Banks: Business or Patriotism

AIM Pristina, December 29, 2000

The idea that after Serbia is removed from Kosovo, Kosovo will have its own bank has been nurtured for 10 years. It was even claimed that in addition to commercial banks Kosovo will have a central bank as well and its own currency.

For the sake of business-patriots, however, an entirely different reality is being created, though it has turned out a bit more efficient than they imagined. One bank was founded -- the MEB bank (Micro Enterprise Bank) -- but it is a German institution, whereas six "domestic" banks were given temporary licenses. Although they have been operating for eight months now, they have not yet obtained permanent permits. Still, there is a number of reasons why one could ask whether they are indeed domestic banks. Judging from the structure of their capital the situation is as follows: all shareholders of Nova Banka Kosova (New Bank of Kosovo) are from Kosovo, the capital of Privredna i Kreditna Banka (Commercial and Credit Bank) comes mostly from a Swiss company owned by Bexhet Pacoli, Trgovinska Banka (Trade Bank) attempted to assemble Kosovo's trade companies but ended by approaching a U.S. private company...

The MEB bank was the first to open and shortly became extremely successful. It had a fine starting capital of DM3 million and now has almost three times that much. "Our capital totals DM8 million, and we plan to augment it by another DM2 million by the end of the year. We have 21,183 savings accounts of which 30 percent are legal entities which have deposited some DM140 million, and our transfers amount to DM1 billion," says Ralf Reifemaier, deputy director of this institution based in Pristina.

"The founders of the bank are not interested much in transfers, they prefer to deal with loans. So far, we have approved 537 loans amounting to DM7.5 million, and by the end of the year our placements will total some DM10 million," says Reifemaier.

According to him, loans average some DM13,000, and the loan policy of the bank is guided by the following logic: low placements – low risks. What worries Kosovars, however, is not only the fact that the loans are low, but that interest rates are high. "Interest rates for short-term loans are very high and are up to 24 percent annually. The loan policy does not include rural areas in which 70 percent of the Kosovo population lives and which suffered the most during the war. Commissions for international financial transfers are very high. The bank has no savings policy that would serve as a major source of investment in the economic development of Kosovo," says Halim Gjergjizi, director of the Eko Project Institute.

Kosovo Chamber of Commerce vice chairman Mustafa Ibrahimi stresses that conditions offered by the MEB bank are highly unfavorable for Kosovo's economy, primarily because of high interest rates. Given that this is practically the only bank in Kosovo, he views it as a monopolistic institution which has assisted Kosovo little in the past.

Reif Reifemaier disagrees. He says that the main objectives of the MEB bank are the development of the financial sector and issuing loans to small businesses. "We are but a single bank, and we cannot develop the entire economy at once. We are the small businesses' bank, that is, we finance micro businesses," explains Reifemaier.

In EU countries a debate on the Central European Bank interest rates is under way, and in Germany interest rates on commercial loans range from 10 to 12 percent. Legal experts say that those who charge 24 percent interest could be prosecuted "for deception or seeking illegal profit by taking advantage of unfavorable economic conditions." Does this apply to the MEB bank as well?

"The lack of regulation has created an environment in which the bank runs a big risk. If, for instance, someone fails to repay a loan, there is no one to defend the bank in the court. It, therefore, has to be very cautious," says Ben Atkins, spokesman for the European Bank for Reconstruction and Development, which is a MEB shareholder. On the other hand, the MEB deputy director in Pristina says: "As far as interest rates are concerned, we are not an NGO, we are not here to approve several loans and then disappear. We wish to have a strong and efficient, profit-making bank, that will last over the next one hundred years. We, therefore, have to cover our expenses, and this is why we have such interest rates. You seem to forget that the risks in Kosovo are much higher than, for instance, in Germany, and that small loans, which we approve, are regularly more expensive."

Marc Engelhardt, director of the German Office for Reconstruction and Development in Pristina justifies the high interest rates charged by the MEB bank and describes its operation as very successful. "The idea was to create a truly commercial bank in Kosovo. We are one of its five shareholders, but the MEB has a highly capable administration which is being increasingly staffed with local employees." On the other hand, Engelhardt claims that the demand indicates that the interest rates aren't that high: "The demand for MEB loans has exceeded our expectations. So far we have approved some 600 loans through the MEB totaling over DM5 million, and this only since April, 2000. That is, in less than eight months. And new clients keep arriving, and in such numbers that our staff, being unqualified, cannot handle them properly. It is true that the interest rates are high, but this was a deliberate move because we want the loans approved in line with the market criteria, meaning that only those companies capable of making a profit and oriented towards profit, which are efficient and capable of paying off the loans are eligible for them. We want to prevent what happened in Bosnia where low-interest loans were issued to companies that went bankrupt within a year or two, and took the banks down with them. This happened on two occasions and we want to avoid this fate. Our goal is to operate in Kosovo with a clear purpose and planning for the long run from the outset, on the basis of the criteria of a market economy."

The MEB Bank is successfully taking its place in the Kosovo market. Although its loans are expensive, they are still being issued and it was accepted as such by businessmen. The local bankers, however, have a different view. They believe that if there were more banks there would also be competition, and the price of their work would have to go down. Kosovo bankers lay all the blame on the Central Fiscal Authority in Kosovo, which has the powers of a central bank. "They do not want to give us permits," they complain. Not one of them, however, would admit that they are nor ready for the job. They have neither the capital nor the staff capable of putting up with the new circumstances.

Ibrahim Rexhepi

(AIM)