuričin, indepedent, Paul Kocher Executive Board

Vladimir Čupić, Chairman of the Executive Board Rade Vojnović Organizational Structure

REGIONAL AFFILIATES 3 AFFILIATES 12 BRANCHES 17 Guide to the Serbian Banking Sector - 2007

Ownership Structure and Financial Reports

JUBMES BANKA A.D. BEOGRAD

“JUGOBANKA JUGBANKA” A.D. K. MITROVICA

Source: NBS

KOMERCIJALNA BANKA AD BEOGRAD

11000 Belgrade Svetog Save 14 11000 Belgrade Bulevar AVNOJ-a 121

28000 Kosovska Mitrovica Kralja Petra I 165

ID: 07074433 Phone: 381-11- 220 55 00, 311-5270 Fax: 381-11-311 02 15 www: www.jubmes.co.yu E-mail: jubmes@jubmes.co.yu SWIFT: YIEOYUBG Staﬀ: 107 Auditor in 2005: DELOITTE&TOUCHE

ID: 17382691 Phone: 028/425-455 Fax: 028/425-452 www: E-mail: jugbankakm@yahoo.com SWIFT: NBSRSBDJJ Staﬀ: 49 Auditor in 2005:

Main shareholders (over 5%)

SRJ, 24.36% (% of the voters rights), 24.36% TOTAL Republika Srbija, 12.39% (% of the voters rights), 12.39% TOTAL AUTOCOMMERCE D.D., 11.74% (% of the voters rights), 11.74% TOTAL Beobanka a.d. Beograd, u stečaju, 6.96% (% of the voters rights), 6.96% TOTAL Members of the Management Board

Tanja Đelić, President of the Management Board Milan Stefanović, Chairman of the Executive Board Dr Dejan Erić, Slobodan Lečić, Dragiša Vučković, Jasna Čupić, Branka Mijanović, indepedent, Biljana Milosavljević, Dr Miroslav Paunović, indepedent, Zlatko Hašimbegović Executive Board

Milan Stefanović, Chairman of the Executive Board Slobodan Lečić, Jasna Čupić, Biljana Milosavljević, Zlatko Hašimbegović

Main shareholders (over 5%)

Jugobanka a.d. Beograd, u stečaju, 51.25% (% of the voters rights), 51.25% TOTAL Fond za razvoj RS-Beograd, 30.63% (% of the voters rights), 30.63% TOTAL Beobanka a.d. Beograd, u stečaju, 10.00% (% of the voters rights), 10.00% TOTAL Members of the Management Board

Zvonko Burić, President of the Management Board Draško Knežević, Chairman of the Executive Board Milomir Jevtić, Zlatomir Arsić, Dragan Milenković, Ljubiša Popović, Zoran Jakšić, indepedent, Milosava Jovanović, indepedent Executive Board

Draško Knežević, Chairman of the Executive Board Zlatomir Arsić, Ljubiša Popović Organizational Structure

BRANCHES 1 AGENCIES 2

Guide to the Serbian Banking Sector - 2007

ID: 07737068 Phone: 381-11-308 01 00,308 01 50 Fax: 381-11-344 13 35, 344 00 33 www: www.kombank.com E-mail: posta@kombank.com SWIFT: KOBBCSBG Staﬀ: 3003 Auditor in 2005: DELOITTE&TOUCHE Main shareholders (over 5%)

Republika Srbija, 40.31% (% of the voters rights), 38.61% TOTAL European bank for reconstruction and development, 25.00% (% of the voters rights), 23.95% TOTAL Members of the Management Board

Mr Vladislav Cvetković, President of the Management Board Ivica Smolić, Chairman of the Executive Board Anka Gajić, Dr Predrag Mihajlović, Dr Miroslav Todorović, indepedent, Dragan Santovac, Victor Pastor, Dragica Pilipović-Chaﬀey, Mr Mirko Petrović, Dr Boško Živković, indepedent Executive Board

Ivica Smolić, Chairman of the Executive Board Dr Predrag Mihajlović, Dragan Santovac Organizational Structure

MAIN AFFILIATES 2 AFFILIATES 23 BRANCHES 250 COUNTERS 1

Ownership Structure and Financial Reports

Source: NBS

ɄɈɋɈȼɋɄɈ ɆȿɌɈɏɂȳɋɄȺ ȻȺɇɄȺ ȺȾ ɁȼȿɑȺɇ

.26296.2 0(72+,-6.$ %$1.$ $' =9(ÿ$1

KULSKA BANKA AD NOVI SAD

LAIKI BANK A.D. BEOGRAD

28000 Zvečan Kralja Milutina bb ID: 08227931 Phone: 381-28-664-730 Fax: 381-28-664-735 www: www.kosmet-banka.com E-mail: komet ba@ptt.yu SWIFT: Staﬀ: 81 Auditor in 2005: MGI REV.I RAČUNOV.AD Main shareholders (over 5%)

