Bif: The Serbian Finance Ministry’s public debt administration has still not presented the latest figures on borrowing by municipalities, but, according to our sample, municipalities have made progress in the quality of their borrowing, in managing the public obtainment of credits and the conditions under which the credits are contracted. The progress is such that we can say that certain municipalities are more successful negotiators than the Finance Ministry itself?

Lj. Brdarević: Based on cooperation with 32 municipalities within USAID’s MEGA program we can conclude that municipalities have realized that in conditions of the major reduction of income from transfers at the level of the Republic they need to find additional financing, and they go out onto the financial market. Based on the assistance MEGA has offered to municipalities in carrying out the public obtainment of credits, I can conclude that the credit activity of municipalities increased this year.
According to the report of the Public Debt Office, the total indebtedness of municipalities at the end of 2009 was 38.8 billion dinars, which represents half of the legal maximum for the borrowing of all the local authorities in Serbia. Space for new borrowing by municipalities is at the same level this year, around 400 million euros. Among the total of 168 local authorities, 73 municipalities have no debts.
With the increase in credit activity, this year municipalities showed a much more serious attitude to borrowing, by following trends on the market and gaining an insight into the risk of borrowing. Certain municipalities have managed to agree on credits in euros with a fixed interest rate, avoiding the risk of a change in the interested rate, which became fixed at the moment when the Euribor reference interest rate was at a very low level. The last four municipalities to which we have offered technical assistance in carrying out the obtainment of credits have managed to borrow in dinars. One such example is the municipality of Arilje which has obtained a credit in dinars, under very favorable terms.

Bif: Earlier on we blamed banks for the inactivity of municipalities, but are they truly so rigid in crediting municipalities?

Lj. Brdarević: The old story about banks not being ready to accept a currency risk when crediting municipalities is slowly changing. The reason for this is the sobering up of municipalities, which are now much more serious when borrowing on the capital market. For example, within its tender documentation Arilje clearly defined in its credit request that it wanted exclusively credits in dinars. During the public obtainment three banks presented offers for credits in dinars. This is a very positive move by banks, which have around 60 percent of their sources of funds in a foreign currency (mostly in euros).

Bif: How large is currently the potential for municipalities to borrow?

Lj. Brdarević: The Law on the Public Debt enables municipalities to borrow maximally up to 50 percent of the current budget revenues, achieved in the previous year. The upper limit for the borrowing of municipalities this year is 20 percent lower than last year, due to the reduced revenues of municipalities from transfers from the republican budget. Last year, the limit for borrowing was a billion euros, while this year is it around 800 million euros. The municipalities that borrowed up to the maximal amount last, this year have a debt that exceeds their legal limit. Fortunately, there are not many such examples.
On our sample of 32 municipalities only one municipality exceeded the limit of the total debt. The city of Belgrade is also close to this legal maximum. However, under the Law, a municipality with good financial results, measured by the size of its surplus in the current budget, can receive an approval from the Finance Ministry to borrow above the legally defined limit. Belgrade, compared to other local communities, has a high current surplus and financial stability.

BiF: Over the past year many banks have changed their attitude to municipalities?

Lj. Brdarević: Banks with foreign capital have made considerable progress by having realized that municipalities are not high-risk clients. While they were becoming accustomed to our market, they needed time to accept the fact that the risk analysis for municipalities differs from the risk analysis of companies and the citizens. At the beginning, a big problem was the fact that our municipalities do not own property, so they were unable to offer property as collateral for their debt, and this was requested by banks. In time, banks realized that municipalities have more stable income than companies and that they can approve credits on the basis of a good assessment of the fiscal and financial capacities of municipalities, without mortgaging their assets.
If we take a look at companies, they have three inherent risks: the successful realization of the production cycle, the winning and preservation of the market and finally, the collection of money for goods and services. The only risk municipalities have is to collect and distribute public revenues, in accordance with the decision on the budget, which has to be taken in accordance with realistic macroeconomic presuppositions. Therefore, the risks borne by municipalities are much smaller than the risks borne by companies.

Bif: Nevertheless, there are municipalities that do not repay their credits regularly?

Lj. Brdarević: Municipalities can be somewhat slow, i.e. they can be late in the repayment of their credits, but when a bank activates its instruments for collection, the problem has to be resolved within a few days. The statistics of the National Bank of Serbia (NBS) shows that the placements in our public sector are 10 percent of the total bank placements. If we look at the statistics of problematic credits, the unsettled obligations stemming from the public sector’s credits account for only 0.9 percent of the total unsettled obligations originating from all the credits. This points to the conclusion that certain banks, which emphasize the risky nature of placements to municipalities, are not sufficiently familiar with the financial operations of municipalities or perhaps they want to receive a larger fee for the risk through a higher price of credits.

On the market of credits for local authorities there are eight banks that actively participate in the public obtainment of credits, while the others appear occasionally. The leading bank is Banca Intesa, which is followed by Hypo Alpe Adria Bank, Komercijalna Banka, Raiffeisen Bank, AIK Bank, UniCredit, Erste and Vojvođanska Banks. The largest market share, of over 60%, is that of Banca Intesa, despite the greater activation of other banks (for example UniCredit Bank) and the appearance of new banks on this market, such as KBC Bank. The reason for this is most probably the manner in which the procedure of the public obtainment of credits is carried out. This procedure is very complicated for banks, and it represents a waste of time and money with the results of the public obtainment being uncertain. Municipalities sometimes carry out the public obtainment in an insufficiently transparent manner.

BiF: Is it the city of Čačak that has set new standards in the public obtainment of credits?

Lj. Brdarević: After the publication of the public tender in the Official Gazette of the Republic of Serbia, the city of Čačak addressed a circular letter to all banks regarding the published tender. It resulted in a large response, and as many as seven banks presented their offers.
Within the MEGA program, a model for the tender documentation for the obtainment of credits was made, and it was accepted by banks. The municipalities that carried out the public obtainment according to this model were more successful in borrowing.

Bif: Does the state represent competition to municipalities in borrowing from commercial banks? And to what extent does the borrowing of the state affect the borrowing of municipalities?

Lj. Brdarević: The state is no competition for municipalities, because the credit potentials of banks exceeds the current needs of municipalities for borrowing. However, the conditions for the borrowing of the state have a return effect on the conditions for municipalities to borrow. The price of the state’s debt is the reference value of the debt of all the entities in the public sector, including municipalities.
I would be very happy if the Finance Ministry this time opted for issuing the first state bond on a five-year period. This would have an effect on the development of the capital market and directly on the borrowing of the public sector from investors, without the mediation of bankers because this should be cheaper.

