Focus: Banking Sector

In Which Direction is the Banking Sector Headed in Serbia?

The announced privatisation of Komercijalna Banka has again prompted the question of banking sector consolidation to emerge among experts and the general public. Contrary to expectations from the beginning of the 2000s, the arrival of global banking groups and conglomerates now seems unlikely, but new market entrants are not excluded

Which banking groups will manage to survive this time of low-interest rates and a small and shallow banking market with a relatively weak economy? What does the growth of banks under domestic private ownership tell us about the banking sector in Serbia? Is the regional expansion of banks with Serbian equity a trend or an exception? These are the questions we posed to our experts from the banking sector.


Jorgovanka Tabaković
Governor of the National Bank of Serbia

Strengthening Competition is a Natural Response to a Well-regulated Market

Consolidation of the banking sector in Serbia is the result of global movements, which implies the merging of banks in major global chains and local market characteristics

The issue of falling numbers of banks is partly related to global consolidation processes within the scope of banking groups that operate in Serbia, and partly a result of the strategy of banks to use takeovers to secure an optimal market position. In both cases, the consolidation of the banking sector is a consequence of changes that consider both specificities in the international environment and the specificities of the domestic banking market. The trend of low-interest rates has continued in 2019 and is a result of the easing of monetary policy by the National Bank of Serbia, lower interest rates on the money market in the eurozone, lower country risk premiums and increased competition between banks. Under conditions of reduced interest rates and interest margins of banks, the banking sector has still achieved satisfactory profitability. These trends are a result of increased efficiency of the banking sector, primarily in resolving the issue of problematic loans, the share of which has reduced since 2015 by almost 17 percentage points – to 5.4%, which is the lowest level of participation in total loans since this indicator has been monitored.

The National Bank of Serbia contributes to strengthening competition in the banking market by supporting the entry of credit rating investors into the banking sector of Serbia, and without making the distinction between domestic and foreign or private and state investors in so doing. The diversity of the ownership structure of the banking sector, in terms of country of origin of the owners, including local owners, can only increase the resilience of the banking sector against potential shocks that could possibly come from the external environment, and in this sense strengthen the stability of the banking system as a whole. When it comes to plans for the regional expansion of banks with Serbian equity, it should be noted that the adoption of such decisions is mostly determined by the interests of a bank’s shareholders, as well as the long-term strategy of a bank regarding its presence on certain markets. The fact that banks under domestic private ownership are recognised as desirable investors, and investors with a good reputation in the banking market of the European Union and the region, certainly represents yet more confirmation of the results achieved and the credibility of the Serbian banking system and the National Bank of Serbia, as the supervisor and regulator of that system.


Branko Greganović
Chairman of the Executive Board of NLB Bank

Interest in the Banking Sector Among Domestic Investors is Encouraging News

The trend of falling interest rates is caused primarily by a lack of sufficient opportunities to utilise financial resources and certainly impacts on the operational results of financial institutions. This requires the further optimisation of operations, which certainly encourages consolidation within the banking sector in Serbia

Reductions in the number of banks is a process that has marked our market to a great degree in the past decade and was quite expected, if we consider that during certain periods there have been as many as 40 banks operating on the territory of Serbia, which is realistically too much for a market of this size. This process already started, to a certain extent, with the emergence of the global economic crisis, which negatively influenced the growth of operations in the financial sector, on the one hand, while on the other was the compelling of part of banking groups to reduce their activities or completely abandon some markets, because that was the only way to ensure the sustainability of their business activities.

The trend of falling interest rates is caused primarily by a lack of sufficient opportunities to utilise financial resources and certainly impacts on the operational results of financial institutions. This requires the further optimisation of operations, which certainly encourages consolidation within the banking sector in Serbia. We expect this process to continue and that we will have an opportunity to witness new mergers and acquisitions, the departures of some banks from the market, but also the appearance of some new players. The solution for some financial institutions will be to focus on specific market niches and specialise in working only with certain segments of clients. The process of consolidating the Serbian banking sector should be considered as a process that unfolds according to market principles and contributes to the further stabilising and strengthening of our financial sector. In this process, the space vacated by certain international groups has been filled with the arrival of some entrepreneurs from this area.

When it comes to increasing the number of banks under domestic ownership, I don’t think this relates to a trend, but rather to the fact that some Serbian entrepreneurs and investors estimate that banks in Serbia and the region currently represent a good investment opportunity. In any case, I consider this is a positive signal, especially due to the fact that it relates to domestic investors. Interest among local investors is encouraging news, both when it comes to investments in banking and investments in the real sector.