PKB-Orvin-Orahovac, 2.51% (% of the voters rights), 2.51% TOTAL Klin.bol.cen. Priština, 2.09% (% of the voters rights), 2.09% TOTAL DP “Trepča” bat. Gnjilane, 1.92% (% of the voters rights), 1.92% TOTAL Semenarstvo dd Klina, 1.76% (% of the voters rights), 1.76% TOTAL

21000 Novi Sad Bulevar oslobodjenja 80

11000Belgrade Dalmatinska 22

ID: 08603537 Phone: 381-21-48 000 00 Fax: 381-21-48 000 32 www: www.kulbank.co.yu E-mail: oﬃce@kulbank.co.yu SWIFT: KUBKRS22 Staﬀ: 498 Auditor in 2005: ERNST&YOUNG

ID: 07534183 Phone: 011/3306-300 Fax: 381-11-3241-448 www: www.cs.laiki.com E-mail: oﬃce@cs.laiki.com SWIFT: LIKIRSBG Staﬀ: 286 Auditor in 2005: MGI REV.I RAČUNOV.AD

Main shareholders (over 5%) Main shareholders (over 5%)

OTP BANK, 92.06% (% of the voters rights), 92.06% TOTAL

CYPRUS POPULAR BANK, 95.23% (% of the voters rights), 86.77% TOTAL

Members of the Management Board Members of the Management Board

Members of the Management Board

Zoran Stanišić, President of the Management Board Dimitrije Ljiljak, Chairman of the Executive Boar Dragan Radaković, Sonja Lukić, Milovan Stanojević, Predrag Aritonović, Radenko Luković, indepedent, Dobrija Radović, Radmila Anđelković, indepedent, Ljubiša Golubović, indepedent, Branislav Cvejić, indepedent Executive Board

Dimitrije Ljiljak, Chairman of the Executive Boar Sonja Lukić, Predrag Aritonović, Dobrija Radović Organizational Structure

OUTLETS 15

Jožef Vindhaim, President of the Management Board Mita Katić, Chairman of the Executive Board Tomislav Brzaković, Branislav Obradović, Radosav Radojičić, Zvezdan Kljajić, Rade Svilar, Rajko Tepavac, Dragoljub Vukadinović, Radojko Stanić, Dr Zoran Jeremić, indepedent, Nikola Stojšić, indepedent, Vesna Jovanović, indepedent Executive Board

Executive Board

Mita Katić, Chairman of the Executive Board Branislav Obradović, Zvezdan Kljajić, Rajko Tepavac Organizational Structure

AFFILIATES 8 OUTLETS 14 BRANCHES 28

Michalis L. Louis, President of the Management Board Cleovoulos Alexandrou, Chairman of the Executive Board Christos J. Stylianides, Andreas Petsas, Petros Petrou, Panicos Eracleous, Panayiotis Kounnis, Vladan Manić, Dragan Popović, indepedent, Zoran Radovanović, indepedent

Cleovoulos Alexandrou, Chairman of the Executive Board Andreas Petsas, Panicos Eracleous, Vladan Manić Organizational Structure

AFFILIATES 7 BRANCHES 12 OUTLETS 3

Guide to the Serbian Banking Sector - 2007

Ownership Structure and Financial Reports

“MERIDIAN BANK-CRÉDIT AGRICOLE GROUP” A.D.

“METALS-BANKA” A.D. NOVI SAD

21000 Novi Sad Futoški put 42-44

21000 Novi Sad Bulevar cara Lazara 7a

ID: 08277931 Phone: 381-21-4876-876 , 4876-970 Fax: 381-21-4876-976 www: www.bankmeridian.com E-mail: meba@bankmeridian.com SWIFT: MEBA CS 22 Staﬀ: 968 Auditor in 2005: ERNST&YOUNG

ID: 8212538 Phone: 381-21-450-695,450-696 Fax: 381-21-6350-611 www: www.metals-banka.co.yu E-mail: info@metals-banka.co.yu SWIFT: MBSOYU22 Staﬀ: 417 Auditor in 2005: KPMG DOO Beogra

Main shareholders (over 5%)

CREDIT AGRICOLE S.A., 90.00% (% of the voters rights), 90.00% TOTAL SOPAR SAS, 9.99% (% of the voters rights), 9.99% TOTAL

Main shareholders (over 5%)

“DDOR Novi Sad”A.D., 15.61% (% of the voters rights), 15.61% TOTAL

Source: NBS

NATIONAL BANK OF GREECE A.D.BEOGRAD

11000 Belgrade Bulevar Mihajla Pupina 113 ID: 17351281 Phone: +381-11-3019-900,3025-900 Fax: +381-11-3019-936 www: www.nbgbanka.co.yu E-mail: oﬃce@nbgbanka.co.yu SWIFT: ETHNYUBG Staﬀ: 435 Auditor in 2005: DELOITTE&TOUCHE

Members of the Management Board Main shareholders (over 5%)

Members of the Management Board

Bernard De Wit, President of the Management Board Dominique Tissier. Chairman of the Executive Board Baudoin Merlet, Ognjen Medić, Geoffroy de Lassus, Thierry Girard, Thierry Langreney, Hugues Robert, indepedent, Tomislav Đorđević, indepedent, Zoran Drakulić, indepedent