BiF: The state has, however, now made a precedent that could backfire at municipalities as well?

Lj. Brdarević: If we take a look at the results of the offer of treasury bonds, we will see that the latest auctions of bonds on a two-year period were less successful. The reason for this is probably the high interest rate for a denomination in dinars, which did not satisfy the expectations of investors, because of the depreciation of the dinar. It was published, at the same time, that the Finance Ministry was borrowing from commercial banks in the amount of 250 million euros and on a five-year period. The price of a credit is equal to the Euribor enlarged by the margin, which ranges between 4.25 and 5.3 percent. Thus, the state has accepted both the currency risk and the risk of the interest rate with a high price for the state. The question being asked is why has at least the risk of the interest rate not been avoided.

BiF: How is it that municipalities were more successful than the state in agreeing on interests?

Lj. Brdarević: Compared to the state, some of our municipalities borrowed more favorably in the course of 2010. One of the municipalities with a credit rating borrowed for a period of ten years at an interest rate in the amount of the three-month Euribor enlarged by 3.55 percent. I am afraid that such borrowing of the state will jeopardize the favorable offers of banks to municipalities.
If the price of the credit is so high for the state, what can municipalities in Serbia expect? The only mitigating circumstance is the fact that certain banks are granting credits to municipalities from the agreed on credit lines with financial institutions in the EU (EIB, EBRD, KfW), so that this can eliminate the problem. Such conduct by the state can definitely have negative consequences. One of them is also the question as to whether municipalities will now be able to borrow in dinars, if the state itself does so in euros.

Bif: Municipalities are very much affected by the persistent avoiding of the issuing of bonds, but so are institutional and individual investors, i.e. citizens who wish to invest their savings are also at a loss?

Lj. Brdarević: Institutional and individual investors gravitate exclusively towards the banking sector, without any possibility of investing in other market assets, without an increased risk. The total assets of institutional investors is currently around 709 million euros. These assets cannot be invested to a larger extent in municipality bonds unless the public placement of these securities is enabled. Individual investors, i.e. the citizens, are prevented by the Law on the Public Debt from buying municipality bonds, so the only thing they can do is keep their savings in banks, with the obligation of paying interest on the income they obtain from the interest on saving in a foreign currency.

BiF: Why are investors not allowed to buy bonds?

The question of bonds should be a question for the profession, and not for politics. The profession must be strong enough to manage to obtain these instruments. Why? Here is an illustration. If you save in the bank in euros you will receive, let’s say, interest at a rate of 4.5 percent, on which you pay a 10 percent tax to the state and you receive the amount of 4.05 percent. Contrary to this, if you purchase a municipal bond with a 5.5 percent interest, you receive the entire income from the interest, since this income is relieved of the income tax. Furthermore, if you save in the bank and you happen to need the money at a certain moment, you have to discontinue a time deposit and lose the agreed on interest, while you can sell the bond on the market without any loss of the interest for the period of the possession of the security.

Bif: The neighboring countries finance themselves much more cheaply?
Lj. Brdarević: Croatia is considerably ahead of us in that respect. It has a higher credit rating than Serbia, which enables it to obtain capital on the market at a lower price and, unlike us, they have developed the capital market. There the state borrows by issuing state securities, and municipalities have successful issues of municipal bonds.
In Croatia, theory has been confirmed in practice. Observed from the aspect of the interest rates which the municipality pays, the price of the borrowing of municipalities through the issuing of bonds is lower than the average price of a bank credit to legal entities by 200 to 300 basis points depending on the currency.

BiF: Quite interesting is the example of Belgrade and Zagreb?

Lj. Brdarević: The city of Belgrade has the privilege of an enormous, developed market, it has stable fiscal income and large potentials for development. Its only problem in the future could be the level of its indebtedness, especially in conditions of uncertain and unpredictable income from transfers of the Republic.
In my opinion Belgrade, as the capital city, should work to obtain different sources of financing than a typical municipality in Serbia. The reason for this is not only the type of competence, but also the volume of the services that need to be provided to the users. The model of financing the city should be based more on local taxes, surtaxes and fees, and less on republican transfers.
I recall the example of the city of Zagreb, which has the possibility of introducing surtaxes on republican taxes. It is through the surtax that all those who come to Belgrade should pay for what they will be using, and which has already been built by the previous and other tax payers. This would ensure the stability and predictability of the income of the Belgrade budget, while transfers would go to those who need them more.

November 25, 2010

Чланак Municipalities Borrow Better than the State се појављује прво на Biznis i Finansije.

Business and Finances: One of the reasons for forming a development bank is linked to resolving the problems caused by the global financial crisis: the banks’ hesitation to offer credits to the economy, and secondly, the tendency of domestic banks with a foreign origin to direct available capital towards their own home, and not towards Serbia. Why does the market not correct these anomalies?

B.Živković: After this crisis, a precedent occurred. Expert papers prove that the offer of credits in the next decade will not be a growing magnitude, and the cause of this is the structure of the banking sector, which is unfavorable. The key idea of a development bank is to facilitate or stimulate the offer of credits that would be granted by commercial banks. Only in an extremely small number of cases would the development bank be the direct financier. Its main job would be to stimulate the offer on the broadest possible front or on precisely determined sector fronts.

B&F: A type of credit line?

B.Živković: That would be something very similar to a credit line or a system of guaranteeing or as a targeted credit line in the manner in which this is done by the EBRD and EIB, and totally contrary to what is being done by the Croatian development bank and what our development fund was doing, and that is directly to place money from its own sources. If we speak about direct financing, then this is possible only in a very narrow segment of financing infrastructure projects. All the other operations would be in a coalition with commercial banks and would be set so as to maintain the credit offer, to accelerate their growth and make them more accessible to the real sector.

The latter can be the subject of controversies, but if you take a look at the structure of the growth of credits during the past decade in Serbia, an enormous amount of the growth went into the sector of the population, real estate and services. All these three allocations changed their characteristics after the crisis.

BiF: For this reason, the share of the non-recoverable loans of the banking sector are higher than in the region. Now the development bank should protect them from their own bad decisions?

B. Živković: It should be a catalyst for commercial banking to turn to a classic corporative loan. In the past decade, banks did not really have to deal with this very much, because they gave loans covered with a mortgage, and their clients were citizens who regularly paid their obligations and the state as an excellent loanee. Our banks acted like foreign banks in the world. How many losses were incurred by the Swiss UBS, Chase or Merrill Lynch, JP Morgan in the presence of many more powerful regulators? The problem of the lack of classic credits which should be facilitated by the development bank is, therefore, not of a local nature.