Branko Živanović
Associate Professor and Head of the Belgrade Banking Academy’s Department of Economics and Finance

This is a Market for Regional Players

I expect interest in the Serbian market to strengthen among good regional players like OTP and possibly Turkish and Asian banks

The number of banks on the market is not – and shouldn’t be – primarily conditioned by the trend of low-interest rates, but rather primarily by the degree of development of the economy and the financial market, as well as their further development prospects. Conservative banking dogma adheres to the rule “one universal bank per million inhabitants”, but modern banking practises often refute that, so in countries with far more developed economies, such as Italy or Austria, the number of banks exceeds that envisaged ratio by far. The banking system in Serbia certainly comes under the category of one of the most stable, most developed, adequately capitalised and well-controlled segments of the national economy, despite accumulated NPLs and somewhat slower lending activity. However, the dimensions and depth of the national market are such that in the future, further concentration and reduction of the number of banks on it should be expected. The most developed global banking groupings and conglomerates should not be expected to be expected, and even some of them will withdraw at this stage. This inevitability is not the result of our mistakes or omissions, but the strategic orientation of superior banking groups in the wider and deeper markets, dictated by the new digital co-configuration of the bank and the change of the business model. The disruption of new banking-financial technology is hardly feasible in small markets. Thus, the main precondition for the success of the new financial and technological banking matrix is the size of the market, which makes the Serbian market, at present, not too deep and attractive for superior players who are increasingly streamlining their business. More and more interest in this market at the current stage will show, otherwise good systems like OTP, possibly Turkish and Asian banks that find interest, primarily for the start, are tracking companies from their countries and operating at these profit margins. True, and international investment funds, but exclusively for repackaging and further sale.

The fact that Serbian bankers are entering the banking sector is more of an exception that shows the current lack of interest in the domestic market among foreign investors, as well as the opportunity for local investors to realise extra profits quickly – through the decapitalisation of banks they’ve purchased – by reducing the number of employees, selling NPLs, selling fixed assets, and through the price to buy banks ranging in amounts of 30 to 50 per cent of their capital.



Nenad Gujaničić
Banking Expert, Analyst

We’ll Have a Big Four and Lots of Small Banks

In the near future, we’ll probably face a banking sector that is dominated by four banks: Intesa, Unicredit, OTP – provided negotiations on the acquisition of Societe Generale bank are concluded successfully – and the bank that takes over Komercijalna banka, the privatisation of which is underway

The trend of global low-interest rates and increased regulatory demands render the business environment fairly tough for banks, but the consolidation of the domestic banking market would be on the agenda even without these circumstances. This merely accelerates the process and In the near future we’ll probably face a banking sector that is dominated by four banks: Intesa, Unicredit, OTP – provided negotiations on the acquisition of Societe Generale Bank are concluded successfully – and the bank that takes over Komercijalna Banka, the privatisation of which is underway. These four banks will each have an individual share exceeding 10 per cent, and will together account for around 60-70 per cent of total banking sector assets, so it could be said that they will be dominant in shaping banking product trends. Behind them will remain a few banks with market shares of three to seven per cent, with a large majority having a market share of less than three per cent and fighting for survival, not being part of the continuing consolidation of the sector.

Guided by negative experiences from the 1990s, the National Bank of Serbia didn’t allow local capitalists to be the dominant owners of banks for a long time. If we look at developments in the domestic banking sector over the past ten years or so, primarily following the outbreak of the global economic crisis, it can be said that this decision was fairly well-founded. The later waning of demand – not only for domestic banks but also for regional ones – prompted the regulator to also allow the inflow of domestic capital into the banking sector, so its important representatives are now AIK and Direktna Banka.

These trends shouldn’t be too concerning if we exclude the fact that in our country we’ve disabled the coupling of big business, politics and, viewed theoretically, independent institutions. As such, the new influx of domestic capital into the banking sector will not have the same outcome as the last time, twenty years ago, only provided the central regulator of this market justifies the nominal epithet of independence.

The regional expansion of local companies should certainly be supported, whether from the real sector or the financial sector. However, this trend is primarily limited by the strength of our economy, but also a current economic policy that’s orientated towards attracting foreign investors with abundant subsidies.

This certainly makes the position of local entrepreneurs more difficult on the domestic market, but also when it comes to possible foreign expansion.


Slavko Carić
Chairman of the Executive Board of Erste Bank A.d. (JSC) Novi Sad

Big Challenges Facing Small Banks

Reducing interest margins, significant investments in digitalisation and the costs of regulatory requirements represent a challenge for smaller banks that operate on our market

We have been witnessing for the consolidation of the domestic banking sector for several years now – from the departure of Greek banks, through the entry of a large Hungarian group, to local entrepreneurs deciding to invest in the banking sector. What is certain is that consolidation will continue.

It will be interesting to see what will happen to Komercijalna Banka, given that we recently heard that the offers of six interested investors are being considered and that it was announced that the sale will be completed by year’s end.

The ownership of top banks in the region is mainly in the hands of leading banking groups in the region or investment organisations, such as hedge funds or private equity funds. Looking at the broader picture of the regional banking sector, it is really very difficult to carve out a larger share in some of the regional financial services markets.