Darko Botić, President of the Management Board Ananije Pavićević, Chairman of the Executive Board Nenad Rakić, Milan Tepić, Nada Milankov, Aleksandar Maksimović, Eduard Šegec, Dušan Martinović, Dušan Vučićević, Dijana Srdić, Zoran Radosavljević, Jovan Lazarević, mr Vagharshak Barseghyan, indepedent, Rok Pivk, indepedent, Stanko Todorović, Anka Lončar, indepedent

Executive Board

Dominique Tissier. Chairman of the Executive Board Ognjen Medić

Executive Board

Ananije Pavićević, Chairman of the Executive Board Milan Tepić, Eduard Šegec, Dijana Srdić, Nada Milankov

Organizational Structure

NATIONAL BANK OF GREECE, 100.00% (% of the voters rights), 100.00% TOTAL Members of the Management Board

Konstantinos Bratos, President of the Management Board Dušan Skendžić, Chairman of the Executive Board Petros Fourtounis, Vojislav Lazarević, Ioannos Kiriakopoulos, Slobodan Anđić, indepedent, Đorđe Đurišić, indepedent Executive Board

Dušan Skendžić, Chairman of the Executive Board Vojislav Lazarević

Organizational Structure

REGIONAL AFFILIATES 12 MAIN AFFILIATES 28 AFFILIATES 61 COUNTERS 7

Organizational Structure

MAIN AFFILIATE 1 AFFILIATES 15 BRANCHES 51

Guide to the Serbian Banking Sector - 2007

BRANCHES 35 COUNTERS 1

Ownership Structure and Financial Reports

Source: NBS

NIŠKA BANKA A.D.

NLB CONTINENTAL BANKA A.D. NOVI SAD

NLB LHB BANKA AD BEOGRAD

11000 Belgrade Kralja Petra 9 18000 NIŠ Nikole Pašića 28 ID: 07604378 Phone: 018/524-800,524-890 Fax: 018/49-760,354-472 www: www.niskabanka.co.yu E-mail: oﬃce@niskabanka.co.yu SWIFT: NISKRS22 Staﬀ: 406 Auditor in 2005: MGI REV.I RAČUNOV.AD

21000 Novi Sad Trg mladenaca 1-3

ID: 7824521 Phone: +381-11-3020-300, 3020 365 Fax: +381-11-3020 333 www: www.lhb.co.yu E-mail: kabinet@lhb.co.yu SWIFT: PPBBCSBG Staﬀ: 450 Auditor in 2005: PWC

ID: 08250499 Phone: 381-21-6615-500 Fax: 381-21-6616-560 www: www.cont.co.yu E-mail: cont@cont.co.yu SWIFT: CS22 Staﬀ: 469 Auditor in 2005: PWC

Main shareholders (over 5%)

Main shareholders (over 5%) Main shareholders (over 5%)

OTP banka Budimpešta, 99.95% (% of the voters rights), 99.95% TOTAL

NOVA LJUBLJANSKA BANKA, 99.50% (% of the voters rights), 99.50% TOTAL

Members of the Management Board

LHB Int.Handelsbank AG, 51.00% (% of the voters rights), 51.00% TOTAL Nova Ljubljanska banka d.d., 24.90% (% of the voters rights), 24.90% TOTAL Members of the Management Board

Members of the Management Board

Gyula Pap, President of the Management Board Dr Károly Szász, Chairman of the Executive Board Peter Forrai, Jordan Velčev, Maria Balogh Janokine, Móczár Sándor, Emilija Vuksanović, indepedent, Dušan Dobromirov, indepedent Executive Board

Dr Károly Szász, Chairman of the Executive Board Jordan Velčev, Móczár Sándor Organizational Structure

Andrej Hazabent, President of the Management Board Zoran Đurović, Chairman of the Executive Board Milan Marinič, Pavel Martinuč, Niko Kač, Aleksandar Dejanović, Branko Kobal, indepedent, Petar Savatović, indepedent Executive Board

Zoran Đurović, Chairman of the Executive Board Pavel Martinuč Aleksandar Dejanović

Boris Zakrajšek, President of the Management Board Slobodan Đurišić, Chairman of the Executive Board Zoran Bizjak, Srđan Brajović, Predrag Negovan, Borut Stanič, David Benedek, indepedent, Jugoslav Mišković, indepedent, Pavel Kobler Executive Board

Slobodan Đurišić, Chairman of the Executive Board Srđan Brajović, Predrag Negovan, Pavel Kobler

Organizational Structure Organizational Structure

AFFILIATES 8 BRANCHES 7 OUTLETS 1 COUNTERS 12

MAIN AFFILIATES 6 AFFILIATES 3 BRANCHES 25 AGENCIES 38

AFFILIATES 15 BRANCHES 34 COUNTERS 4 Guide to the Serbian Banking Sector - 2007

Ownership Structure and Financial Reports

PANONSKA BANKA AD NOVI SAD

PIRAEUS BANK A.D. BEOGRAD

Source: NBS

POLJOPRIVREDNA BANKA AGROBANKA AD

11000 Belgrade Sremska 3-5 21000 Novi Sad Bulevar oslobodjenja 76 ID: 8100446 Phone: 381-21-4887-100 Fax: 381-21-488-7225 www: www.panban.co.yu E-mail: oﬃce@panban.co.yu SWIFT: PABNCS22 Staﬀ: 623 Auditor in 2005: KPMG DOO Beograd