BiF: But, can a development bank of modest capital change the conduct of the domestic banking system which is largely tied to foreign mother banks. Won’t those banks go after the goals set by their head office?

B.Živković: No, a development bank cannot beat the mother bank’s force of gravity, but under normal conditions on the market it can help commercial banks to direct their credits towards those branches where the offer of credits was earlier on relatively small, and the availability of credits low.

BiF: And the priorities will arbitrarily be set by the state?

B.Živković: The setting of priorities is necessarily of an arbitrary nature, but this does not mean that it is necessary for form a development bank for raspberries or for tycoons. The bank will determine goals according to what has already been defined by government or parliament policies. So as not to mystify this issue, Serbia has lost a million work places.

BiF: But there remains the question of where it needs to create them. You say that the political goal is to employ as many people as possible, will then our government or parliament lay emphasis on work intensive branches which usually have a low profit margin?

B.Živković: This can definitely happen. However, that risk is borne by the bank owner and these mistakes appeared as a loss of capital. As regards the sector for stimulation, a market exists not only in the revitalization of the industry, but also in the stimulation of entrepreneurs. Compare the attitude to the credit of large companies from the service sector whose efficiency was mystified for a long time, and the attitude to credits of small and resilient entrepreneurs and tell me which credit is riskier?

BiF: Let us take, for example, raspberries which appear to be a typical sector whose supporting would be logical. Will loans go to tycoons which have already created cartels?

B. Živković: Why would these loans be used precisely by those tycoons? Why would there not be a scheme for stimulating new raspberry plantations, or the construction or public storages or refrigeration plants? If, finally, there is a small number of refrigeration plants, the government can say “gentlemen, if you want a monopoly it will be dismantled in the sense that we will credit ten new refrigeration plants”.

BiF: Our governments are a combination of various coalition interests and parties that protect the individual interests of their financiers.

B.Živković: The key elements are as follows: who decides on what? We have the coalition principle in deciding even about toilet paper. That would not be able to function in a development bank because it would then turn into a kind of exchange between members of that coalition. And that is the biggest operative risk. Something quite different are procedures for how the investment project that is to be supported is formulated. Furthermore, what are standardized measures, which are the minimal acceptable values below which financing is not possible, the third are managers. We have to have there people who are better than the present ones.

BiF: We did not really show our best there. From the World Bank we did not draw 600 million dollars partly because of political hesitation and partly because of the poor preparation of the projects, due to which we did not draw 800 million dollars of the Russian credit either. And not just that, but on Corridor 10 we have shown that we also lack knowledge in managing projects. Where to find professionals?

B.Živković: This knowledge existed at both Yubmes Bank and the Association of Banks and other places, but it was lost, the people dispersed, and the political economics of the use of these resources led to a conflict of interests, because decisions are taken at 10 agencies, ministries and design offices. The idea is for all the projects to be placed under single control at the development bank, which would reduce the probability of corruption.
No one knows the efficiency of the dinar invested through numerous government agencies. We can resort to anecdotes: how many churches have been renovated, how many schools painted, but no anecdote is the fact that the bypass has still not been completed, and that our corridor and bridges are in the state they are in. I believe these things are connected.

BiF: You have said several times that this political risk is raised at a development bank to a much higher level. And our bank is being founded precisely prior to the election campaign, to which these institutions, as you have written in your paper, are not immune at all?

B.Živković: From the moment of its foundation it takes another half a year for the bank to become operative because the placing of an operative risk under control is a delicate problem. It is crucial for the forming of the bank to be as best as possible. The development fund had a certain portfolio of its own and before it is entered into the development bank it should be seen how many of the financial projects are recoverable. It would be very bad if the formation of a development bank would now be treated as an amnesty for the bad placements of all institutions engaged in this. It is necessary for the takeover to be gradual so that the development bank would not turn into a Chernobyl at the very start. It is important for me that the development bank does not start working before the new government so that it would not do major damage at the very start.

BiF: The development bank have some more political baggage, the fate of the Development Bank of Vojvodina.

B.Živković: Both can exist, but the Vojvodina development bank would have to be redefined. It is now only a bad bank which has changed its name and apart from the misuse of the name “development bank” nothing has happened. A development bank should not be present on the deposit market, it should not represent competition to commercial banks, as is the case now with the Vojvodina development bank. I am afraid that the existence of that Vojvodina concept has led to a lack of understanding for this proposal of ours.

BiF: If everything is at the head office in Belgrade, how will the policy of regional development be carried out?

B.Živković: Development banks formulate regional projects according to priorities for each region. The South African Development Bank is a good example of this. In our case new small and medium-sized enterprises would have priority.

BiF: Are you then pleased or afraid of the fact that the loudest in their support to a development bank are those large companies which cannot repay their credits now, because they wrongly invested in real estate and the service sector?

B. Živković: They expect the development bank to follow the logic of a development fund and development banks in the region which financed an individual specific person and a specific company. I gave them no cause for such expectations. My idea of a development bank is completely different.

Tanja Jakobi

April 7, 2011

Чланак Development Bank: Saving Private Ryan се појављује прво на Biznis i Finansije.

Serbia and the region, while ecological stoves, primarily those on
pellet, are in the highest demand in the most developed countries. If
state measures were stimulating, as is the case in many European
countries, their sale could increase in our country as well, they say
at the Milan Blagojević factory, writes Milica Milovanović for Biznis
i Finansije (B&F).

The Milan Blagojević factory of Smederevo (MBS), a member of the Inway
group, ended last year with a growth of sales on domestic turf and
abroad, so that the business profit increased by 38 percent compared
to 2010, while the income, at the same time, jumped by 33 percent.
This year, they are planning to export 10 thousand appliances more on
foreign markets and to exceed the business profit from 2011 by 50
percent. We discussed with MBS director Sofija Stančić the
rejuvenation of the famous “Smederevac”, the plans for our old
machines at the factory to be joined by a robot and about how the
company manages to collect all its claims within the set deadlines.

B&F: What was crucial for the successful sale even during the time of
the crisis and what do you base your even more optimistc plans on?

Sofija Stančić: Our success lies on the sale on foreign markets. In
2011, we managed to achieve in that segment a growth of sales by 16
percent compared to the preceding year, with six thousand more
appliances that went to 25 countries. We have a very small profit on
the classic program of the “Smederevac” which is faring well on the
domestic market and in countries of the region. The biggest turnover
and profit is brought in by the exports of modern, exclusive
appliances that meet the strict technical and ecological standards and
which we can sell in Germany, Switzerland and Austria. It is due to
this that we have good business results on those markets.

