Vladimir Cupic
   Vorstand/Member of the Board, Hypo Alpe Adria-Bank
                      a.d. Beograd,
Serbien/Serbia Ba...
Banking and Leasing in
                                         Serbia
                                   Velden, Septembe...
Contents


                                    GDP and growth
                                     Balance of payment a...





                                             Part I

                                    Macroeconomic overview




...
Macroeconomic overview I – GDP and growth
•High GDP growth continues for 4 years                                          ...
Macroeconomic overview II – Balance of Payment and FDI
•Exports are growing more than 30% (annualized) for the            ...
Macroeconomic overview III – Credit boom
                                                                                 ...
Macroeconomic overview IV – Inflation and exchange rate

•2006 was a year of very low inflation rate comparing to         ...
Macroeconomic overview V – Policy
                                                Lending rollercoaster                   ...
Fiscal and monetary policy in the coming years
 •Ministry of finance committed, in its’ Budget memorandum, to
 significant...





                                              Part II

                                     Banking sector overview
...
Sector overview and comparison, M&A
                                 Total assets/GDP
                                    ...
Aggregate balance sheet structure
                    Changes in aggregate asset                             •Agg. balance...
Aggregate income statement
                                                                                  •Aggregate pr...
Market Composition, Management, Products
•Top 5 players comprise 46% of the market                                        ...
Summary
•Banking sector proves to be viable and flexible by adopting to the ever changing macroeconomic and supervisory
en...





                                          Part II

                                     Leasing overview




    Vel...
Leasing overview

                                  2006 Market share %                      •Financial Leasing is present...
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2007. Vladimir Cupic. Banking and Leasing in Serbia. CEE-Wirtschaftsforum 2007. Forum Velden.

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  • | 23.05.09 | <number>
  • 2007. Vladimir Cupic. Banking and Leasing in Serbia. CEE-Wirtschaftsforum 2007. Forum Velden.

