2007. vladimir cupic. banking and leasing in serbia. cee-wirtschaftsforum 2007. forum velden
DESCRIPTION
TRANSCRIPT
Velden forum | 19.9.2007. | 1
Vladimir CupicVorstand/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. | 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. | 3
Contents
Part I
Macroeconomic overview
Overview
Part II
Banking sector overview
Sector overview and comparison, M&A
Aggregate balance sheet structure
Aggregate income statement
Market composition, Management, Products
Summary
GDP and growth
Balance of payment and FDI
Credit boom
Inflation and exchange rate
Policy
Fiscal and monetary policy in the coming years
Part III
Leasing
Velden forum | 19.9.2007. | 4
Part I
Macroeconomic overview
Velden forum | 19.9.2007. | 5
Macroeconomic overview I – GDP and growthMacroeconomic overview I – GDP and growth
GDP pc in EUR 2006
EU 27 23.400
Euro area 26.600
Austria 31.100
Slovenia 14.800
Czech Republic 11.100
Hungary 8.900
Croatia 7.700
Romania 4.500
Bulgaria 3.300
Serbia 3.060
Macedonia, F.Y.R. 2.400
2004 2005 2006e Q1 2007f
GDP per capita EUR 2.651 2.837 3.061 3.398
GDP growth (%) 8,4 6,2 5,7 8,8
GDP mil. EUR 19.723 21.108 22.776 25.281
Population mil. 7,44 7,44 7,44 7,44
•High GDP growth continues for 4 years
•Increasing consumption and investments, and lately also warm winter driving GDP growth
•Consumption growing due to increase in wages and credit boom
•Yet, it will take quite some time to reach the level of advanced CEE countries in terms of GDP per capita
•In terms of average wage Serbia is also lagging significantly comparing to neighboring advanced economies
•Services are growing faster than industry, mainly trade (30% in Q1 2007 comparing to Q1 2006)
•Industry grew for 4.7% in 2006 and 4.8% Q1 2007 (highest in traffic, metals, food and beverages, construction, furniture)
•Agriculture had a weak growth of 1,6% in 2006 and is expected to have very bad year due to heavy drought
Average wage, June 2007
645
818
340
0
100
200
300
400
500
600
700
800
900
Croatia Slovenia Serbia
EU
R
Velden forum | 19.9.2007. | 6
Macroeconomic overview II – Balance of Payment and FDIMacroeconomic overview II – Balance of Payment and FDI
Foreign debt
11.378
15.638 15.74012.439
53,2
58,061,8 59,8
-
5.000
10.000
15.000
20.000
2004 2005 2006 H1 2007estimate
mil.
EU
R
485052545658606264
% o
f G
DP
Foreign debt in mil. EURForeign debt in % of GDP
Trade deficit
42,1 39,3 40,6 43,3
1915,220,7 21,611,1
17,6
11,68,6
01020304050
2004 2005 2006 Q1 2007
% o
f G
DP
0
5
10
15
20
% o
f G
DP
Import Export Current account deficit
•Exports are growing more than 30% (annualized) for the last several quarters, but they are still far below imports, causing very high current account deficit
•Investments and foreign markets penetration of the privatized companies, are accelerating exports (main products are iron and steel, colored metals, fruits, vegetables, and cereals)
•Strengthening of domestic and foreign demand is causing surge in imports of intermediary and capital goods (investment cycle starting), alongside with the consumer goods
•Remittances from abroad and privatization income were large enough to cover the widening trade deficit
•Up to 2007, banks’ and companies’ foreign debt were growing in similar percentages, but due to NBS restrictive measures, banks’ debt is now decreasing
•Banks now comprise 23% and companies 38% of overall foreign debt
FDI
7731.248
4.077
617
0
1.000
2.000
3.000
4.000
5.000
2004 2005 2006 Q1 2007
mil.
