Serbian banking sector heading towards more consolidation

Serbia’s banking sector is facing major changes, including mergers and takeovers, but bank clients are unlikely to feel many benefits, experts say.

Recent acquisitions of international banks by local buyers look like the first steps towards a long-awaited consolidation of Serbia’s banking sector.

However, most experts believe that despite the significant restructuring and regrouping that has started and is expected to continue in the banking sector, significant changes in the performance of this sector are unlikely. “The potential for organic growth is quite limited,” Ismail Musabegovic, from the Belgrade Banking Academy,

MK Group, controlled by Serbian businessman Miodrag Kostic, on January 31 said its subsidiary, AIK bank, had agreed the takeover of Greek Alpha Bank. With around €1.5 billion in assets and 5.5 per cent of the market share, AIK is the sixth largest bank in Serbia already and now has a chance to improve its position.

Also at the end of January, Direktna Banka Kragujevac, owned by Serbian businessmen Andrej Jovanovic and Boris Milovanovic, bought 100 per cent of the shares in Findomestic, a subsidiary of BNP Paribas. Previously, last July, the same two Serbian businessmen bought the subsidiary of Slovenian NKBM bank in Serbia, KBM Kragujevac, which now operates as Direktna Banka Kragujevac.

In both cases, the new owners have a successful history outside the banking world.

In 2016, Czech Expobank, owned by Russian businessman Igor Vladimirovich Kim, bought Marfin Bank in Serbia from Cyprus Popular Bank.

Earlier, in 2015, the investment fund Advent and the European Bank for Reconstruction and Development, EBRD, took over the Austrian Hypo Group Alpe Adria, which now operates under a different name, Addiko.

The consolidation of banks through sales and merges is expected to continue, with the expected sales of other three Greek banks operating in Serbia – Piraeus, Eurobank EFG and Vojvodjanska Banka – the latter a subsidiary of National Bank of Greece Group, NBG – as well as the expected privatisation of Komercijalna Banka, in which Serbian government is the largest shareholder.


Experts are not surprised by recent moves in the market, which they see as the long-awaited repercussion of the global financial crisis.

Musabegovic said that sales of Greek banks in the region forms part of a Greek agreement with the European Commission, European Central Bank and the International Monetary Fund, IMF. “Alpha Bank is first to be sold and it is now subject to regulatory procedures and others are likely to follow,” Musabegovic said, adding that Piraeus Bank would likely be next in the queue.

Radovan Jelasic, former governor of National Bank of Serbia, now a member of the Hellenic Financial Stability Fund in Greece, confirmed in an interview for the daily Danas on January 28 that all Greek banks in Serbia are up for sale. The process of consolidation had started but would take time, he said, reminding that the due diligence process alone, which precedes a takeover, takes months. “Serbia now has 30 banks and we can expect this number to reduce to 20-to-25, through mergers and consolidation,” he noted.


Whereas Greece’s strategy for its banking sector is clear, the Serbian government’s strategy for partially or fully state-owned banks remains unclear.

Komercijalna Banka, in which the government holds 42 per cent of stocks, is expected to be put up for sale as part of an agreement with EBRD, its largest foreign partner. The future of smaller state-owned banks is less clear, as many past ideas for merging several banks into one were never realised.Merging small banks into one would likely “attract the interest of a respectable partner; if they are taken separately, this is unlikely to happen,” Culibrk said.

The only exception, he noted, was Cacanska Banka which was taken over by Turkey’s Halkbank. Besides business reasons, however, this purchase was motivated also by Turkey’s strategic goal of strengthening its position in Serbia and the rest of the Balkans.

Despite the recent takeover of the two foreign banks by local businessmen, the share of Serbian individuals and companies in Serbia’s total bank assets is likely to decrease, experts believe.

“If Komercijalna Banka, the second largest in the market, is put up for sale, the bidder is unlikely to be someone from Serbia, as it would require much larger capital than in previous cases,” Musabegovic said.

He also warned that one of the first consequences of market consolidation could be further reduction of the workforce. “One of the first measures when the bank goes into restructuring is to reassess the bank’s network of branches as well as the workforce,” he noted. “A number of employees would probably lose their jobs in this process,” he added.

On the other hand, he expects no significant changes for bank clients or a dramatic change in the top five banks, namely Intesa, the market leader, Komercijalna Banka, Unicredit Bank, Raiffeisen Bank and Societe Generale. He said AIK may be able to break into the top five, but otherwise, the current market order will not change significantly.


Musabegovic also said that as banks find it “difficult to earn on big margins … it wouldn’t be a surprise if they try to compensate this by increasing the costs of other services, such as account maintenance, credit cards, etc,” he added. Culibrk also does not expect mergers and increased competition to result in big improvements for bank clients, as the recent history shows. “Nothing dramatic will change, as we have seen it all before,” he said.

“When foreign banks first came to Serbia, it was expected that they would bring European rules of business, but it never happened,” he added. “As one previous bank governor had said, they quickly gained Balkan manners and adapted to local practices,” he warned.

Interest rates in the past three years dropped significantly but Culibrk argues that external factors are the main reason for that. The average interest rates on loans in 2016 fell to 4.4 per cent for loans in euros and to 8.8 per cent for loans in the local dinar, which was 10.1 and 2.8 per cent lower than the 2013 rates respectively.

By Stevan Veljovic

(Balkan Insight, 17.02.2017)

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