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Another step into Serbia

Serbia’s decision to focus on selling banks is drawing Greek institutions into the country, despite continuing political risk. Kerin Hope reports.
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Alpha Bank’s acquisition of Jubanka, a Belgrade-based bank with a 4% share of Serbia’s fragmented banking market, marks a new commitment by Greek banks to a country that is still perceived as one of the most risky in the region. While Athens-based banks have been expanding aggressively in Bulgaria and Romania, they had moved cautiously in Serbia, setting up small branch networks to complete a regional presence and serve Greek corporate customers that were already established in the country.

But the Serbian government’s decision to stop issuing banking licences to foreign investors and focus on privatisation sales has accelerated change.

Alpha agreed to pay €152m for 89% of Jubanka – 1.5 times book value – and would buy the remaining 11% of Jubanka from small shareholders. This compared with Banca Intesa’s €277m acquisition of Delta Banka, Serbia’s second-biggest bank with a market share of 11%.

The Serbian government plans to privatise another three banks this year and the list of possible buyers includes OTP of Hungary, Italy’s Unicredito, and Bank Austria Creditanstalt – all of which are already active in Balkan markets.

 Confidence rises

 The arrival of foreign players has helped to boost confidence in Serbia’s banking sector. Assets held by Serbian banks increased 41% in 2004. Eight foreign banks controlled about 30% of the market at the end of last year after making significant gains in the second half. Following the sales of Jubanka and Delta Banka, the state controls only about 30% of total assets.

Until the Jubanka acquisition, Alpha had lagged behind its two Greek rivals, EFG Eurobank and National Bank of Greece (NBG), in penetrating the regional market. It had small branch networks in Albania and Bulgaria, and subsidiaries in Romania and Macedonia. “There’s been a rethink of strategy,” says Spyros Filaretos, head of regional operations at Alpha. “We had been expanding in the region at a conservative rate. Now we see an opportunity for much faster expansion, increasing our presence in Romania and Bulgaria in parallel with Serbia.”

 Committed to Serbia

 NBG, which was among the first of the foreign banks to acquire a licence for a green-field operation, is still committed to organic growth in Serbia. EFG Eurobank, which last year acquired Posta Banka (renamed EFG Eurobank Beograd), is expanding its network but is also considering an acquisition.

Serbia posted the region’s highest growth rate last year: its economy expanded by almost 8%, thanks to strong growth in the farm sector and a recovery in industry. This year’s growth target of 4.5% is regarded as conservative, in spite of fiscal tightening and measures to curb credit expansion.

Remittances from about 700,000 Serbians working abroad helped to fuel a surge in imports and the start of a consumer boom. But the level of financial intermediation is low, with an estimated 50% of economic activity taking place outside the banking system. “There is plenty of mattress money to be attracted into the banks,” says Mr Filaretos.

 Political risk remains

 But Serbia still carries political risk. Its relationship with the EU lags behind those of Macedonia and Albania. Progress on a feasibility study for an EU stabilisation and association agreement is tied to the transfer of suspected war criminals to the international tribunal at the Hague. The government faces difficult choices about the future status of Kosovo and of Serbia’s union with Montenegro.

Serbia’s B-plus long-term foreign currency rating from Standard & Poor’s is two notches below the BB long-term currency rating awarded to Macedonia, which two decades ago was the poorest republic in the former Yugoslav federation but is now a candidate for EU accession. Serbia’s lower rating also reflects its high current account deficit, which is equal to about 13% of GDP, the highest in the region.

Mr Filaretos says that Serbia is a more promising market than its credit rating implies. “Until the early 1990s, there was a normal banking market in Serbia, unlike the other Balkan countries. So there is an existing banking culture that’s being revived,” he says.

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