Karanovic & Nikolic

Serbian banking sector and sovereign debt prospects for 2013

While 2012 was marked by parliamentary elections and the formation of the new government in July, the financial markets in Serbia seem likely to offer investors some very interesting opportunities in 2013.

In the banking sector, a number of state-owned banks are up for sale (such as Privredna banka Beograd), while some foreign banks are leaving the market and looking for potential buyers for their Serbian subsidiaries (such as KBC Bank, which is bound to divest due to a restructuring arrangement made with the European Commission in 2012, and Hypo Alpe-Adria Bank, which has been bound to divest after being nationalised by the Austrian authorities in 2009).

In addition, Razvojna banka Vojvodine, once owned by the Serbian province of Vojvodina, has been wound up due to financial distress, and state and provincial governments are jointly looking for a bank willing to take over its portfolio and employees under the newly passed bank bailout law. Finally, it is expected that new players, such as First Gulf Bank or even VTB (already present through the Bank of Moscow, might enter the market in 2013.

Regarding the sovereign debt market, and in addition to the continuation of Eurobond issues, 2013 could bring some novelties. International financial institutions and other stakeholders seem to be interested in bonds denominated in the Serbian dinar and the Russian Ruble (especially since the Ruble became a convertible currency in Serbia in October 2012), that would be offered on foreign markets, as stipulated in the Serbian budget for 2013. On the other hand, the trend of inter-sovereign infrastructure financing is still in full swing, with loans coming from the Russian Federation, the People’s Republic of China and Turkey (for the last two creditors through their export-import banks), which does not leave a lot of space for commercial banks. Commercial banks will most likely be lending primarily to Serbian public enterprises, backed by state guarantees to the extent permitted by the Serbian budget, and might face a moderate level of distress with existing borrowers.

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