Rade Rakočević, CEO and Founder of Senzal Capital Belgrade

As a developing country, we need increased competition and a better quality and more innovative offer in the banking and financial sector

We’ve seen a reduction in the number of banks operating in Serbia in recent years, with large banks having taken over smaller ones. There are 20 banks currently operating in Serbia, which is nine fewer than a decade ago. The wave of consolidations and bank takeovers is also expected to continue next year. We are simultaneously also witnessing the departure of foreign banks and the strengthening of domestic ones.

Here we discuss these and other Serbian financial market trends with Senzal Capital Founder and CEO Rade Rakočević. What do these banking market trends tell you?

— The five largest banks in Serbia have a market share exceeding 60%, and it is only a matter of how many days we will have to wait to see some new banking sector takeover. Potential buyers have a clear motive, as they can achieve more positive effects with an increased number of clients and higher deposits and credit potential.

However, my view is that this isn’t a positive trend and that talk of Serbia needing even fewer banks only benefits the big banks, which are becoming even bigger, while we – as a developing country, according to the IMF – need increased competition and a better quality and more innovative offer in the banking sector.

I think it would be beneficial for Serbia to have more specialised banks doing business with specific groups of clients from specific fields of business, such as entrepreneurs, start-ups and the agricultural sector, which could tailor their offers to companies and individuals from that sector and should be subjected to more liberal conditions for their establishment.

It also isn’t clear to me why Serbia doesn’t have microcredit organisations that should ensure speed and simplicity when it comes to investing in and financing SMEs and citizens.

We only have a few investment and pension funds in Serbia. Is this due to the lack of a culture of investment or something else? If, as you’ve said, one serious German city has more funds than the whole of Serbia, what prevents our country from having a larger and more diverse offer?

— I like to describe the Serbian financial market as a big puddle with only a few crocodiles.

I founded the Senzal brokerage house back in the year 2000 with capital of just €5,000. Today’s threshold for establishing a brokerage house is €125,000. If that threshold had applied back then, you would now be conducting this interview with someone else.

The number of licensed pension and investment fund management companies in Serbia can be counted on two hands. This is a result of excessively restrictive conditions for establishing such companies, which should be relaxed and adjusted to the reality of the Serbian economy, as opposed to being mere transcriptions of European laws.

The regulations protecting investors in pension and investment funds should be extremely stringent, but we should let a thousand flowers bloom, in order for citizens to be able to additionally educate themselves on the importance of financial planning and asset management, with many more investment options.

We have been discussing the need to diversify financing methods, including through the issuance of bonds, since the time of the establishment of the Belgrade Stock Exchange. It was in 2018 that Fintel Energija implemented the first IPO on the Belgrade Stock Exchange. Why didn’t such an event prompt a turnaround in the financing of companies?

— I also slept through Fintel’s IPO. That historic event for the Belgrade Stock Exchange was promoted extremely poorly and wasn’t utilised for the purposes of promoting investment and the stock market.

Under the conditions of an insufficiently developed culture of investing and poor financial literacy, it is necessary to work actively to present the investment opportunities available to Serbian citizens

On the flip side, I see that there are now serious announcements of the issuance of corporate bonds and new IPOs on our stock exchange and I’m hopeful of good news in the coming period and tangible support from the competent authorities in developing the Belgrade Stock Exchange.

The same goes for the possibility for citizens to buy government securities. We had relatively strong activity at some point. However, unlike in many other countries, Serbian citizens aren’t the majority owners of the national debt. Why is that the case?

— The Serbian Ministry of Finance decides on the issuance of government bonds and is focused on foreign stock exchanges and institutional investors for now. We can but be envious of Croatian, Slovenian and Belgium citizens, who are able to buy the government bonds of their countries that are issued for them specifically. The situation in Serbia is currently as follows: Serbian citizens deposit money in savings accounts with commercial banks at an annual interest rate of 2.0-2.5%, while those same banks have the option of buying Serbian government bonds that carry an annual interest rate of 5-6%. I think an annual interest rate of 3.5-4% on Serbian government bonds would prove extremely interesting to our citizens and would provide a great impetus for the development of our capital market.

You ultimately know on the basis of your personal experience that there is an appetite among various financiers to invest in something other than real estate. How could such trends be channelled to give impetus to the domestic economy?

— The Holy Grail of Serbian investors is owning real estate in Vračar, New Belgrade and/or the Belgrade Waterfront, together with a small apartment on the mountains of Kopaonik or Zlatibor. If we add to this another unit that they can rent to a betting shop, our investor’s feet don’t touch the ground when he walks.

It could be said that, until recently, the Serbian real estate market played the role of the country’s capital market, while investment unit was the value of a one-bedroom flat.

However, given that inflation in Serbia totalled 36% over the previous four years, while the real estate market has been in decline in terms of turnover and prices for more than a year, citizens have begun considering alternative investments.

Under the conditions of an insufficiently developed culture of investing and poor financial literacy, it is necessary to work actively to present to Serbian citizens the investment opportunities that are available to them, such as investing in shares and ETFs on stock markets around the world, alternative investment funds, cryptocurrencies, investment gold and crowdfunding.

With the issuance of Serbian corporate bonds and through the raising of capital via the Belgrade Stock Exchange, local companies will also gain the possibility to secure alternative sources of financing for the development of their business, which will certainly lead to lower rates for borrowing and will reduce the Serbian economy’s extremely high bank-centricity.