    1. 1. Vladimir Cupic Vorstand/Member of the Board, Hypo Alpe Adria-Bank a.d. Beograd, Serbien/Serbia Bankenmarkt und Leasing in Serbien/Banking and Leasing in Serbia Velden forum | 19.9.2007. | 1
    2. 2. Banking and Leasing in Serbia Velden, September 19th 2007 Vladimir Čupić, Chairman of the Executive Board, Hypo Alpe-Adria-Bank a.d. Beograd, Serbia Velden forum | 19.9.2007. | 2
    3. 3. Contents   GDP and growth  Balance of payment and FDI  Part I  Credit boom  Macroeconomic  Inflation and exchange rate overview  Policy  Fiscal and monetary policy in the coming years  Sector overview and comparison, M&A  Part II  Aggregate balance sheet structure  Banking sector  Aggregate income statement overview  Market composition, Management, Products  Summary  Part III  Overview  Leasing Velden forum | 19.9.2007. | 3
    4. 4.  Part I Macroeconomic overview Velden forum | 19.9.2007. | 4
    5. 5. Macroeconomic overview I – GDP and growth •High GDP growth continues for 4 years 2004 2005 2006e Q1 2007f GDP per capita EUR 2.651 2.837 3.061 3.398 •Increasing consumption and investments, and lately GDP growth (%) 8,4 6,2 5,7 8,8 also warm winter driving GDP growth GDP mil. EUR 19.723 21.108 22.776 25.281 •Consumption growing due to increase in wages and Population mil. 7,44 7,44 7,44 7,44 credit boom •Yet, it will take quite some time to reach the level of •Services are growing faster than industry, mainly trade advanced CEE countries in terms of GDP per capita (30% in Q1 2007 comparing to Q1 2006) •In terms of average wage Serbia is also lagging •Industry grew for 4.7% in 2006 and 4.8% Q1 2007 significantly comparing to neighboring advanced (highest in traffic, metals, food and beverages, economies construction, furniture) GDP pc in EUR 2006 •Agriculture had a weak growth of 1,6% in 2006 and is EU 27 23.400 expected to have very bad year due to heavy drought Euro area 26.600 Average wage, June 2007 Austria 31.100 Slovenia 14.800 900 818 800 Czech Republic 11.100 700 645 600 Hungary 8.900 500 EUR Croatia 7.700 400 340 300 Romania 4.500 200 100 Bulgaria 3.300 0 Serbia 3.060 Croatia Slovenia Serbia Macedonia, F.Y.R. 2.400 Velden forum | 19.9.2007. | 5
    6. 6. Macroeconomic overview II – Balance of Payment and FDI •Exports are growing more than 30% (annualized) for the •Foreign debt Foreign debt last several quarters, but they are still far below imports, has risen sharply causing very high current account deficit 20.000 64 during last two 12.439 15.638 15.740 62 years •Investments and foreign markets penetration of the 15.000 61,8 60 % of GDP 11.378 mil. EUR 59,8 58,0 58 privatized companies, are accelerating exports (main 10.000 56 54 •Public foreign 53,2 products are iron and steel, colored metals, fruits, 5.000 52 50 debt comprise vegetables, and cereals) - 48 more than 75% 2004 2005 2006 H1 2007 of overall foreign •Strengthening of domestic and foreign demand is causing Foreign debt in mil. EUR estimate debt prior to surge in imports of intermediary and capital goods Foreign debt in % of GDP 2004, but now (investment cycle starting), alongside with the consumer less than 40% goods •Remittances from abroad and privatization income were •Up to 2007, banks’ and companies’ foreign debt were large enough to cover the widening trade deficit growing in similar percentages, but due to NBS restrictive measures, banks’ debt is now decreasing •Banks now comprise 23% and companies 38% of Trade deficit overall foreign debt 50 43,3 20 •FDI in Q1 2007 are 42,1 39,3 40,6 17,6 much larger than FDI 40 % of GDP % of GDP 11,6 15 30 11,1 8,6 in Q1 2006 (164 19 20,7 21,6 10 5.000 20 15,2 mil. EUR) but it will 4.077 4.000 10 5 be very hard to mil. EUR 3.000 0 0 repeat last year 2.000 1.248 2004 2005 2006 Q1 2007 total of more than 773 617 1.000 4 billion EUR, 0 Import Export Current account deficit which came as a 2004 2005 2006 Q1 2007 result of several large privatizations Velden forum | 19.9.2007. | 6
