Blueprint to restructure Serbia’s largest bank ahead of privatization

BELGRADE – Serbia’s Bank Rehabilitation Agency has drafted a plan to strengthen troubled Vojvodjanska Banka, the nation’s biggest bank, before offering it for privatization, a Finance Ministry official said yesterday. The proposal to restructure Vojvodjanska’s 16.6-billion-dinar ($286.7 million) bad-debt portfolio needs to be endorsed both by the government and the World Bank, said the head of the Finance Ministry’s banking sector department, Vlada Manic. Analysts said the World Bank would have preferred an outright sale of Vojvodjanska, 98 percent-held by the state, but the Bank Rehabilitation Agency thought an effort to carve out part of the bad debt could boost Vojvodjanska’s price. Resolving Vojvodjanska’s troubles is key for Serbia to qualify for a second, $40 million tranche of World Bank assistance for private and financial sector structural reforms and continued International Monetary Fund financing. «Considering that Vojvodjanska cannot attract buyers in its present shape, small changes have been made to increase its future price. But the changes do not clash with the World Bank program,» Manic told Reuters. Vojvodjanska, with a 15 percent market share, is among 16 banks nationalized in 2002, when the central bank decided to swap their debts to foreign lenders into state-held equity. It escaped closure in 2002 when Serbia shut four big, loss-burdened banks. Manic said the state would buy back claims Vojvodjanska has against 10 Serbian firms, including power and oil monopolies, and replace the bank’s 16.6-billion-dinar non-performing loan portfolio with a five-year, 5.5-billion-dinar government bond. «The bond will be parked in Vojvodjanska’s portfolio, bringing the bank 330 million dinars in annual interest and allowing it to use the money to grant loans to both retail and corporate clients. The state repays the 5.5 billion dinars in cash after the fifth year,» Manic said. The bond carries no foreign exchange clause that would allow for exchange rate differential adjustments on top of 6.0 percent annual interest, to be paid in semiannual installments. Serbia’s 2003 retail price inflation stood at 7.8 percent, while its dinar currency depreciated 11.3 percent. The proposed plan will mean an immediate cost of 1.24 billion dinars ($21.42 million) for the 2004 state budget. It includes 330 million dinars for interest payment, a 700-million-dinar cash recapitalization of the bank and 210 million dinars for redundancy payments as the bank cuts its work force, Manic said. Vojvodjanska Banka did not wish to comment on the plan before it was reviewed by the World Bank experts later this week. Asked what the bank would get from the government bond, a senior bank official said, «We could use it as collateral for future loans.» If the government and the World Bank endorse the plan, Vojvodjanska could be offered for sale by mid-2005, Manic said.

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