11000 Belgrade Kolarčeva 1 ID: 17082990 Phone: 381-11-3024-040, 3024-000 Fax: 381-11-3024-052 www: www.piraeusbank.co.yu E-mail: mediacentar@piraeusbank.co.yu SWIFT: ATAASCBG Staﬀ: 394 Auditor in 2005: ERNST&YOUNG

Main shareholders (over 5%) Main shareholders (over 5%)

SANPAOLO IMI .S.P.A., 96.64% (% of the voters rights), 96.64% TOTAL

PIRAEUS BANK SAPIREUS, 98.34% (% of the voters rights), 100.00% TOTAL

ID: 7564856 Phone: 381-11-2637-622 Fax: 381-11-328-1611 www: www.agrobanka.co.yu E-mail: dusan@agrobanka.co.yu SWIFT: AGRLRSBG Staﬀ: 807 Auditor in 2005: KPMG DOO Beograd Main shareholders (over 5%)

Republika Srbija, 10.90% (% of the voters rights), 10.90% TOTAL Hypo Alpe Adria Bank AG, 8.72% (% of the voters rights), 8.72% TOTAL Members of the Management Board

Members of the Management Board Members of the Management Board

Rag, Guiseppe Cuccurese, President of the Management Board Srđan Petrović, Chairman of the Executive Board Rag. Francesco Cervetti, Marija Marić Mitrović, Dott. Flavio Gianetti, Dott. Gerardo Stigliani, indepedent, Mihailo Brkić, indepedent Executive Board

Michael Colakides, President of the Management Board Branimir Marković, Chairman of the Executive Board Ilias Milis, Ioannis Kyriazopoulos, George Mantakas, Yannis Kyriakopoulos, indepedent, George Papaioannou, Georgios Liakopoulos, indepedent, Aleksandra Jovanović, indepedent

Anđelko Brzulja, President of the Management Board Dušan Antonić,Chairman of the Executive Board, Rajko Latinović, Rajko Majstorović, Radosav Marinković, Nikola Aranđelović, Daniela Stojanović, Branislav Pešić, Živojin Plavšić, Slavoljub Korićanac, Dr. Danilo Šuković, indepedent, Dr. Mirko Vasiljević, indepedent, Dr. Marko Backović, indepedent, Aleksandar Ilić Executive Board

Srđan Petrović, Chairman of the Executive Board Marija Marić Mitrović Organizational Structure

AFFILIATES 11 BRANCHES 12 AGENCIES 5 OUTLETS 12 COUNTERS 11

Executive Board

Branimir Marković, Chairman of the Executive Board Ioannis Kyriazopoulos Organizational Structure

AFFILIATES 9 BRANCHES 12 COUNTERS 1

Guide to the Serbian Banking Sector - 2007

Dušan Antonić, Chairman of the Executive Board Rajko Majstorović, Nikola Aranđelović, Branislav Pešić, Slavoljub Korićanac Organizational Structure

AFFILIATES 15 BRANCHES 77 COUNTERS 13

Ownership Structure and Financial Reports

Source: NBS

35,95('1$ %$1.$ $ ' 3$1Ăż(92

PRIVREDNA BANKA BEOGRAD AD

ProCredit Bank A.D. BEOGRAD

11000 Belgrade Bulevar despota Stefana 68c

11000 Belgrade Bulevar oslobodjenja 4 13000 PanÄ?evo Trg slobode2-6 ID: 8222274 Phone: 381-13-344-555,305-700 Fax: 381-13- 343-050 www: www.pbp.co.yu E-mail: info@pbp.co.yu SWIFT: PBPACS22 StaďŹ&#x20AC;: 375 Auditor in 2005: MGI REV.I RAÄ&#x152;UN.AD Main shareholders (over 5%)

Republika Srbija, 92.98% (% of the voters rights), 92.98% TOTAL

ID: 7051093 Phone: 381-11-2641-064 Fax: 381-11-2641 699 www: www.pbbad.com E-mail: nkaric@pbbad.com SWIFT: PBBBCSBG StaďŹ&#x20AC;: 285 Auditor in 2005: ERNST&YOUNG DOO Main shareholders (over 5%)

Republika Srbija, 19.42% (% of the voters rights), 19.42% TOTAL HYPO ALPE-ADRIA-BANK AG, 9.42% (% of the voters rights), 9.42% TOTAL

ID: 17335677 Phone: 381-11-2077-906 Fax: 381-11-2077-905 www: www.procreditbank.co.yu E-mail: info@procreditbank.co.yu SWIFT: MFBA CS BG StaďŹ&#x20AC;: 1391 Auditor in 2005: PWC Main shareholders (over 5%)

