The Banking Market in Serbia 2006 - CEE Banking Series: Industry Research Report

The Banking Market in Serbia 2006 - CEE Banking Series

Published Date: January 2006

Published By: Intelace Research

Page Count: 55

Order Code: R3432-6

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• The banking system in Serbia has experienced dramatic changes within last few years. In the year 2000 most banks faced problem of low liquidity and bad loans inherited from the previous regime. In course of restructuring efforts lead by the Central Bank together with Bank Rehabilitation Agency, during 2001-2002 many banks have been shut down, some have been merged with stronger ones, and few others have been saved by debt-equity swaps with the State. Since 2003 the overall condition of banks in Serbia is improving. Depositors confidence has been partially restored and money circulating outside the sector is finding the way to banks again

• The banking market is still highly fragmented. More than 40 banks are operating in the country. The majority are small local players with market shares below 1%. A consolidation seems to be unavoidable. Smaller banks will have either to merge and grow or to specialize in niches

• A privatization process and M&A activity is a big issue at the moment. During the year 2005, ten large deals have been closed. Further transactions are expected during 2006, including the privatization of the #5 player: Vojvodjanska banka, drawing attention of a dozen of international banks willing to invest in the region

• Banking market in Serbia is very promising. Extremely low PFA levels and still relatively low PFLs create a big upside potential. Serbia households are still holding cash reserves at home - so called ”mattress money” that could be possibly attracted to the banks, provided the confidence in the banking system will be fully restored

• Unfortunately the overall macroeconomic situation is still difficult. Inflation is out of control and the Dinar is constantly depreciating. This situation is obviously discouraging the use of local currency by individuals. As a result banks have problems in asset-liability management as large short term FX deposits can not be easily converted into the long term lending in local currency.

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