B&F: How much has been invested in the development and modernization
of MBS?

S.Stančić: From the privatization in 2005 to the present day a total
of 10 million euros have been invested. After the Inway group took
over MBS we had a very difficult period of a reorganization which all
of us would like to forget as soon as possible. Nevertheless, we were
resolved to create a stable company with an adequate number of workers
– there is currently 340 of them – which has a production, a market
and the possibility of regularly paying its employees, and not keeping
1,300 workers and then closing down the factory tomorrow. At the
moment of its privatization, within the solid fuel program, MBS
produces only the “Smederevac” and the famous teachers’-partizan
furnace PG1, an old model of the present “Royal”. Therefore, the
salary arrears and the suppliers’ claims were paid out in the
reorganization period, while the production was modernized. Today this
is a factory that is nice and easy to run. Over the past three years
we introduced 30 new products, we increased the turnover by three
million euros compared to the preceding year, and we owe nobody
anything nor do we have any uncollected claims.

B&F: How do you manage to collect the claims in a situation when
practically everyone is complaining about this problem?

S.Stančić: Our policy to our buyers is very simple, we seek
guarantees. Advance payments, bank guarantees, factoring. It sometimes
happens that a buyer says “but I do business throughout Europe and no
one asks me for so many guarantees”, and our response is that at issue
is not that we do not take their word for it, but that this is what
our business policy is like. We believe in clear rules of business
cooperation because a postponement of the collection of claims would
bring us into a situation to credit our competition.

B&F: Apart from companies, your appliances are also purchased by
physical persons. Is their choice between classic and ecological
stoves influenced more by habits or the paying ability?

S.Stančić: Even my family members ask me “who buys those stoves on
wood?” But the figures are clear – we have standard, good sales in
Serbia, we hold 30 percent of the share on our market where the
cheaper program is mostly sold. Our ambitions are to place even more
expensive appliances in the stores under much more favorable
conditions for the citizens and, thus, to find new buyers. The
stereotype is that stoves on wood are mostly bought by people in
village environments. This is also increasingly an option for saving
energy in urban environments. Central heating is very expensive, and
so is gas. Many households, for example, are connecting to the city
network and to the central heating program, trying to use the existing
installations at their homes and to ensure good, but cheaper heating.

B&F: Is there a similar trend abroad as well?

S.Stančić: Our program is interesting, by definition, to those who
constantly or occasionally live in nature. Since we have buyers from
Bosnia to Chile, and soon, hopefully, in Brazil, Norway and Denmark as
well, the previous experience shows that an increasing degree of the
use of fuel is sought everywhere, as is a modern design and as less
manual work with the appliance as possible. As we export exclusively
under our own brand, it is important to achieve a good ratio between
the quality, price and the design. On more developed markets, also,
increasingly used are appliances on pellet, this being boilers,
furnaces and stoves.

B&F: Where are such products the most in demand?

S.Stančić: The pellet program is in demand the most in Germany, Spain
and France. For example, for French buyers we are developing a product
that is unusable for most of Europe, because the French like to heat
their garden pools and to enjoy them when there is snow. This shows
how ready we are to go further in our development, because
development, a multi-language offer of the assortment on the Internet
and an increase in our market share is the key to survival in our
branch. Also, ecological standards are much stricter abroad, a heating
furnace must be installed by an expert, and attention is paid to the
emission of carbon-monoxide, ashes and dust. That is why furnaces on
pellet are so much in demand there, they are ecological and their use
is stimulated in many European states.

B&F: How would you, in that context, assess the situation in Serbia?

S.Stančić: At the same time, ecological taxes on electrical appliances
are introduced here, and a paradox is that a furnace on pellet,
although ecological, also has electric motors and then we come to the
situation that our buyers are punished because they are paying the ECO
tax on something that is, essentially, an ecological appliance. Also,
almost everywhere in the world buyers have the right to a refund of
the VAT in a considerable percentage if they buy an ecological
appliance, while our Ministry of Environmental Protection is not even
taking this into consideration even though both we and Alfa Plan
indicated several times that such programs already function in the
region and that the European Union itself is requesting that both its
members and candidates for membership support ecological solutions.

B&F: How is the market reacting to the novelties you are introducing
such as, for example, the redesigned “Smederevac”?

S.Stančić: The redesigned model of the “Smederevac-seven” did not
attract buyers only because of its new appearance, but also its
technical characteristics have been improved. It now has a deeper
fire-box, the furnace is of a larger strength, ashes do not fall out
through the door, the oven cooks better. It is, however, a delusion
that it is easy to make a “Smederevac”. That appliance has 77
positions, from the screw to the oven. I learned this upon arriving at
the factory! Today, next to these old lines stand machines for
punching, folding cutting, rolling… We are also intending to buy a
robot for welding and we are developing a mother board for the
software for the pellet program in cooperation with domestic
scientists. A robot would considerably accelerate the production of
boilers for central heating and of pellet programs.

B&F: Since stoves on wood bring little profit, are you considering to
halt the production of the “Smederevac” in the future?

S.Stančić: Never, that is a brand! Last year we redesigned the “seven”
model and this proved to be the right move among buyers. This year it
is the turn to redesign the “nine”. Our goal is to rejuvenate and
improve the technical characteristics, but this must remain a cheap
product, accessible to a broad circle of buyers and no profit can be
made there. We are reducing the share of the old program in the total
production, but no one is thinking of abolishing it. Entire
generations grew up with the “Smederevac” produced by this factory.

January 26, 2012

Чланак Second Youth of the “Smederevac” Stove се појављује прво на Biznis i Finansije.

They sell the largest part of their production of cooking stoves,
fireplaces and furnaces in the region and they intend to position
themselves even better on the demanding West European markets. The
answer to the question of how they manage to do this was provided for
the Biznis i Finansije (B&F) magazine by Velin Ilić, the director
general and management board chairman of Alfa Plam.
B&F: How does a company from Serbia manage to do business well in a
situation when even the world’s biggest economies are struggling to
overcome the recession?