ProCredit holding a.g.Frankfurt, 57.29% (% of the voters rights), 57.29% TOTAL European bank for reconstruction and development London, 16.67% (% of the voters rights), 16.67% TOTAL Commerzbank AG Frankfurt, 16.67% (% of the voters rights), 16.67% TOTAL Kred. fur Wiederaufbau Frankfurt, 9.37% (% of the voters rights), 9.37% TOTAL Members of the Management Board

Members of the Management Board

Nenad UroĹĄeviÄ&#x2021;, President of the Management Board SneĹžana MuniÄ&#x2021;, Chairman of the Executive Board Nadica MihailoviÄ&#x2021;, Svetlana Kavaja, Marija PanteliÄ&#x2021;, Nenad PejÄ?iÄ&#x2021;, Vesna Ä?uriÄ&#x2021;, indepedent, Marija MitiÄ&#x2021;, indepedent

Members of the Management Board

Vladimir PavloviÄ&#x2021;, President of the Management Board Ä&#x152;edo PetroviÄ&#x2021;, Chairman of the Executive Board Milan BeslaÄ&#x2021;, Darko DrinjakoviÄ&#x2021;, Tomislav Grahovac, Mirjana LakoviÄ&#x2021;, Dr Blagoje PaunoviÄ&#x2021;, indepedent, Vuk MrviÄ&#x2021;, indepedent

Dr. Klaus Glaubitt, President of the Management Board DĂśrte Weidig, Chairman of the Executive Board Dr. Klaus-Peter Zeitinger, indepedent, Mirjana Zakanji, Gabriele Heber, indepedent, Svetlana TolmaÄ?eva, Helen Alexander, Maria Teresa Zappia, Kori UdoviÄ?ki, indepedent, Per Fischer

Executive Board Executive Board

SneĹžana MuniÄ&#x2021;, Chairman of the Executive Board Svetlana Kavaja, Nenad PejÄ?iÄ&#x2021;

Ä&#x152;edo PetroviÄ&#x2021;, Chairman of the Executive Board Darko DrinjakoviÄ&#x2021;, Mirjana LakoviÄ&#x2021;

Executive Board

DĂśrte Weidig, Chairman of the Executive Board Mirjana Zakanji, Svetlana TolmaÄ?eva

Organizational Structure Organizational Structure

BRANCHES 6 OUTLETS 5 COUNTERS 1

BRANCHES 15 COUNTERS 14

Organizational Structure

MAIN BRANCH 1 BRANCHES 52 Guide to the Serbian Banking Sector - 2007

Ownership Structure and Financial Reports

RAIFFEISEN BANKA a.d., Beograd

SOCIÉTÉ GÉNÉRALE YUGOSLAV BANK AD

Source: NBS

SRPSKA BANKA A.D. BEOGRAD

11000 Belgrade Bulevar AVNOJ-a 64a ID: 17335600 Phone: 381-11-3202-100 Fax: 381-1111-220-2179 www: www.raiffeisenbank.co.yu E-mail: rbj.contact@raiffeisenbank.co.yu SWIFT: RZBSRSBG Staff: 1785 Auditor in 2005: KPMG DOO Beograd Main shareholders (over 5%)

11000 Belgrade Bulevar AVNOJ-a 50a i 50b ID: 7552335 Phone: +381-3011 400 Fax: +381-11-328-22-30 www: www.socgenyu.com E-mail: sogeyu@eunet.yu SWIFT: SOGYCSBG Staﬀ: 923 Auditor in 2005: ERNST&YOUNG

Raiﬀeisen Int. Beteiligungs, 100,00% (% of the voters rights), 100,00% TOTAL Members of the Management Board

Dr. Herbert Stepic, President of the Management Board Oliver Roegl, Chairman of the Executive Board Budimir Kostić, indepedent, Goran Kesić, Peter Lennkh, Svetozar Šijačić, Heinz Hoedl, Zoran Petrović, Tatjana AleksićWeese, indepedent, Nenad Sibinović, Martin Grüll Executive Board

Oliver Roegl, Chairman of the Executive Board Goran Kesić, Svetozar Šijačić, Zoran Petrović, Nenad Sibinović Organizational Structure

REGIONAL AFFILIATES 8 BRANCHES 49 COUNTERS 14

Main shareholders (over 5%)

Societe Generale S.A., 99.99% (% of the voters rights), 99.99% TOTAL Members of the Management Board

Goran Pitić, President of the Management Board Philippe Guidez, Chairman of the Executive Board Jean-Didier Reigner, Antoine Toussaint, Emmanuel Piot, Stephane Fortin, Serge Eveille, Miroslav Rebić, Francois d’Ornano, indepedent, Branka Pavlović, Sonja Miladinovski Executive Board

Antoine Toussaint, Stephane Fortin, Miroslav Rebić, Branka Pavlović, Sonja Miladinovski Organizational Structure

BRANCHES 65

Guide to the Serbian Banking Sector - 2007

11000 Belgrade Savska 25 ID: 7092288 Phone: 381-11-3607-200, 3607-499 Fax: 381-11-2644-854, 659-492 www: www.srpskabanka.co.yu E-mail: srpskabanka@srpskabanka.co.yu SWIFT: SRBNCSBG Staﬀ: 371 Auditor in 2005: BDO BC-EXCELL Beograd Main shareholders (over 5%)