    7. 7. Macroeconomic overview III – Credit boom •Aggregate loan demand in Serbia is very high Construction growth (%) •Driving factors of high loan demand are very low 40 average salary of 340 euro and 15 years of wear-and- 35 tear of home appliances, cars, clothes and other % year-on-year growth 30 durable and non-durable goods 25,7 20 •Demand for long-term loans, especially housing loans is very high due to constant supply deficit of residential 10 8,8 6,2 6,0 6,6 buildings lasting for several decades 4,3 2,7 0 •In Belgrade, the demand for flats and houses is Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- approximately 10 times higher than the supply -10 05-12,8 05 05 05 06 06 06 06 07 -20 •Surge in housing lending led to a significant increase in construction output (growth of 35%) and cement production (growth of 94% in Q1 2007 comparing to Q1 2006) •Import of durable and non-durable consumer goods grows rapidly Import growth of consumer goods •High foreign trade deficit concerned NBS, which 50 % year-on-year growth imposed series of restrictive measures 45,9 40 45,2 •Measures aim at slowing short-term consumer lending 30 29,1 and reducing banks borrowing abroad 22,1 23,3 20 19,3 •Short-term consumer lending measures are indirect, 16,2 NBS requires all loans for which monthly installment 10 11,2 6 exceed 20% of monthly income to be 100% provided for 1,7 0 •Latest measure in this area is direct limitation of total Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 retail loans to 200% of equity (will be 150% by 2007 year- Durable Non-durable end) Velden forum | 19.9.2007. | 7
    8. 8. Macroeconomic overview IV – Inflation and exchange rate •2006 was a year of very low inflation rate comparing to Inflation rate previous 2 years •Such deceleration of prices was achieved by very 20 restrictive monetary policy (high repo rate and 18 17,7 obligatory reserve) 16 •Price of restrictive monetary policy came in the form of 14 13,7 record trade deficit due to dinar appreciation 12 % 10 •But in the second quarter 2007, this trend reversed due to supply shocks, mainly from agriculture 8 6,6 6 6,3 •Inflation quickly picked up, endangering the targeted 4 4-8%, but analysts still find the target defendable 2004 2005 2006 Aug-07 Monthly average exchange rate •After many years of depreciation, second half of 2006 88 saw dinar appreciating. From June to December it 86 appreciated 8.8%. This came as a result of very high repo 84 rate, but also large inflow of fx from privatizations RSD/EUR 82 •During the first quarter of 2007 dinar depreciated 3% but 80 again appreciated back to December level 78 •For the time being NBS is not intervening in the fx 76 market, so the changes in the exchange rate can be 74 regarded as freely floating 6 06 7 06 07 07 07 06 7 06 7 r.0 t.0 .0 .0 n. n. v. n. b. p. c. ar aj ok ap no ju ja ju se fe de m m Velden forum | 19.9.2007. | 8
    9. 9. Macroeconomic overview V – Policy Lending rollercoaster •M2 money supply aggregate accelerated as agg. receivables from non-public sector continue to grow 10.000 25,0 (2,5-fold increase in corporate and 11-fold increase in 9.000 retail receivables since 2002) Receivable in nil. EUR NBS repo rate in % 8.000 20,0 7.000 6.000 15,0 •Monetary policy was far less restrictive in Q1 2007 5.000 than in 2006 4.000 10,0 3.000 •As NBS decreased repo rates, repo transactions 2.000 5,0 1.000 decreased from 900 mil. EUR in Q4 2006 to only 200 mil. - - EUR by the end of Q1 2007 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 •Mini credit boom followed in 2007, financed mostly Retail & corporate receivables NBS notes & repo transactions Average NBS repo rate Poly. (Retail & corporate receivables) from domestic savings Poly. (NBS notes & repo transactions) •NBS measures to slowdown foreign borrowing was fruitful (45% obligatory reserve), as banks decreased •Very expansive fiscal policy coupled with very aggregate foreign liabilities restrictive monetary policy during 2006 maintained Public revenue and expenditure internal balance (inflation of 6,6%) but spilled to very large external imbalance (record foreign trade deficit) 6.000 4.949 •Public revenue surged during the first 5 months of 5.000 4.268 2007, with growth rate of 23% in real terms, which is a 4.000 3.539 3.428 mil. EUR result of substantial growth of demand 3.000 •Public expenditure, grew but in more modest terms, 2.000 some 10% in real terms, due to technical governments budgetary limitation which kept expenditure on previous 1.000 year level 0 Jan-May 2006 Jan-May 2007 •Consolidated budget deficit for 2007 will reach 0,5% of GDP Consolidated public revenue Consolidated public expenditure Velden forum | 19.9.2007. | 9
