ECONOMY

Serbs trust foreign banks more to deposit their hidden money

BELGRADE – Milan lost all his savings during Slobodan Milosevic’s turbulent rule. Now, the elderly Serb says he would only trust a foreign bank with his money. «Everything I worked for and everything I earned in 55 years was lost when the banks took our money,» Milan, giving only his first name, told Reuters on a cold, gray Belgrade morning. «After that experience I will never give a single dinar to a local bank.» With many people still deeply mistrustful of domestic banks, foreign-owned groups that entered Serbia after reformers ousted Milosevic in 2000 were able to quickly establish a foothold, as they have previously done elsewhere in the Balkan region. Focusing both on corporate and retail banking, they are setting up branches across the impoverished Yugoslav republic with the aim of becoming strong players in an emerging financial services market which they believe offers plenty of potential. «There is more trust in foreign banks than there is in domestic banks due to the fact that the past 10 years have been very chaotic,» said Vojislav Lazarevic, deputy head of the local unit of the National Bank of Greece. «It is a market that is thirsty for quality banking services,» he said. Compared to others in the area, it is still a virgin market, he added. For banks which aim to cover southeastern Europe, Serbia was a blank on the map when Milosevic was in power in the 1990s – a decade plagued by wars, isolation and economic turmoil. In contrast, they moved aggressively into other Balkan countries, buying local banks and opening branch offices. Balkan banking In Croatia, for example, foreign-owned banks control more than 90 percent of the sector. In the Former Yugoslav Republic of Macedonia (FYROM), the National Bank of Greece owns most of the leading bank Stopanska Banka. Thirteen out of 14 banks in Albania are foreign-controlled. The largest, the Savings Bank, remains state-owned but the government wants to sell it to a strategic investor abroad. In Bosnia, about half of the 40 banks are fully or majority-owned by foreign banks. They dominate the market with up to 80 percent of all deposits, which have grown rapidly. Banks from Austria, Germany and Greece moved to set up shop in Serbia soon after Milosevic was toppled, attracted by a large market of roughly 8 million people in the heart of the Balkans. «We were basically just waiting for the Milosevic government to disappear,» said Oliver Roegl, a managing board member of the local unit of Raiffeisenbank, one of Austria’s largest banks. It now boasts more than 20 percent of all retail deposits, just behind the local bank Komercijalna, which has many more offices. Raiffeisen has 10 branches in Serbia and plans to open the same number again this year. «We want to be among the top three banks in Yugoslavia,» Roegl said. Foreign bank executives and others say the lack of confidence in local banks makes it relatively easy for them to attract clients. Many Serbs lost money in the early 1990s, when the authorities froze around 3.8 billion euros ($4.10 billion) of hard currency savings and when two banks paying high interest rates on deposits collapsed in 1993. People kept their remaining savings at home or in banks abroad – funds which have started to trickle back into the banking system only over the past year or two. According to the Yugoslav central bank, deposits rose to 800 million euros in December. Bankers say roughly 3 billion euros are still held in homes or elsewhere. Banks have begun to offer credit cards, but it is still largely a cash-based economy. ‘Mattress money’ There is a lot of money out there. «To convince them to bring it here is the name of the game,» said Christoph Greussing, chairman of the Yugoslav unit of HVB Bank, one of Germany’s largest. HVB set up its Belgrade office in late 2001 and plans to open around 10 more branches in Serbia as soon as possible. Despite its limited presence, it ranks seventh in terms of total savings deposits. Two other foreign-owned banks, development-oriented Micro Finance Bank and France’s Societe Generale, are also among the top 10. Serbian officials believe the foreign banks’ presence will help improve services and boost confidence in a sector which remains weak and in its infancy by Western standards. Total credit volumes are low and borrowing costs too high for many individuals and companies. They also hope that future foreign investors will purchase local banks rather than set up their own networks. The central bank stopped issuing so-called greenfield licenses in 2001, forcing any new entrant to buy its way into the market. «We want to solve part of our headache. We think there are enough banks on the market,» said Radovan Jelasic, vice governor of the Yugoslav central bank, adding that Italian banks had shown interest. Later this year, Serbia plans to sell its stakes in 14 banks it took over last summer. One of them, Novosadska Banka, said in December the most likely partner in its privatization would be UniCredito, Italy’s largest bank by market capitalization, which owns the leading Croatian bank, Zagrebacka. The reformist authorities have won Western praise for efforts to restructure a virtually bankrupt banking sector, including the closure a year ago of four big, debt-burdened groups that left around 8,000 people without jobs. Many other, smaller banks have gone into liquidation or merged, reducing the total number to less than 50 from 84 two years ago. The trend is likely to continue, partly as a result of a planned doubling of the minimum capital requirement to 10 million euros. «In my opinion this is a market for about 15 banks, not more,» said Lazarevic of the National Bank of Greece, one of around seven foreign banks now present in the republic. But while foreign banks see the Serbian market as promising, they also complain that it remains a tough environment to operate in. «The potential of the country is really big, the location is good, people are very Western, they have good education and there is a long tradition of trading with the West,» said Klaus Mueller, managing director of the Micro Finance Bank in Yugoslavia. But, he added, «we still have a lot of red tape, a lot of over-regulation, and of course these bad old habits are dying very slowly.»