The European Bank for Reconstruction and Development (EBRD) plans to provide at least 1.0 billion euro ($1.38 billion) in funds to Serbia in 2014-2018, focusing on boosting the competitiveness of private businesses, strengthening the banking sector and upgrading the energy and infrastructure sectors, the lender’s country director for Serbia said.
The EBRD has adopted a four-year strategy for Serbia which prioritizes increasing its engagement withthe private sector, channeling long-term financing to the economy through the local banking sector and promoting investment into energy efficiency and renewable energy.
“We had a very good year in Serbia in 2013, investing 424 million euro in 24 projects. Our portfolio there is already worth 2.5 billion euro and we want to keep a high level of engagement,” Matteo Patrone told SeeNews in an emailed interview.
The multi-lateral lender is also very much interested in partnering with investors willing to engage in privatization processes in Serbia, either as a co-investor or as an acquisition finance provider.
NPL LEVELS RAISING FLAGS
A key engagement for the EBRD in Serbia’s banking sector – seen as instrumental in kick-starting economic growth - would involve supporting the reorganization of the Deposit Insurance Agency and contributing to the replenishment of the Deposit Insurance Fund in a concerted action with the World Bank and the International Monetary Fund.
Patrone noted that non-performing loan (NPL) levels in Serbia, while comparable with other countries in the Western Balkans, are not sustainable as they hinder the ability of banks to finance the real economy. “Something should be done in this respect, and we stand ready to contribute.”
According to the latest data of the National Bank of Serbia, the NPL rate in the country’s banking sector stood at 21.1% of overall gross loans at the end of the third quarter of 2013, up from 18.6% at the end of 2012.
The expert believes that a consolidation process is needed in the banking sector which serves a population of around 7.2 million. “Out of 29 banks, five have a cumulative market share of 50%. There are too many unprofitable banks. My impression is that the authorities are of the same opinion.”
As many as 13 of the 31 banks active in Serbia by the end of the third quarter of 2013 were loss-makers, central bank data showed.
FDI PERFORMANCE LACKLUSTRE
Patrone said underperforming foreign direct investment (FDI) is looming as a key concern for Serbia, pointing to lack of predictability and sometimes unmanageable red tape as major issues that need to be tackled.
“Having said this, there are some notable very positive cases of FDIs - like Fiat, Eithad, and the recent acquisition of cable operator SBB by KKR, that I would consider a landmark investment by one of the most iconic private equity houses in Southeast Europe. This should have a demonstration effect for other potential strategic and financial investors in the country.”
In 2008, Fiat co-founded Fiat Automobili Srbija, a Kragujevac-based 67/33 joint venture with the Serbian state.
In 2013, Etihad Airways signed a strategic partnership deal to acquire 49% of then state-owned JAT Airways while getting a five-year management contract for the Serbian flag carrier and rebranding it to Air Serbia.
In March, global investment firm KKR completed the acquisition of SBB/Telemach, a leading cable and pay TV operator in Southeast Europe.