Republika Srbija, 96.52% (% of the voters rights), 96.52% TOTAL Members of the Management Board

Goran Džaﬁć, President of the Management Board Milan Blagojević, Chairman of the Executive Board Ljubisav Jolović, Svetislav Trifunović, Vesna Petrović, Snežana Ristović, Ljubiša Đurović, indepedent, dr Goran Petković Executive Board

Milan Blagojević, Chairman of the Executive Board Svetislav Trifunović, Snežana Ristović Organizational Structure

OUTLETS 8

Ownership Structure and Financial Reports

Source: NBS

UNICREDIT BANK SRBIJA A.D. BEOGRAD

UNIVERZAL BANKA A.D. BEOGRAD

92-92é$16.$ %$1.$ $' 129, 6$'

11000 Belgrade Francuska 29

11000 Belgrade Rajićeva 27-29 ID: 17324918 Phone: 381-11-32 04 500, 33 44 100 Fax: 381-11-33 42 200 www: www.unicreditbank.co.yu E-mail: oﬃce@yu.hvb-cee.com SWIFT: BACXRSBG Staﬀ: 670 Auditor in 2005: DELOITTE&TOUCHE Main shareholders (over 5%)

Bank Austria AG, 99.84% (% of the voters rights), 99.84% TOTAL

ID: 06031676 Phone: 381-11-3022-801 Fax: 381-11-3343-017 www: www.ubbad.co.yu E-mail: oﬃce@ubbad.co.yu SWIFT: UBBGCSBG Staﬀ: 378 Auditor in 2005: MGI REV.I RAČUN.AD Main shareholders (over 5%)

EAST EUROPE INVESTMENT, 14.99% (% of the voters rights), 14.99% TOTAL Delta - broker Novi Beograd, 7.64% (% of the voters rights), 7.64% TOTAL Globos osiguranje a.d. Beograd, 6.97% (% of the voters rights), 6.97% TOTAL Uni-Global d.o.o. Beograd, 5.39% (% of the voters rights), 5.39% TOTAL Globos d.o.o.Beograd, 5.24% (% of the voters rights), 5.24% TOTAL

21000 Novi Sad Trg slobode 7 ID: 08074313 Phone: 381-21-488 66 00, 4886 735 Fax: 381-21- 6624 859 www: www.voban.co.yu E-mail: infocentar@voban.co,yu SWIFT: VBUBCS22 Staﬀ: 2384 Auditor in 2005: KPMG DOO Beograd Main shareholders (over 5%)

National bank of Greece, 99.43% (% of the voters rights), 99.43% TOTAL Members of the Management Board

Members of the Management Board Members of the Management Board

Erich Hampel, President of the Management Board Alexander Picker, Chairman of the Executive Board Wolfgang Edelmüller, Helmut Haller, Zoran Vojnović, Martin Klauzer, indepedent, Ivan Radojčić, Nikola Janković, indepedent

Budimir Jovković, President of the Management Board, Ratko Banović, Chairman of the Executive Board Milovan Đurović, Ajša Šikanja, Nebojša Novaković, Miodrag Đukić, Radmila Bajević, Miodrag Pavlović, indepedent, Rajko Koprivica, indepedent, Aleksandar Milojević, indepedent

Ioannis Pechlivanidis, President of the Management Board Marinis Stratopoulos, Chairman of the Executive Board Anthimos Thomopoulos, Zoran Radonjić, Agis Leupoulos, Vlastimir Vuković, Darko Spasić, indepedent, Prof.dr.Dejan Popović, indepedent Executive Board

Executive Board Executive Board

Alexander Picker, Chairman of the Executive Board Zoran Vojnović, Ivan Radojčić

Ratko Banović, Chairman of the Executive Board Ajša Šikanja, Miodrag Đukić

Marinis Stratopoulos, Chairman of the Executive Board Zoran Radonjić, Vlastimir Vuković Organizational Structure

Organizational Structure Organizational Structure

BRANCHES 46

AFFILIATES 13 BRANCHES 34

AFFILIATES 25 BRANCHES 63 COUNTERS 96 Guide to the Serbian Banking Sector - 2007

Ownership Structure and Financial Reports

Source: NBS

No.

Bank

Total Balance Sheet (in thousands of dinars)

VOLKSBANK AD BEOGRAD

11000 Belgrade Bulevar Mihajla Pupina 165g ID: 07792247 Phone: 381-11-2013-200 Fax: 381-11-20-13-201 www: www.volksbank.co.yu E-mail: info@volksbank.co.yu SWIFT: VBOECSBG Staﬀ: 310 Auditor in 2005: KPMG DOO Beograd Main shareholders (over 5%)

Volksbank international AG, 95.65% (% of the voters rights), 95.65% TOTAL Members of the Management Board

Dr. Michael Oberhummer, President of the Management Board Axel Hummel, Chairman of the Executive Board Mag. Gerhard Wöber, dr Radovan Martinek, Oliver Waldthaler, Gordana Matić, Andrew Ostaszewski, indepedent, Branislav Ćosić, indepedent Executive Board