Velin Ilić: One could say that we have been doing business in crisis
conditions for decades now, in view of the fact that the crisis
started in these regions in 1989. On the other hand, Nobel Prize
winner Robert Mundell said in Belgrade recently the level which the
world economy reached in 2008 was unattainable in the upcoming period.
In such circumstances we will remain faithful to our business model:
the decision to specialize in the production of heating appliances, to
be totally turned to the needs and desires of our business and
constantly to invest in our production capacities. Alfa Plam had such
an approach already back in the 1960s, when it was the first company
in the former Yugoslavia to produce a furnace that uses oil. A decade
later the oil crisis came, so we reoriented ourselves to furnaces on
gas and wood. Today, it turns out that gas will not be cheap, nor will
its price, ultimately, be stable. Earlier on, Alfa Plam used to sell
even up to 20 thousand furnaces on gas annually, while today there are
not enough buyers even for a tenth of what once used to be sold. It is
clear that consumers are seeking an alternative, and we are able to
offer it. Our program includes furnaces on all the usual fuels, while
for three years now we have also been producing furnaces on pellet.
This is a fuel made of wooden mass with a minimal amount of resin,
with which we are also intending to improve our presence on the West
European market..

B&F: How do buyers decide who is to survive?

V.Ilić: We produce consumer goods, household appliances and for the
middle layer which is able to pay. Such buyers are now increasingly
few, but we are adapting through specialization. Our specialty are
heating devices for individual consumers. Heating is something every
household will always need, and in our regions, regardless of the
climatic changes, the heating season lasts six months and everyone
wants to heat themselves as best as possible and at an as affordable
price as possible. Last year we sold 156 thousand different devices,
mostly in the region where the desires and habits of buyers are
similar: of exceptional importance is for the devices to be of a
multi-purpose nature, for a certain amount of energy sources to serve,
at the same time, for cooking, frying and heating. I believe that also
of importance is both the tradition and the inclination towards “the
specific heat” of such devices, which are sold well in these regions.

B&F: Alfa Plam exports to Italy, Germany, and even to Scandinavia. Are

there any differences in the buyers’ habits?

V.Ilić: Of course there are, but you can still find our products from
Austria to Sweden. In those countries the demand for such devices –
cooking stoves is considerable because a large number of people live
in villages, they have their own firewood, and energy in the West is
expensive. Therefore, out of last year’s 156 thousand different
devices, we exported to Italy, Austria and Germany 12 thousand cooking
stoves and furnaces on pellet, which I believe to be a huge success. A
total of 50 to 60 thousand cooking stoves are sold in Germany
annually, while we manage to sell 4 to 5 thousand, meaning that we
cover 10% of the market. We have managed because we have met all the
technical and aesthetic criteria, which are very high, while, at the
same time, we are competitive price-wise and we ensure the delivery of
the goods in 15 days’ time at the most. On the other hand, the
production for choosy markets has an effect on the overall quality of
our work and on the high motivation of the workers – that every device
must be one hundred percent the same, correct and well made. This also
raises the level of responsibility in each phase, from production,
through the processing and packaging to the transport. That is how one
survives on the market.

B&F: You are one of the rare directors who has said that you will
request no financial assistance from the state for the company. Have
you regretted such a decision in the meantime?

V.Ilić: No (laughter). The fact is that we have discussed this at the
company, but I believe others need that money more, perhaps even under
the influence of the environment we are doing business in. In Vranje,
two big companies have gone to ruin, and while footwear production has
relatively recovered, textile production is still at a standstill.
That is why I thought there are others who could use that money from
the anti-crisis package, while we from Alfa Plam can finance our
business operations ourselves. For 11 years now we have not taken a
single credit, and to the present day we have invested more than 20
million euros worth of our own funds in the modernization of
technology lines and the products themselves. What worries me the
most, however, is the inequality on our market. Either all of us will
pay for electricity, water, taxes and contributions or the few of us
who do pay will no longer be able to endure the burden. Our country
has become non-competitive even by the size of the wages, not because
the salaries are high, but because the contributions are too high. I
believe the state, whose programs of support to the economy have,
nevertheless, produced good results, must put an end to that
injustice.

B&F: Judging by the reactions of businessmen, many fear of even more
negative consequences if a new global recession takes place. How do
you see the future of Alfa Plam?

V.Ilić: We have done what was up to us, and we will continue to do so.
We have always been up-to-date with our products, and we have now
invested a lot in mastering the production of furnaces and cooking
stoves on pellet, and we hope that, by the end of the year, we will
also develop a cooking stove for central heating – the “hydro-stove”.
We know this will not result in larger sales in Serbia and in the
countries of the region, but it will in Italy, Austria and on other
developed markets. This is what we are aspiring towards – to be
present on the West European market and to conquer it with our
knowledge. That is why we have invested so much in the new technology,
and the result is that we have plants of the same technological level
as producers in developed countries. We have improved our
productivity, and we have also managed to improve the working
conditions for our employees. We also dispose of complete
installations for the purification and protection of water and air.
Therefore, Alfa Plam has good prospects not only for surviving, but
also for doing business well in the future, as long as it pays
attention to the needs of the buyers and develops by overcoming
difficulties on the market.

Milica Milovanović

October 7, 2011

Чланак Alfa Plam: And Now for Something Completely Different се појављује прво на Biznis i Finansije.

Biznis i Finansije: Among the EU member countries, Slovenia is one of
the countries that was hit the hardest by the economic crisis, the GDP
drop by around 10 percent and the drop of exports by over 20 percent.
Slovenia emerged from the crisis with a GDP growth last year of 1.2
percent an expected GDP growth this year of 2 percent. The estimates,
when speaking of economic growth within the next 5 years, envisage an
extremely modest growth of the GDP, between 2.2 and 2.8 percent
annually. What is it that the Slovenia government should concretely do
in order to achieve stronger growth and to reduce the number of the
unemployed, and how realistic is it for this to happen.

J.Mencinger: I believe a growth of 2.8 percent will no longer be
considered modest. I expect long-term stagnation, i.e. fluctuations
around a zero growth rate within a very long period of time in most EU
countries, so I see no reason why Slovenia should be an exception. In
the last, Slovenia’s “natural” growth was around 4 percent, which was
also the average in the period between 1993 and 2004. The growth
fluctuations were small, and growth was achieved with an internal and
external balance.

The faster growth between 2005 and 2008 was detrimental and, for the
first time, there was a large deficit on the current account.
Actually, a record growth was achieved in that period, created with
the inflating of two baloons; the construction and financial ones.
These two sectors of the economy grew by as much as up to fifteen
percent annually, with the help of the credit expansion which also
created the dependence of companies on credits. Especially after
entering the euro zone, the growth of credits was higher than 30
percent annually. And credits were largely used for the purchase of
securities, real estate, but the expansion and take-over of companies.
Since domestic deposits did not follow credits, banks, in order to be
able to credit all this, borrowed abroad. Even though the present
growth of exports enables emergence from the zone of stagnation, this
emergence is being prevented by the large illiquidity of the non-
financial sector, the imbalance between credits and deposits in banks
and the indebtedness of banks abroad. Stagnation is also being
contributed to by the attempts at carrying out an excessively radical
and fact consolidation of the public debt being dictated by the
European Commission.