    10. 10. Fiscal and monetary policy in the coming years •Ministry of finance committed, in its’ Budget memorandum, to significantly reduce public spending in 2008-2010 period Public debt and budget surplus •In the expenditure structure, the plan is to increase the share of 60 2 investments in human and physical capital 50 1,5 % of GDP % of GDP •Structural reforms are also given importance 40 1 30 0,5 •Ministry of finance projections say that current account deficit will 20 0 10 -0,5 remain above 10% of GDP during next 5 years, so maintaining high 0 -1 FDI inflow (projected at 2 billion EUR per year) is crucial 2004 2005 2006 2007* 2008* 2009* 2010* •Among structural reforms following are outlined: Public debt in % of GDP •Privatization Consolidated surplus/deficit in % of GDP •Regulatory framework for privatization of infrastructure and communal companies •Improvement of investment climate including efforts to minimize corruption •Construction and agricultural lend privatization •NBS will continue the gradual lowering of base inflation with target 2-4% in 2010. It will also try, as a secondary target to assist the Government in maintaining external balance and accelerating growth •Reference interest rate (2 week repo) will be main monetary instrument, and development of money market will be pursued •Obligatory reserve and supervisory regulations will be used when other measures fail to provide required effects •FX market will float with only necessary intervention to prevent large daily volatility, but the fundamental trends will not be disrupted •Additional attention will be given to the strengthening of risk management, as well as supervision of insurance companies, pension funds and leasing companies •Probably| the most important thing, independence of the NBS and it’s Governor will be enhanced Velden forum 19.9.2007. | 10
    11. 11.  Part II Banking sector overview Velden forum | 19.9.2007. | 11
    12. 12. Sector overview and comparison, M&A Total assets/GDP Serbian banking sector is quickly growing Total assets per 20.000 Still there is room for further growth: 15.000 106% Serbia In terms of higher Total assets/GDP ratio (35% capita 10.000 125% Croatia 5.000 in 2001, 60% in 2006) 60% Slovenia - And higher Total assets per capita (currently 15 35 55 less than 2.000 EUR per capita) Number of banks 2002 2003 2004 2005 2006 H1 2007 Development and growth of the banking sector, in terms of total assets, profitability and products Total Assets 5.147 5.297 6.338 8.972 14.800 17.400 TA/GDP 34% 32% 36% 43% 60% 67% Decrease in the number of banks, from >100 to 36 ROA -8,70% -0,30% -1% 6,50% 1,70% 2,09% (2001-2007) ROE -34,50% -1,20% -4,80% 1,20% 9,67% 11,17% Changes in the ownership structure, from 0 to 60% foreign-owned (2001-2007) Growth of Aggregate Total Assets Bank Purchasing price Buyer P/B Jubanka 152.000 Alpha bank 1,83 16,000 70% Novosadska banka 73.200 Erste bank 3,48 Kontinental banka 49.500 NLB 2,51 14,000 60%60% Niska banka 14.210 OTP bank 0,86 Merged into 12,000 50% Zepterbanka 32.000 OTP bank 2,55 OTP banka Srbija in mill.EUR Kulska banka 118.600 OTP bank 2,60 10,000 42% Delta banka 333.000 Banca Intesa Merger 3,07 40% Panonska banka 122.000 Sanpaolo IMI 3,42 8,000 announced 30% Atlas banka 19.500 Pireus bank 3,46 6,000 Meridijan banka 34.000 Credi Agricole 0,76 20% 20% Eksim banka 43.000 HVB (Unicredit) 4,02 4,000 Centrobanka 20.000 Laiki bank 2,38 10% 2,000 3% Nacionalna stedionica 41.000 EFG Eurobank 4,86 6% Nova banka 22.500 Findomestic bank 1,82 0 0% Vojvodjanska banka 385.000 National bank of Greece 4,02 2000 2001 2002 2003 2004 2005 2006 A banka 96.500 KBC 4,50 TOTAL 1.556.010 Total Assets Growth •EBRD´s pre-privatization 25% equity investment in the biggest state-owned banks Komercijalna and Čačanska banka •Other forum | 19.9.2007. |regional players: Societe Generale, Raiffeisen, Hypo Alpe-Adria, Volksbank, ProCredit Velden global and 12
    13. 13. Aggregate balance sheet structure Changes in aggregate asset •Agg. balance sheet grew 17,5% in H1/07 (14,8 to 17,4 billion EUR) structure •Due to restrictive measures Deposits with NBS (incl. repo transaction) 20 comprise large percent of the balance sheet (35% Dec/06 and 31% June/07) Receivables In bill. EUR 16 12 7,37 9,07 •Receivables grew from 50% (Dec/06) to 52% (June/07), due to a reduction of Deposits 8 with NBS repo interest rates during 2007 5,15 5,36 4 2,28 0 2,98 Other items •Stable dinar fx rate trend led to a reduction in net long fx position from 28% Dec-06 Jun-07 to 19% during 9 months •Retail loans reached 2,5 billion EUR (Dec/06) and 3,2 billion EUR (June/07), Strong