Largest Serbian Banks Facing Liquidation

One Fish for Thousand Bankers

The Beobanka, the Beogradska Bank, the Jugobanka, the Investbanka and the Vojvodjanska Bank have registered losses worth DM 8.7 million. Until now, 19 banks have been closed down, 18 have merged so that out of 83 there are only 53 banks left. The NBY Governor, Mladjan Dinkic said that Serbia didn't need more than 30 banks. He publicly promised to the European Bank for Reconstruction and Development (EBRD) that 99 percent of the banking reform would be completed by next June.

AIM Belgrade, December 16, 2001

Governor of the National Bank of Yugoslavia (NBY) Mladjan Dinkic truly has no gift for diplomacy. First, he did not want to shake hands with a trade union delegation of financial organisations, which came to see him on behalf of employees of bankrupt banks, while they were protesting in front of the NBY. After that, he refused to tell them whether four largest banks (and the worst standing) Serbian banks would be closed down or rehabilitated. They wanted to know about the Beobanka, the Jugobanka, the Investbanka and the Beogradska Bank. "I know, the National Bank knows and the Government of Serbia knows what will happen with these banks, but I will not tell you before spring", replied the Governor as we heard from Milan Alempijevic, President of the Free Trade Union Organisation of Bank Employees.

Several hundred, out of ten thousand workers of the mentioned four banks, who may become jobless if the rehabilitation fails, as well as workers of the JIK Bank which has been clinically dead for the last couple years, protested in the streets of Belgrade demanding of Governor Dinkic to stop the liquidation of their banks. They consider foreign banks the main culprits for their downfall, because although they came to Yugoslavia only recently, "they enjoy a privileged position in relation to domestic banks which built up this country". The workers demanded from the Governor to allow them to continue to work and help them collect their claims from (also ruined) enterprises.

"Workers' protests are absolutely absurd", commented Dinkic. "Bank staff protests exist nowhere else in the world. By definition theirs is a profitable profession. If a bank abroad makes profit that means that it is working, if not, then there is no dilemma about closing it down. These workers should ask other citizens of Serbia whether they are ready to give DM 5.3 billion for their working places. The central bank has provided DM 350 million and no more can be secured for the rehabilitation of banks", claimed Dinkic.

The well-known economist Ljubomir Madzar, presently the Head of "Brother Karic" University and once Dinkic's mentor, claimed that an attempt at rehabilitating banks with DM 350 million was same as "trying to feed thousand Christians with one fish". Naturally, Governor Mladjan Dinkic could no longer allow banks to be welfare institutions which would care for workers who did nothing for the last ten years. Next year, DM 50 million would be used for a welfare programme which should provide for these workers. Thy have been offered three options: redundant workers can register with the Unemployment Bureau and be entitled to unemployment benefits, they could apply for retraining and receive adequate compensation or take severance pay of around DM 5 thousand and terminate their employment. "Who will employ an old man like me and what can I be retrained for - should I sew trousers or paint flats. I know how to work in a bank because that's the only thing I have been doing for 30 years", was a desperate comment of a bank clerk during protest. He admitted that banks did not work, but according to him, it was not his problem - his duty was to work and the state's to provide that work. The idea of taking matters into his own hands was not close to him, and the new circumstances do not play into his hands. The Governor announced further stringent measures in the banking system of Serbia.

Commercial banks in Serbia are now forced to adapt to quite a new business philosophy - to live exclusively from their earnings. Until now, the NBY approved loans from the reserve money issue to banks, which then re-directed them to enterprises (but, first paying wages to their workers from that money), which also used them for paying wages, but showed no intention of ever repaying those loans. Interest was usually credited to the capital and the debt would inflate like a balloon, whereas banks would record losses on account of claims they could not collect.

This year the NBY did not grant any loans to commercial banks. They were practically left to their own resources. Those who manage would survive, but those who fail would go under because they were, anyway, only accumulating losses. That is why four largest banks would be closed down if it is determined that the cost of their liquidation is lower than that of their rehabilitation. Actually, workers have no reason to be angry with Governor Dinkic nor to rely on him. Even if he wanted he could not keep alive those banks that did not fulfil conditions because the IMF's instructions on this were very clear if the state wanted to conclude a new stand-by arrangement next spring.

After all, in the annual report of the European Bank for Reconstruction and Development (EBRD), Governor Dinkic got a failing grade because of the slow sorting out of the situation in the banking system. The Governor publicly promised that by next June (when reports are usually drafted) 99 percent of the banking reform would be completed and that he would improve his grades. In other words, there is no mercy in these things and that has nothing to do with the Governor - he is just a civil servant who has to pursue state policy. The fact that the state has to depend on foreign credits and assistance and, consequently, has to follow the instruction of others, is quite another story. Or, in other words, a legacy of the past.

And this is how that legacy looks like: only five largest banks in the country (the mentioned four together with the Vojvodjanska Bank, which is the only one the Rehabilitation Agency is not processing, and which is operating independently) have accumulated losses worth DM 5.3 billion, excluding debts to the Paris and London Club. Together with these debts, their losses amount to DM 8.7 billion. Until now some 19 banks have been wound up (for the first time after the 2nd World War) and 18 have merged so that only 53 banks are left out of 83. The Governor said that further mergers were expected, as Serbia did not need more than 30 banks.

Now, 31 banks fall within A and B category, 8 need additional inflow of capital, one is under procedure, whereas the Rehabilitation Agency is processing the cases of 8 other banks. The following foreign banks have been granted work licence: HVB, Reiffeisen, Microfinance, the National Bank of Greece and Societe General, which is the only that has been operating here for the last ten years. Representatives of the City Bank have recently visited Governor Dinkic. He refused to tell what has been agreed, but we learned unofficially that this Bank was considering a possibility of buying one of the strongest Serbian banks. Also, the New Ljubljanska Bank will take over the Continental Bank from Novi Sad.

It seems that all those who did not seriously take the Governor's warning from the beginning of this year that "no one will be able to recognise the banking system in one year" and did not look for a new job, have made a grave mistake. They are wasting valuable time by organising strikes in the streets.

Biljana Stepanovic

(AIM)