If we were to have a capable government, which we do not, not even
such a government, due to the well known political situation, would be
able to do much. There are two reasons for this. First of all, this is
being prevented by the system in which there are no real boundaries
between the economic policy and the economic system. Every triviality
and stupidity is being decided on in parliament. Secondly, Slovenia is
no longer a state in the economic sense, but rather an EU region, and
the economic policy being imposed by the European Commission is
totally wrong.

BiF: Whether and to what extent is the current economic situation in
Slovenia the result of a model that excessively protected Slovenian
companies from foreign competition or whether it is the result of the
fact that Slovenia, as a small country, and its economy, strongly
depend on the economic conditions in Europe?

J.Mencinger: The current economic situation is, first of all, the
result of the complete dependence on the economic conditions in
Europe, especially in Germany. A large number of bigger companies in
the industry produce components for the automobile industry and the
industry of durable consumer goods, which have been hit the hardest by
the crisis. Therefore, the crisis could not be avoided. And as regards
foreign competition, no one, at least not formally, protected domestic
producers, because we had to abandon any protection already at the
time when we were drawing closer to the EU. However, I too, if I can,
buy Slovenian goods and goods from the former Yugoslavia.

However, the present economic situation would be different if, in
2005, we had not abandoned what we call the Slovenian model of
transition, and that is the model of small changes and growth, which
we can finance with our own saving, and not with the sale of property.

Unfortunately, that model was abandoned after 2004. In 2005, we
entered a period of gambling. All of a sudden, everyone started
believing in fast growth and in 30 percent yields of various
“economic” activities. The savings in banks, due to the low interests,
which are partly the result of entering the EU, and especially the
euro zone, was used for speculative activities. Instead of saving in
banks, people bought securities at various funds, directors bought
“their” companies with credits, and banks gladly cooperated in this
and “imported” cheap money, in order to be able to credit everything.
In only three years’ time, the net debt, which was zero euros still at
the end of 2005, has growth to 10 billion euros. When the crisis came,
the virtual wealth was reduced to a quarter, and the debts remained.
Simply speaking, we threw ten billion into the garbage, and foreign
banks picked it up.
BiF: What will happen to big Slovenian companies, such as Mercator or
Pivovara Laško, will the Slovenian government continue, with direct
and indirect measures, to protect them from takeovers and is there any
long any point in such protection?

J.Mencinger: These companies are victims of what was happening between
2005 and 2008, when everyone focused on financial “products”, and not
on jobs which, judging by their names, they were supposed to deal with
– Laško with beer, Istrabenz with gasoline, CPM with road repairing,
the church with souls. Financial holdings became company owners, while
they could no longer repay the credits with which they had obtained
these companies. Due to the mortgages, banks took the companies, and
they are now trying to sell them. Since there is not enough money in
Slovenia, these companies are being sold to foreigners, and the
government is not preventing this. On the contrary, Slovenian Prime
Minister Borut Pahor constantly keeps speaking about the necessity of
the arrival of foreign investments.

BiF: Will they, eventually, be taken over by the competition from
Croatia and the rest of the EU and what will, in this case, be the
consequences for the Slovenian economy.

J.Mencinger: I do not know that. Even though I am considered an
advocate of the “domestic economy” I have nothing against foreign
ownership, and my stand is “sell what you have to and do not sell what
you do not need to”. What does a farmer who sells his land become? A
hired hand. And what will we become if we sell our production wealth?
Labor force, which, in the present times, does not have many rights
and increasingly resembles some kind of production material. There is
also an important macroeconomic reason for considering foreign
acquisitions. Look at the balance of payments of countries in Eastern
Europe. Deficits are increasingly the result of the outpour of profit.
In the crisis period of 2009 and 2010, the outpour of profit from the
ten “new” EU members was three times larger than the arrival of
foreign investments.

I especially have no prejudice against buyers from countries of the
former Yugoslavia, if at issue are buyers who become company owners,
and not only property owners and if they too are not buying everything
on credit, which they will be repaying through the exhaustion of the
purchased company. Recently, because of the gambling in the period
between 2005 and 2008, Pivovara Laško had to sell the Fructal company
to the Serbian Nektar family company. As far as I know, at issue is an
honest family company. If we already had to sell it, I believe this is
better than if Fructal had been sold to an investment fund, either
Slovenian or foreign, who is only the owner of the property and who
buys only to sell the company again after a few years with a profit,
after having earned from the sale of the land, real estate and other
things, which he can sell. Nektar will probably maintain the Fructal
brand and the production in Vipava, and it will buy fruit from farmers
in the Vipava valley.

BiF: What does the weakening of big Slovenian companies, which were
among the biggest investors in this area in the previous years, mean
for the countries in the region and their economies?

J.Mencinger: The opinion I have about foreign investors in Slovenia is
the same as my opinion about Slovenian investors on the territory of
the former Yugoslavia. The same applies to them – “sell what you have
to and do not sell what you do not need to”. But that is your concern.
We Slovenians quite certainly have certain advantages, we know one
another, we know the language, although in the period of gambling, our
companies, especially banks, overdid it with “the seeking of
opportunities and spreading in the Balkans”.

BiF: After Slovenia became independent it received assistance and
recommendations from the IMF, having done mostly the opposite of what
the IMF had proposed and which later proved to be a good move by the
Slovenian authorities. Does Slovenia now need assistance from the IMF
or would such a move bring Slovenia more harm than good?

J.Mencinger: I don’t know why we would need the assistance of the IMF
or any other international institution, either in the form of advice
or in the form of money. We did sink in the mud, but our public debt
of around 45 percent of the GDP is among the lowest in the EU. It is
lower in only six out of the twenty seven EU member countries, while
the average in the EU is 65 percent. The net financial position, i.e.
the net indebtedness of Slovenia, banks, companies, the population and
the state, which is 12 billion euros, is low compared to many other
countries. The problem with that debt is the large share of banks
resulting from the ratio between the credits and the deposits in
Slovenia, where the credits are sixty percent larger than the
deposits, so the ratio between the deposits and the credits is 1: 1.6,
which means that banks can give credits without seeking money abroad.

BiF: The IMF’s assessment is that Slovenian banks are insufficiently
capitalized and that their recapitalization is inevitable. Does that
mean that Slovenia will abandon the present practice and open the
banking sector to foreign investments and what consequences will this
have on the Slovenian economy?