growth of retail lending where housing loans account for 50% of this increase and will continue to be 38,4% 45,0% the main driver % of retail receivables 900 800 35,9% 40,0% Volume of In mil. EUR 799 700 600 28,7% 35,0% 30,0% housing •Corporate lending decreased in relative terms from 65% to 59% during last loans 500 400 599 25,0% 20,0% 18 months (but cross-border increased, which shows demand still exists) 300 15,0% Share 200 272 10,0% of •Bad debts are volatile due to changes in regulations (23% in 2005, 33% in 100 0 5,0% 0,0% Retail receiva 2006 and 29% in 2007). NBS wants to hold-back the agg. demand by Dec-05 Dec-06 Jun-07 bles increasing loan-loss reserves Long-term foreign debt Companies Banks 8.000 5.828 in mil. EUR •Savings are becoming very important source of funds, comprising more 6.000 4.333 2.895 than 25% of the aggregate liabilities and equity (31% of agg. Liabilities) 4.000 1.361 1.895 2.929 2.704 •Foreign debt has decreased during last 6 months for 7%, while savings 2.000 687 1.260 381 increased 18% and equity increased 20% - Dec-03 Dec-04 Dec-05 Dec-06 Jun-07 •Yet, dinar deposits comprise only 36,2% of total deposit, which shows lack Changes in aggregate liabilities Equity of trust in dinar fx rate by the domestic entities and equity structure •Average capital adequacy ratio is 25% (significantly higher than required Savings 20.000 12%) Other in Mill. EUR 15.000 3.297 liabilities •Foreign debt of companies (cross-border) continue to grow, even though 2.738 4.380 Foreign NBS managed to curtail the growth of banks’ foreign debt 10.000 3.725 liabilities 4.443 6.118 •Savings and cross-border, along with capital increase will continue to be the 5.000 3.895 3.630 main source of financing in the near future 0 Velden forum | 19.9.2007. | 13 Dec-06 Jun-07
    14. 14. Aggregate income statement •Aggregate profit was very volatile in 2006 •Losses during the 2nd and 3rd quarter 2006 resulted from loan Profit defaults, dinar appreciation and portfolio cleaning-up by the privatized banks 250,0 196,6 200,0 165,9 •Net interest income is the main driver of the profitability, while Net FX income is loosing it’s importance as dinar in mil. EUR 150,0 87,4 100,0 becomes more stable 50,0 0,0 •Net interest margin is almost constant, around 7% -50,0 2005 H1-2006 2006 H1-2007 •Cost-Income ratio is fluctuating between 75% and 85% -100,0 -43,4 •Short-term average interest rate is 16,5%, long-term is 10,1%, while weighted average for all maturities is 15,9%. •Housing loans are subject of strong competition and policy Net FX income/Net Interest income measures, which resulted in average interest rates of 6,8% (%) ROE (%) 50,00 47,09 40,00 20,00 33,44 30,00 28,79 14,68 21,85 10,00 9,67 11,17 20,00 6,46 8,24 12,55 15,36 10,00 0,00 - Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 -10,00 -5,37 -3,96 2004 H1- 2005 H1- 2006 H1- 2005 2006 2007 Velden forum | 19.9.2007. | 14
    15. 15. Market Composition, Management, Products •Top 5 players comprise 46% of the market Productivity and Profitability of the Market Leaders •In 2007, Hypo Alpe-Adria-Bank became the market leader 2.500 5 4,71 4,75 2.005 with 11,5% 2.000 3,94 4 3,82 4,07 tsd. EUR •First half of 2007 witnessed significant market penetration of 1.500 1.245 2,28 3 993 % predominantly domestic-owned AIK banka 1.000 726 758 2 441 500 1 •Raiffeisen lost it’s position after several years of being a - 0 market leader it es a lna cie te ed se n AB •Unicredit, decreased it’s share from 8,10% to 5,34% in one Int i ja i Cr fei HA erc So Un ai f m R year Ko Average Assets per employee Net Interest Margin/Average Total Assets •Komercijalna banka, state-owned bank had it’s capital increase by EBRD, and is expected to become very •Risk Management (specialized departments) and Corporate competitive in the coming years governance (Four-eyes principle, Separation of duties) is in the focus of new Law on banks •In terms of productivity Hypo Alpe-Adria-Bank is one of the leaders in the market •Transparency and minority shareholders rights strengthened •But in terms of profitability it is lagging behind it’s •Binding requirement to monitor and manage all types of risk competitors due to soaring interest expenses •Capital adequacy (12%) requirements and loan loss provision •Considering the structure of Income statements, it is are above standard international level noticeable that banks are beginning to specialize. While •Large