Axel Hummel, dr Radovan Martinek Chairman of the Executive Board Gordana Matić Organizational Structure

BRANCHES 13

Guide to the Serbian Banking Sector - 2007

A banka a.d. Beograd

4,498,376

Agroindustrijska komercijalna banka AIK banka a.d. Niš

Akcionarsko društvo Zepter banka Beograd

38,309,610 7,353,831

Alpha Bank Srbija a.d. Beograd

37,701,780

Banca Intesa a.d. Beograd

Banka Poštanska štedionica a.d. Beograd

125,220,369 17,709,483

ÿDĀDQVND EDQND D G ÿDĀDN

6,807,247

Credy banka a.d. Kragujevac

5,394,141

Erste Bank a.d. Novi Sad

22,899,512

10.

Eurobank EFG štedionica a.d. Beograd

62,918,903

11.

Findomestic banka a.d. Beograd

12.

Hypo Alpe-Adria-Bank a.d. Beograd

6,164,040

13.

JUBMES banka a.d. Beograd

4,683,916

14.

Jugobanka Jugbanka a.d. Kosovska Mitrovica

7,333,895

15.

Komercijalna banka a.d. Beograd

16.

.RVRYVNR 0HWRKLMVND EDQND D G =YHĀDQ

17.

Kulska banka a.d. Novi Sad

18.

Laiki Bank a.d. Beograd

19.

Meridian Bank-Credit Agricole group a.d. Novi Sad

112,118,443

102,218,519 403,767 24,661,873 8,821,813 22,536,129

20.

Metals-banka a.d. Novi Sad

21.

National Bank of Greece a.d. Beograd

9,451,599

22.

Niška banka a.d. Niš

23.

NLB Continental banka a.d. Novi Sad

22,929,112

24.

NLB LHB banka Beograd a.d.

12,032,172

27,230,644 3,540,116

25.

Panonska banka a.d. Novi Sad

16,100,491

26.

Piraeus Bank a.d. Beograd

21,151,369

27.

Poljoprivredna banka Agrobanka a.d. Beograd

20,440,136

28.

3ULYUHGQD EDQND D G 3DQĀHYR

5,483,499

29.

Privredna banka Beograd a.d. Beograd

30.

ProCredit Bank a.d. Beograd

38,507,446

8,553,273

31.

Raiffeisen banka a.d. Beograd

144,017,750

32.

Societe Generale Yugoslav Bank a.d. Beograd

52,399,320

33.

Srpska banka a.d. Beograd

8,377,464

34.

Unicredit Bank Srbija a.d. Beograd

35.

Univerzal banka a.d. Beograd

36.

9RMYRāDQVND EDQND D G 1RYL 6DG

46,327,240

37.

Volksbank a.d. Beograd

36,685,561

TOTAL:

68,380,044 9,907,688

1,169,270,571

5HSUHVHQWDWLYH 2IÀ FHV

Source: NBS

HOW TO OPEN A FOREIGN BANK’S REPRESENTATIVE OFFICE IN THE REPUBLIC OF SERBIA

foreign bank may set up a representative office in the territory of the Republic of Serbia for the purposes of market research and representation. As of 1st October 2006, when the Law on Banks came into force, the provisions of this law and the Decision on Detailed Requirements and the Procedure for the Granting and Revoking of Approvals for the Opening of the Representative Office of a foreign Bank in the Republic of Serbia (“Official Gazette of the RS”, no 53/2006), apply to the opening of a foreign bank representative office in the Republic of Serbia. Pursuant to the provisions of the Law, a foreign bank representative office is to be registered in conformity with the law governing the registration of business entities, subject to the approval granted by the National Bank of Serbia Foreign bank representative offices established in conformity with the Law on Banks and Other Financial Organisations were required to comply with the provisions of the Law on Banks within one year from the day of its entry into force, or by 10th December 2006. Application for approval, to be submitted by the foreign bank to the National Bank of Serbia, should include: - the name, head office and address of the foreign bank; - the name, head office and address of the representative office that is being opened’

- data on the person responsible for the operations of the representative office that is being opened - data on the number of persons to be employed in said representative office. Along with the application, the bank should also submit: - a certificate issued by a regulatory authority of the country of origin that it holds an operating license and necessary authority to open a representa$ IRUHLJQ EDQN UHSUHVHQWDWLYH RIÀ FH will be re uired to submit a report on its operations to the National Bank of Serbia, by 31st March of the current year for the preceding year, and to notify the National %DQN RI 6HUELD RI DOO FKDQJHV VLJQLÀ FDQW for the operations of said representative RIÀ FH ZLWKRXW GHOD\ tive office in the Republic of Serbia, or evidence that such authority is not required subject to the regulations of such country; - data on its name, legal status and head office; - a copy of its memorandum of incorporation; - data on its financial standing (financial statement with certified auditors’ opinion for the preceding business year); - a decision of its competent body on opening a representative office; - a decision on appointing a person