J.Mencinger: I know nothing about this assessment of the IMF. The two
biggest banks, NBL and NKBM, have just passed the European stress
test, although NLB just barely. Recapitalization is quite certainly
useful, but it must not be done as it is being done in our country;
half of Slovenia kept discussing it for half a year instead of five
people deciding on it in total secrecy in one afternoon. However,
banks are everywhere even much more recapitalized, because states
could not help saving them.
Foreign banks have free access, but that does not mean that we have to
sell them our banks. Banking is not a very complex business and, in
normal times, it brings large profit. Why should I sell banks and
where should I invest the money I received from the sale. No one knows
the answer to the question as to why only 24 percent of the banks in
Western Europe are owned by foreigners, while in Eastern Europe, with
the exception of Slovenia, it is 90 percent.

BiF: Is there an alternative to foreign investors entering Slovenian
banks?

J.Mencinger: There is, if there is not enough money let them remain
state-owned.

BiF: In your recent appearance in the media, you compared the current
situation in the EU and in the euro zone with the situation in the
former Yugoslavia prior to its disintegration, but you also assessed
that “the EU will quite certainly not last longer than the Austro-
Hungarian Empire”. Will the euro and the EU survive and how long?

J.Mencinger: I do not know. The euro is a political project and
symbol, and this is also its problem. As such, it is similar to the
idea of “brotherhood and unity”, so that everything that is now
happening in the EU resembles Yugoslavia. The differences between the
EU member countries are no smaller than those among the former
Yugoslav republics. What suits the developed, does not suit the less
developed. In the case of the euro as well there is no mechanism from
emerging from the euro zone, and in Yugoslavia we had no mechanism for
a republic to leave Yugoslavia. And what is the most worrying in the
EU is what I call “the Yugoslav syndrome”, namely, the conviction that
others are taking advantage of you.

BiF: What would the possible disintegration of the euro zone mean for
Slovenia and for countries in the region?

J.Mencinger: Even though I am considered a euro-skeptic, which is not
justified, I fear a disintegration of the euro zone because of the
high price, most probably an uncontrolled break-up, and because of
insecurity. For countries in the region that do not have the euro
“that would mean a return to the set-up they had when the German mark
was the main currency in the region and somewhat higher expenditures.
However, I believe Slovenia would manage, if for no other reason then
because we have experience with the introduction of the tolar and the
abandoning of the Yugoslav monetary system.

Dražen Simić

September 16, 2011

Чланак Mencinger: Many Slim Years Awaiting Us се појављује прво на Biznis i Finansije.

(Part I)

Even though the profit of banks is dropping in all segments, the level of bad placements is growing, the number of credit-worthy companies is being drastically reduced and the banking sector is stable according to all indicators. “The banks will withstand all the blows”, said the BiF’s interviewee. It seems to me that even if there were no longer any of us, bank would continue to exist.

BiF: Inflation is growing in Europe, and long-term recovery is uncertain. .What does this mean for us?
Đ. Đukić: The resolution of the problem of Greece, the instability in the south of Europe and the fight against inflation will lead to the growth of the euribor. Countries with a low credit rating, which is exactly what Serbia is, will suffer the most because of the negative effects of the growth of the interest rate on the inter-bank market and the interest rates on long-term sources which will primarily affect the citizens, while companies will be much less affected. The crisis has brought a double negative effect for Serbia: in the countries where the interest rates had been dropping, they stagnated during the crisis and kept slightly increasing, in Serbia the additional factors led to them growing. The reasons should be sought in the environment, i.e. in the high reserve requirement and the constant immobilization of the funds which is making the citizens’ savings especially expensive. In conditions when both domestic and foreign banks are focused on the citizens’ savings which cannot be attracted with an interest of below 6 percent, one cannot expect the interests to drop. Secondly, the issue of relations between the bank’s head offices and their subsidiaries has deteriorated. Under the Vienna Agreement, the head offices have agreed to postpone the speedy repayment of credits in the company sector, but, at the same time, they made it clear to their subsidiaries that they can initiate credit expansion

only on the basis of domestic savings. In such conditions, during the crisis we saw that banks were repaying their debts to their head offices, the private sector to banks, while the state’s borrowing was growing.
BiF: The appreciation of the dinar is quite certainly helping the economy to repay its debts and making it easier for the citizens to deal with the repayment of loans. How much will this cost in the long run?
Đ.Đukić: On the home scene we are faced with the inconsistency and incoherence of the domestic policy which is being seen on a daily basis by investors. We can read between the lines that the dinar’s appreciation will continue, whereby the central bank is playing into the hands of the citizens and companies, making the repayment of their debts easier on a short-term basis. As regards investors, their legitimate interest is to conduct speculative activities: they sell euros, buy dinars, acquire state securities and wait to get rid of them when they assess that a political or economic risk exists. What investors are now worried about most of all is that, after the situation with Telekom, the state is obviously considerably borrowing to a large extent. There is a bombardment of several new loans: 800 million dollars from the World Bank, the issuing of euro bonds in the value of a billion dollars, the prompt borrowing of a hundred million euros with the issuing of bonds. Investors see in this greater uncertainty as to whether the state will manage to maintain a deficit of 4.1% of the GDP. According to data of the finance ministry, the deficit is 41% of the GDP, but I believe that decision-makers would have to take into consideration Stiglitz’s remark that a large portion of the GDP is in the form of services which have no impact on the capacity to repay debts. I believe that, from the standpoint of the state, it is better to halt the borrowing until the possibilities for servicing that debt are assessed. It is more honorable not to be part of the executive authorities than, in two or three years, to bring the country in the position to have opt for the restructuring of the debt like at the end of the 1980s. This is all the more topical as the situation in the south of Europe is quite hopeless and a big question is how much our export economy will be able to export and collect.
I am not appealing to the government to reconsider borrowing because I want it to be unpopular. We are in an extremely complicated situation and it can be only worse both on the world market and in the environment and we do not have large negotiating powers from the aspect of the stability of the inflow, aside from remittances from abroad.
BiF: However, banks collect considerable income precisely from such conduct by the state?
Đ.Đukić: It is in the interest of banks to sell euros, buy dinars and acquire state securities for the sake of a short-term profit. The space for earning in Serbia, compared to the environment, is unprecedented in this period, of course for those who have the ability to predict and who signaled to the bank management in time to sell euros and buy dinars, and then acquire securities that bring 12% interest. When to this you also add the dinar’s appreciation of 8 to 9 percent, it is impossible to achieve such a yield anywhere in the region. Bankers will be inclined to think on an increasingly short-term basis because of the contradictory statements by the authorities who first claimed that appreciation is not desirable, only afterwards to say that appreciation is no problem. Never has the artificial appreciation of a currency brought any good to any country, but rather only high costs of the redistribution of income between debtors and creditors on the one hand, as well as exporters and importers, on the other, and increased borrowing. But also a semblance of an easy the price for which must be paid later with a drastic drop in the standard of living.