loan losses which several banks suffered in 2006 growth of net interest income is dominant in HAAB and prove that this approach is necessary in a transitional Banca Intesa, Fee income is growing much faster in economy with fragile economy Raiffeisen and Komercijalna •Number of new products offered and their diversity is Market leaders as of 30th of June 2007 growing quickly Total Market Change during assets share last 6 months •Number of issued debit credit cards has grown from 0 to 2,5 Hypo Alpe-Adria-Bank a.d. Beograd 2.007 11,5% up 2 places million in 5 years. Besides Visa and MasterCard, domestic Banca Intesa a.d. Beograd 1.727 9,9% no change Raiffeisen banka a.d. Beograd 1.665 9,6% down 2 places DINA card hold significant market share (32% of debit and Komercijalna banka a.d. Beograd1.398 8,0% no change 35% of credit card market) AIK banka a.d. Niš 1.140 6,5% up 5 places •E-banking, investment banking and private wealth TOTAL 7.937 46% Velden forum | 19.9.2007. | 15 management are offered but it will take some time until these products become regularly used
    16. 16. Summary •Banking sector proves to be viable and flexible by adopting to the ever changing macroeconomic and supervisory environment •High obligatory reserve, NBS repo transactions and loan loss requirements are fueling dynamic and significant structural changes •In the early transitional years focus on pure credit growth, but due to high obligatory reserve and repo rate, repo transaction grew from 197 million to 1,8 billion EUR in just one year •After the latest shift in monetary policy during 2007 and decrease in repo rate, the share of repo transaction decreased from 15,8% to less than 8,5% of the aggregate balance sheet •Classic lending revived again in 2007 •This time lending is not financed from foreign borrowings but from domestic savings and capital increases •Income statement was also reshaped, so that net fx income is no longer a major item, but income from credit instruments and other products gained much more attention •Monetary authorities have created a sound and effective banking system, albeit with drastic measures •We can conclude that the banking system is becoming more efficient in providing various services and that competition is strengthening continuously •The number of 36 banks seems to be more than enough for the market of this size, and we can expect that future growth of the banking sector will be through the organic growth rather than entry of new players, and we might even see some of the important regional players ceasing their operations in Serbia •The competition will increase further by the development of pension and investment funds, life insurance and stock exchange investments •Economic growth, macroeconomic and political stability are necessary for stronger development of banking •Than we can expect to see a new credit-boom, absolute increase in profits and lower margins and better overall service Velden forum | 19.9.2007. | 16
    17. 17.  Part II Leasing overview Velden forum | 19.9.2007. | 17
    18. 18. Leasing overview 2006 Market share % •Financial Leasing is present since 2002 Others Hypo Alpe-Adria- •15 companies operating, only 1 domestic 12% VB Leasing Leasing 6% 29% •Hypo Alpe-Adria-Leasing is market leader with Total UniCredit assets of 254 million EUR Leasing 6% •Entire market is “only” 856 million EUR, and grew 30% Porsche in 2006% Leasing 6% •Overall ROE in 2006 reached 11% NLB Leasing 8% •Number of contracts outstanding is 52 thousand and average debt is 17 thousand EUR Raiffeisen S-Leasing 13% Leasing •Car (35%) and freights vehicles (29%) purchase are the 20% most common contracts •Major source of funds are foreign borrowing extended by holding banks and companies Leasing market comparison - Serbia and Croatia •Foreign liabilities account for 84% of total liabilities and equity 60,0 57 52,2 49,2 •NBS became concerned about high level of 50,0 Number of contracts foreign liabilities and imposed 10% of reserve 40,0 (000) for new borrowings from abroad, which was Size of contract tsd. 30,0 22,5 EUR raised to 20% in April this year 20,0 16,8 15 Market participants •There is still plenty of room for further market 10,0 growth, having in mind that in similar markets 0,0 Total Assets/GDP is far greater (5,4% in Serbia Croatia Bulgaria and 3,2% in Serbia) Velden forum | 19.9.2007. | 18
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