Although the official 2013 report on the Republika Srpska banking sector will be presented in May this year, the main parameters and movements have been sustained both in terms of consumer loans and commercial lending, and with regards to the ways and forms of banks’ operations according to the data relating to the first nine months of 2013.
By: Senka Trivić
The rate and the trends of the banking sector from the previous years have both been sustained in this year. According to the statistics of the Republika Srpska Banking Agency (RSBA), as of 30 September 2013, the total gross loans amounted to 4,746.5 million KM and had a growth of 4%. The loan portfolio is approximately the same as at the end of 2012, with all the groups showing growth of a few percentage points.
The loans to the government and government agencies amounted to 634.7 million KM and are 6% higher than last year. The loans to public and state-owned companies have shown even higher growth, totaling 208.1 million KM in the first nine months of 2013, a 17% growth rate. Loans to private companies and enterprises showed a significantly lower growth rate, a total of 2.1 billion KM, a 3% growth rate compared to the end of 2012.
Lending to consumers was at the level of 1.8 billion KM, which was 37% of total loans and a 5% growth compared to the end of 2012. When dividing this amount by the census results, according to which the Republika Srpska has the population of 1.326.991, we arrive at the figure of the average debt per citizen of 1.356.45 KM.
Of the total amount of approved commercial loans, a little less than half are secured by real property. According to the banks’ reports, in the first nine months of this year, 17.1 million KM–worth mortgage insurance of legal entities was activated against collection of debts of 56 loans, while in case of natural persons, the amount of activated mortgage insurance was 0.8 million KM (for 23 loans).
The figures also show that a share of non-performing loans in the total loan portfolio increased from 14.12%, at the end of 2012 to 16.10%. According to the RS BA, the level and the trend of non-performing loans will require the banks to exercise additional caution and attention.
“Due to difficult collection, the banks are more and more cautious when approving new loans, and the banks’ profits showed an additional decrease or even a loss at some banks, caused by higher costs of provisions for potential credit losses. According to Slavica Injac, the director of the Republika Srpska Banking Agency, capital strengthening of the Republika Srpska banks in 2013 will be an important factor for maintaining the security of the banking sector in Republika Srpska.
The total capital of the banks (872.6 million KM) increased by 10% compared to the last year, and the net profit made by the banking sector as a whole, in the first nine months of 2013 (15.2 million KM) showed a significant decrease compared to the last year (52.4 million KM).
As in previous years, the Agency advised the banks to use their profit to strengthen their own capital base rather than to pay dividends. It is noteworthy that the Decision on Provisionary Measures for Rescheduling Loan Obligations has been in force since 2009. According to this decision the amount of rescheduled loan obligations of legal entities in the first half of 2013 was 59.9 million KM.
The trend that started in previous years concerning repayment of loans by guarantors or co-guarantors instead of the principal debtor has continued this year too. The data shows that by September 2013 , the average amount of the 1.287 personal loans being repaid by 1.468 guarantors/co-guarantors was 3.790 thousand KM.
The average nominal and effective interest rates on loans have been falling compared to the same nine-month period in 2012.
The Bank of Srpska Case
The number of banks in the Republika Srpska has not changed since 2007. The total number of banks is ten and they are mostly privately held and – foreign. Overall percentage of private capital is 92%, while the Government of Republika Srpska has 8% share in private banks. Out of all private capital in banks in Srpska, 83% is foreign.
The most important change in ownership structure in 2013 concerns Balkan Investment Bank. Namely, after a capital investment of a share capital contribution of 30 million KM made through the RS Investment Development Bank and the RS Guarantee Fund, the bank, that had been a commercial bank with Lithuanian capital, became almost completely owned by the Republika Srpska Government, which has a 99.95% share.
The whole process around forming a new management of the bank was complete at the end of November 2013, following the approval by the RS BA of the appointment of Boris Knezevic as the Executive Sales Director and Dejan Radmanovic (the former acting manager of the Bank) the Executive Director for finances.