BiF: Nevertheless, your assessment, not only as a professor of economics, but also as a member of the bank’s administration is that there will always be credits for good companies?
Đ. Đukić: Companies will not feel the burden of higher interests, because there will always be favorable credits for them, whose interests do not depend on Serbia’s rating. Blows will be suffered by small and medium-sized enterprises which a bad credit history and whose access to credits is simply closed. Good small enterprises will be able to count on interest of between 6 and 7 percent, because banks are drawing quite a lot of favorable credits from the EBRD, EIB and similar sources. For Serbian version read here

Tanja Jakobi

June 9, 2011

Чланак Đorđe Đukić:Even Higher Interests Awaiting the Population се појављује прво на Biznis i Finansije.

Part II (for Part I see here , for Serbian version see here)

BiF: According to the latest data, the credit activity of banks has
practically ground to a halt in both the sector of the population and
the sector of the economy.
Đ.Đukić: Banks are not motivated to conclude credit arrangements more
actively since there are no credit worthy clients in the economy and
no good, well founded and developed projects they would be able to
accept. Banks cannot endure the effects of the bad privatization. From
Subotica to Vranje it has transpired that even companies that had good
programs, a market, a brand, companies which had been credited by
banks for a very long time, such as for example Fidelinka, have gone
bankrupt. Banks do not initiate bankruptcy in order to destroy a
company, but they rather opt for this move when they conclude that the
substance of a company had been sucked out and that they have to
collect at least part of their claims. And since this is a massive
occurrence, you find yourself in the position that a bakery on which
the bread supply of a city depends has to go bankrupt. This is the
result of bad privatization, the tolerating of having capital drawn
out of a company, of expenditures moving to good companies, which is
further narrowing down the basis of the clients of banks. And this is
not so because they have become hypersensitive to risks.
In Serbia there are 15 companies to which you can link all the other
companies after all the privatizations and these clients go from one
bank to another, one bank grants them credits in order to repay the
installments of a credit with another bank, and the requests of such
clients are met so that they would manage somehow to float on the
surface. However, in order for something truly to be resolved there,
two things are important: something the government is announcing –
that it will prevent the formation of bogus companies through which
companies are avoiding their obligations, and secondly, the state’s
announcement that it will service its obligations. It owes companies a
lot and that is why banks have many clients who do not have a problem
because they do not want to service their credits, but rather because
it is either the state that owes them money or another company whom
the state owes again.

Serbia vs Croatia
Đ. Đukić: There is a domination of foreign banks, but the trend of the
drop of interest rates, even since they entered this market, has not
produced satisfactory results, because the markets of Serbia, Romania
and Ukraine are such that the population is not in a position not to
ask about the price of a credit. In the case of revolving credits,
credit cards, and “going into the red” with cards the average interest
rate in December 2010 was 28.46%, in March 28.12%, and in the case of
consumer credits 16.54 i.e. 15.25 percent, housing credits 5.66 i.e.
5.87 percent, while the collective weighted interest rate in December
2010 was 24.98 and in March 24.89 percent. It is then clear why
foreign banks, when entering our market, were ready to play a several
times higher price than the book value of banks.
And the latest analyses of international financial institutions show
that the privatization of the banking sector at all costs does not
bring a competitive market, but rather everything depends on the
individual case. In Croatia, interests dropped very quickly, because
the level of competitiveness was much higher even though two players
are dominant on the market, while in Serbia the first two players
account for only 25%. Therefore, the market share does not determine
the market power. In Serbia, the first five banks on the market of
credits and deposits have a share of 40%, while there was no lowering
of the interests at any point.

BiF: It seems that certain banks, nevertheless, hade made poor
assessments and had granted credits to clients whose money is captured
in real estate or which are only seemingly solid, due to the fact that
the state had been postponing for them the payment of various
obligations?
Đ.Đukić: Around 99% of the exposure to risks of banks in Serbia comes
from the credit risk, while the market risk is negligible. This is
good, because it means that banks are carrying out good monitoring and
this means that even in the case of those bad assets the bank
provisions are high and the capital base is strong. Banks will survive
even if the crisis deteriorates.
The companies you are talking about could present themselves are
credit worthy based on their sale, turnover, the average state of the
account, the size of the property and the market price of the property
at that time. If a bank had been granting a credit worth 10 million
euros, and the market value, according to the appraiser , was 23
million euros (before the crisis), banks opted for crediting without
any problems also counting on the fact that, even at the price of the
drastic drop in the prices of real estate, they would be able to
preserve their claims.
The problem with such claims must be spoken of selectively. Depending
on the position they are in, certain banks are now accumulating land,
building, and apartments and, if they are liquid, they are waiting for
better times, and if not, they are trying to sell that real estate at
all costs, which is very questionable, because the real estate market
is dead except Belgrade, and partly Novi Sad. The level of non-
recoverable credits has especially increased in the economy, but I do
not believe that these first five banks would be endangered, although
their profits will suffer.

BiF: Nevertheless, the public is increasingly often asking how
realistic these good bank data are because many banks had issued
guarantees to one another in order to iron out their balance sheets.

Đ. Đukić: Through guarantees, balance sheets are ironed out and they
many assets less risky than they are, but this is short-lives. Every
good bank must have enormous provisions and must make it clear to the
market that its fate does not depend on that. Serbia is a small market
and it is hard to hide anything. My biggest concerns is, nevertheless,
on the side of the real sector. Banks will survive one way or another.
There remains the problem of the real sector and the problem of the
poor administrative infrastructure, meaning high prices of external
elements, so to say.

Basel II & Basel III

Đ.Đukić: If the NBS insists on the implementation of Basel II,
according to certain estimates this will engage another 500 million
euros or so. This means that the yield of banks on share capital will
be even lower and owners will wonder why to invest in those banks?
That is why I believe that one should be careful in this job.
As regards Basel III, it will be introduced successively into European
banking. It too requires larger requested capital of banks based on
the market risk, as it envisages the separation of “buffer capital” on
the basis of the risk of the cyclic trends in the economy. Its
implementation will make credits even more expensive.

Tanja Jakobi

June 9, 2011

Чланак Đorđe Đukić: Even Higher Interests Awaiting the Population се појављује прво на Biznis i Finansije.