responsible for the operations of the representative office and a letter of authority for said person; - data on the business name and head office of the representative office; - a proposal of activities and draft work plan of the representative office; - data on the management of the representative office, i.e. the biography of the person responsible for the operations of the representative office, and permanent or temporary residence permit for said person, and - a certified statement whereby the bank confirms that it assumes all liabilities arising from the operations of its representative office. The aforementioned conditions are prescribed in the Decision on Detailed Requirements and the Procedure for the Granting and Revoking of Approvals for the Opening of the Representative Office of a Foreign Bank in the Republic of Serbia (“Official Gazette of the RS”, no 53/2006), to be applied as of 1st October 2006. A foreign bank will submit an application for entry of its representative office in the Register of Business Entities within 30 days from the day of obtaining approval from the National Bank of Serbia. The representative office of a foreign bank will submit the decision on entry in the register to the National Bank of Serbia within five days of receiving such a decision.

Guide to the Serbian Banking Sector - 2007

Source: NBS

5HSUHVHQWDWLYH 2IÀFHV

LIST OF BANKS AUTHORISED TO PERFORM INTERNATIONAL OPERATIONS

EXISTING REPRESENTATIVE OFFICES OF FOREIGN BANKS IN SERBIA

1. A BANKA AD BEOGRAD 2. AGROINDUSTRIJSKO KOMERCIJALNA BANKA AIK BANKA AD NIŠ 3. ALPHA BANK SRBIJA AD BEOGRAD 4. BANCA INTESA AD BEOGRAD 5. BANKA POŠTANSKA ŠTEDIONICA AD BEOGRAD 6. CREDY BANKA AD KRAGUJEVAC 7. ČAČANSKA BANKA AD ČAČAK 8. ERSTE BANK AD NOVI SAD 9. EUROBANK EFG ŠTEDIONICA AD BEOGRAD 10. FINDOMESTIC BANKA AD BEOGRAD 11. HYPO ALPE - ADRIA - BANK AD BEOGRAD 12. JUBMES BANKA AD BEOGRAD 13. KOMERCIJALNA BANKA AD BEOGRAD 14. KULSKA BANKA AD NOVI SAD 15. LAIKI BANK AD BEOGRAD 16. MERIDIAN BANK - CRÉDIT AGRICOLE GROUP AD NOVI SAD 17. METALS - BANKA AD NOVI SAD 18. NATIONAL BANK OF GREECE AD BEOGRAD 19. NIŠKA BANKA AD NIŠ 20. NLB CONTINENTAL BANKA AD NOVI SAD 21. NLB LHB BANKA BEOGRAD AD 22. PANONSKA BANKA AD NOVI SAD 23. PIRAEUS BANK AD BEOGRAD 24. POLJOPRIVREDNA BANKA AGROBANKA AD BEOGRAD 25. PRIVREDNA BANKA AD PANČEVO 26. PRIVREDNA BANKA BEOGRAD AD BEOGRAD 27. PROCREDIT BANK AD BEOGRAD 28. RAIFFEISEN BANKA AD BEOGRAD 29. SOCIÉTÉ GÉNÉRALE YUGOSLAV BANK AD BEOGRAD 30. SRPSKA BANKA AD BEOGRAD 31. UNICREDIT BANK SRBIJA AD BEOGRAD 32. UNIVERZAL BANKA AD BEOGRAD 33. VOJVOĐANSKA BANKA AD NOVI SAD 34. VOLKSBANK AD BEOGRAD 35. ZEPTER BANKA AD BEOGRAD

AKB “EUROAXIS BANKA”, MOSKVA Address: 3 Zmaj-Jovina st., Belgrade Phone: (381)11 3283-514, 3283-422 Fax: 381 11 637-157 Director: Mirjana Mijušković

Guide to the Serbian Banking Sector - 2007

BNP PARIBAS, PARIS Address: 22 Obilićev venac st., Belgrade Phone: (381)11 3284-860, 3284-861 Fax: 11/3288-377 E mail: philipe.kirchner@bnpparibas.com Director: Philippe Kirchner DEUTSCHE BANK AKTIENGESELLSCHAFT,FRANK FUTRT/MAIN Address: 16 Terazije st., Belgrade Phone: (381)11 3031-925, 3031-926, 3031-930 Fax: (381)11 3610-829 Director: Wolfgang A. Walter LHB INTERNATIONALE HANDELSBANK A.G.FRANKFURT/MAIN Address: 29/I Dobračina st., Belgrade Phone: (381)11 3030-261, 3030-260, 627-710 Fax: (381)11 3030-262 Director: Jugoslav Mišković COMMERZBANK AG FRANKFURT/MAIN Address: Genex Apartmani (A-112) 6 Vladimira Popovića st., New Belgrade Phone: (381)11 3018-520 Fax: (381)11 3018-523 E mail: hans-joerg.krohn@commerzbank.com Director: Hans-Jorg Krohn CITIBANK N.A., LAS VEGAS Address: 64/IV Bulevar AVNOJ-a st., Belgrade Phone: (381)11 2209-300 Fax: (381)11 2209-310 Director: Tibor Pandi

Guide to the Serbian Banking Sector - 2007

100 Guide to the Serbian Banking Sector - 2007