On September 27th the agency had approved the appointment of Zdravko Trivuncic as the Director of Balkan Investment Bank, dismissing Dejan Radmanovic from the duty of a temporary manager of the bank. In parallel to the new staffing solutions, a change of the bank’s name was announced too. The bank was supposed to operate under the name Banka Srpske (The Bank of Srpska). The new name was expected to take effect automatically after establishing of the new structure. Instead, this happened on December 9th, when, based on the Decision of the Banjaluka District Commercial Court, Balkan Investment Bank was officially re-named the Bank of Srpska. „By this Decision, Balkan Investment Bank ceases to exist in the Republika Srpska and B&H markets, and the Bank of Srpska, Inc. Banjaluka is coming on stage, as a completely new and independent brand. “, was an announcement made from the Bank of Srpska. We have been told that for now the bank did not want to disclose more information to the public regarding the current situation in the bank, the future plans, etc.
“Based on capital increase of BIB Bank, a state-owned bank was created, and although the former BIB Bank was a small bank with only about 3% of share in the total assets of the RS banking sector, what is important is to keep the financial stability from the point of view of reputation, business security and investments,” Injac said.
Lending through the Investment Development Bank
By the end of September 2013, the Republika Srpska Investment Development Bank advanced a total of 1.2 billion KM through its lines of credit. The biggest share of this was for the loans to entrepreneurs and companies, followed by housing loans.
As stated in ‘Economic Monitor’, a monthly publication issued by RS IDB, „the banking sector credit portfolio has been largely financed by the RS IDB funds. Thus, as of 30 June 2013, the share of loans from domestic sources, which were entirely financed from RS IDB, in the structure of overall credit sources for financing banks in Republika Srpska, was 73%.”
The RS BA believes that the IDB is a well-devised, efficient instrument to support development and financial stability, especially for long-term projects designed for future generations. Our request for additional information on this year’s operation of the RS IDB was unfortunately not accommodated, as we were told that it was the end of the year and that the work on collection of data and making of reports was not yet completed.
At the end of 2012, the RS BA started negotiations with the Council of Europe Development Bank, to discuss the arrangements of a new line of credit in the amount of five million Euros, for new eligible groups who will be able to apply for funds, such as those up to 45 years of age, and single people.
The negotiations procedure with the Council of Europe Development Bank is still ongoing. The IDB expect this line of credit to become operational in the first half of 2014.
Stability – a priority task
According to the semi-annual Report on the Situation in the Banking Sector of Republika Srpska, business entities, and primarily consumers have maintained their confidence in the banks, as evidenced by the constant growth of consumer savings.
“Business operations are being constantly improved and modernized in order to adjust the banking products and services to the users’ needs (development of e-banking and introduction of new forms of package of services). The Republika Srpska banking sector is liquid and capable of meeting all its obligations within deadlines“, Injac added.
Consumer deposits consisted of 46% of total deposits as of mid 2013, being the most important source of financing in the Republika Srpska banking sector.
„As I see the situation, the banking sector reflects the overall economic development. Stability still remains the main prerequisite and it is reflected by the banking sector. Speaking generally, there is a tendency in the world too for the banking legislation to get even more regulated. Unfortunately, the regulations have a price tag on them, which is at the end paid by the economy, i.e. the customer. Customers’ security which seems to become a key word for regulators and politicians will imply some inadvertent consequences in future when it comes to lending. For instance, it would be a noble thing to protect the guarantors from predator banks, but at the same time, this would imply fewer chances for a lot of people to get a loan“ said Alexander Picker, the manager of Hypo Alpe-Adria-Bank.
He added that there was not much growth in the country itself, and consequently, Hypo Bank did not have any growth of new transactions. „As we are cleaning things from the past, we do not expect to have profit for 2013, but we are very positive when it comes to the growth of assets, the level of lending and profit for the next year. Considering the overall macroeconomic climate the economic development is more or less acceptable. However, we are still carrying a burden from the past which we are trying to deal with in this year, so that we can have an impeccable new start in the next year“, Picker says.
According to the RS BA, despite the crisis, the most important indicators of the banking sector in the Republika Srpska have all showed growth. They expect this trend to continue in the next year.