 | | A file photo of NBS Governor Radovan Jelašić (Tanjug) |
Many sources say that the banking and financial system in Serbia is sound in spite of the global crisis. What are the consequences of the withdrawal (of close to a billion euros, as estimated by Mr. Stojan Stamenković) by depositors in October and November? How has this affected the position and operations of Serbia’s banks? Do you expect redeposit of this money to the banks and, if so, when?
Despite the relatively large amount of deposits withdrawn, our banks demonstrated in that particular instance their solvency and liquidity. Naturally, the situation in the banking sector has been complicated by withdrawal of deposits due to customers’ memories of negative experiences in the previous decade, as well as by the media promoting the idea that conditions are the same as they were 15 years ago. Nothing is the same or even similar.
By its actions, the National Bank of Serbia has encouraged the growth of foreign liquidity in order to amortize pressure on our banks caused by savings withdrawal, without threatening the stability of the banking sector. Several months will be required for the return of the savings withdrawn in just a few weeks, with the effect of limiting the credit activity of the banks. That means that credit will temporarily be restricted in volume and higher in price.
It is said that the Serbian banking sector resisted the crisis only because it is small and, consequently, isolated. What is your reaction to that?
Our banking sector is in no sense isolated, considering the fact that 75 per cent of our bank ownership is in the hands of strategic investors from the European Union. I begin every working day by reading Austrian, German, and British dally papers, since in today’s globalized world events in these countries could influence overnight inflow into Serbia.
The effects of disturbances in the global financial market also have an influence on us, principally through the limited availability of financing resources, but they also affect the banking sector. It is one thing when adequacy of capital is reduced from 28 per cent to 22 per cent, as in our case, but quite another when it drops from 10 per cent to 5 percent, as is the case in some other countries. From that direction no negative effects emerged that could endanger banks in Serbia.
Almost every day there has been an announcement of continuation of restrictive monetary and budget policy, which is even more restrictive than in previous periods. What results are expected?
The basic aim of our restrictive monetary policy is to maintain–as we are required to do by law–price stability and stability of the financial sector. That, in present circumstances, means, above all, a higher reference interest rate. However, a set of measures the National Bank has prepared, some of which have been adopted, include not only restrictive but liberalizing measures for both banks and their customers. Banks are, for example, freed of the obligation to label as bad loans when the clients monthly payment exceeds between 30 and 50 per cent of the client’s income if that is a consequence of exchange rate movements. However it is obvious that monetary restrictions are being talked about only now when the greatest dangers have been avoided. We know now that the high privatization income of previous years should have been used for structural reforms and money saved for the ‘hard times’ that global financial crisis brings.
Will the temporary measures announced by the prime minister to alleviate the effects of the crisis be sufficient to help the banking sector achieve the desired capital inflow? Or does the NBS plan additional interventions to strengthen the banks’ position?
Measures to limit the affect of the crisis on the global financial market are constantly being amended. In mid-December, we were scheduled to announce a set of measures that will definitely represent alternative support for the banking sector. Such Government plans must be included in next year’s budget, and naturally, the details for their implementation will be defined later. Under our agreement with the IMF, the Government, the National Bank of Serbia and the Deposit Insurance Agency are obliged to sign a Memorandum of Understanding referring to the affect of the global financial crisis on the Serbian economy.
Will the crisis and the consequent decline in market prices delay the sale of the remaining State-owned banks?
That is for the owner--that means the State--to decide. The National Bank of Serbia, as an objective supervisor, will not in the future, as it did not in the past, recognize any difference between the state-owned and private banks with majority foreign or domestic ownership. For the last two years I have been hearing that it is not the right time for privatization of the State-owned banks. In the meantime, the situation has not been improving. To the contrary. One thing is certain, there are several reforms needed to be urgently introduced in these banks, regardless of when or whether their sale will occur. These institutions are in the meantime progressively falling behind in market competition. By reforms, I refer to organization restructuring, possible mergers and other measures.
The Moscow Bank has recently commenced operation in Serbia as a Greenfield investment. Do you think more banks from Russia will appear on the Serbian market, as well as banks from the other countries that are not very well represented in Serbia?
The NBS has the two simple criteria for issuing licenses to banks: applicants must meet certain quality standards and apply for permission to enter to the Serbian market. But, a large number of the banks we would like to see in Serbia do not do so. Now when many foreign banks have encountered difficulties in their domestic business operation, it is being expected that they will be less concerned with expansion in other markets and more with operational adjustments at home. This doesn’t mean that, in the near future, the situation could not change overnight.
What is your comment on the fluctuation of the dinar in the last two months? Will the value of the dinar drop, and are we threatened by serious inflation for the first time in the last eight years?
Inflation is created by a surplus of money put in the system by the State. The State cannot do that if it doesn’t have the money. If inflation is not created by the National Bank - for sure the National Bank will not do that - then a boost in inflation cannot occur.
At the same time, the budget deficit of 1.5 per cent in the next year marks the maximum to which it is allowed to go. That means that from the reduction of inflation point of view, additional savings would be highly welcome. Is this possible? This will be seen through projection of the budget. As far as its exchange rate is concerned the dinar is fluctuating in both directions, and at the moment is moving up, which is not unexpected. There is a question, though, to what degree the rate is influenced by fundamental indicators, and how much by psychological factors due to uncertainty caused by the global financial crisis. All the measures being undertaken by the State and by the NBS should result in strengthening of the dinar in the medium term. The exact time of turning in this direction nobody can foresee because of the influence of the international financial environment.
The NBS in October raised the reference interest rate by two percent, while many countries considerably decreased theirs. What is your comment on this and what fluctuation of the reference interest rate do you expect in the coming months?
We have already mentioned the inflation problem, and that is why the NBS increased the reference interest rate. However, lacking competition in our market, in a situation when the reduction of customs rates is being postponed, it is obvious that reduction of economic growth here will not cause the same effects you have mentioned in other countries. In those cases, in order to invigorate economic activity in the present circumstances, the authorities reduced prices and inflationary expectations. But what is happening here is quite the opposite. Reduction of the reference interest rate might seem to be a good way of promoting stability in the financial sector. However, the NBS could not do this because pumping additional dinars into the system, and consequent dinar weakening, would have unpredictable consequences for price stability.
This article originally appeared in AmCham Perspective Magazine
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