EU
R
•Foreign debt has risen sharply during last two years
•Public foreign debt comprise more than 75% of overall foreign debt prior to 2004, but now less than 40%
•FDI in Q1 2007 are much larger than in Q1 2006 (164 mil. EUR) but it will be very hard to repeat last year total of more than 4 billion EUR, which came as a result of several large privatizations
Velden forum | 19.9.2007. | 7
Macroeconomic overview III – Credit boomMacroeconomic overview III – Credit boom
Import growth of consumer goods
16,2
1,76
29,1
22,1
11,2
19,323,3
45,245,9
0
10
20
30
40
50
Q1-06 Q2-06 Q3-06 Q4-06 Q1-07
% y
ea
r-o
n-y
ea
r g
row
th
Durable Non-durable
•Aggregate loan demand in Serbia is very high
•Driving factors of high loan demand are very low average salary of 340 euro and 15 years of wear-and-tear of home appliances, cars, clothes and other durable and non-durable goods
•Demand for long-term loans, especially housing loans is very high due to constant supply deficit of residential buildings lasting for several decades
•In Belgrade, the demand for flats and houses is approximately 10 times higher than the supply
•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
•High foreign trade deficit concerned NBS, which imposed series of restrictive measures
•Measures aim at slowing short-term consumer lending and reducing banks borrowing abroad
•Short-term consumer lending measures are indirect, NBS requires all loans for which monthly installment exceed 20% of monthly income to be 100% provided for
•Latest measure in this area is direct limitation of total retail loans to 200% of equity (will be 150% by 2007 year-end)
Construction growth (%)
-12,8
4,3 6,2 6,0
25,7
6,62,7
8,8
35
-20
-10
0
10
20
30
40
Q1-05
Q2-05
Q3-05
Q4-05
Q1-06
Q2-06
Q3-06
Q4-06
Q1-07%
ye
ar-
on
-ye
ar
gro
wth
Velden forum | 19.9.2007. | 8
Macroeconomic overview IV – Inflation and exchange rateMacroeconomic overview IV – Inflation and exchange rate
Inflation rate
13,7
17,7
6,36,6
4
6
8
10
12
14
16
18
20
2004 2005 2006 Aug-07
%
•2006 was a year of very low inflation rate comparing to previous 2 years
•Such deceleration of prices was achieved by very restrictive monetary policy (high repo rate and obligatory reserve)
•Price of restrictive monetary policy came in the form of record trade deficit due to dinar appreciation
•But in the second quarter 2007, this trend reversed due to supply shocks, mainly from agriculture
•Inflation quickly picked up, endangering the targeted 4-8%, but analysts still find the target defendable
•After many years of depreciation, second half of 2006 saw dinar appreciating. From June to December it appreciated 8.8%. This came as a result of very high repo rate, but also large inflow of fx from privatizations
•During the first quarter of 2007 dinar depreciated 3% but again appreciated back to December level
•For the time being NBS is not intervening in the fx market, so the changes in the exchange rate can be regarded as freely floating
Monthly average exchange rate
74
76
78
80
82
84
86
88
jun.
06
sep.
06
okt.0
6
nov.0
6
dec.0
6
jan.
07
feb.
07
mar
.07
apr.0
7
maj.
07
jun.
07
RS
D/E
UR
Velden forum | 19.9.2007. | 9
Macroeconomic overview V – PolicyMacroeconomic overview V – Policy
Lending rollercoaster
- 1.000 2.000 3.000 4.000 5.000
6.000 7.000 8.000 9.000
10.000
Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07
Rec
eiva
ble
in n
il. E
UR
-
5,0
10,0
15,0
20,0
25,0
NB
S r
epo
rat
e in
%
Retail & corporate receivables NBS notes & repo transactions
Average NBS repo rate Poly. (Retail & corporate receivables)
Poly. (NBS notes & repo transactions)
•M2 money supply aggregate accelerated as agg. receivables from non-public sector continue to grow (2,5-fold increase in corporate and 11-fold increase in retail receivables since 2002)
•Monetary policy was far less restrictive in Q1 2007 than in 2006
•As NBS decreased repo rates, repo transactions decreased from 900 mil. EUR in Q4 2006 to only 200 mil. EUR by the end of Q1 2007
•Mini credit boom followed in 2007, financed mostly from domestic savings
•NBS measures to slowdown foreign borrowing was fruitful (45% obligatory reserve), as banks decreased aggregate foreign liabilities
•Very expansive fiscal policy coupled with very restrictive monetary policy during 2006 maintained internal balance (inflation of 6,6%) but spilled to very large external imbalance (record foreign trade deficit)
•Public revenue surged during the first 5 months of 2007, with growth rate of 23% in real terms, which is a result of substantial growth of demand
•Public expenditure, grew but in more modest terms, some 10% in real terms, due to technical governments budgetary limitation which kept expenditure on previous year level
•Consolidated budget deficit for 2007 will reach 0,5% of GDP
Public revenue and expenditure
3.539
4.949
3.428
4.268
0
1.000
2.000
3.000
4.000
5.000
6.000
Jan-May 2006 Jan-May 2007
mil.
EU
R
Consolidated public revenue Consolidated public expenditure
Velden forum | 19.9.2007. | 10
Fiscal and monetary policy in the coming yearsFiscal and monetary policy in the coming years
•Ministry of finance committed, in its’ Budget memorandum, to significantly reduce public spending in 2008-2010 period
•In the expenditure structure, the plan is to increase the share of investments in human and physical capital
•Structural reforms are also given importance
•Ministry of finance projections say that current account deficit will remain above 10% of GDP during next 5 years, so maintaining high FDI inflow (projected at 2 billion EUR per year) is crucial
•Among structural reforms following are outlined:
•Privatization
•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
Public debt and budget surplus
010
203040
5060
2004 2005 2006 2007* 2008* 2009* 2010*
% o
f G
DP
-1-0,5
00,51
1,52
% o
f G
DP
Public debt in % of GDP
Consolidated surplus/deficit in % of GDP
Velden forum | 19.9.2007. | 11
Part II
Banking sector overview
Velden forum | 19.9.2007. | 12
Sector overview and comparison, M&ASector overview and comparison, M&A
Growth of Aggregate Total Assets
6%
20%
60%
42%
3%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2000 2001 2002 2003 2004 2005 2006
in m
ill.E
UR
0%
10%
20%
30%
40%
50%
60%
70%
Total Assets Growth
2002 2003 2004 2005 2006 H1 2007
Total Assets 5.147 5.297 6.338 8.972 14.800 17.400
TA/GDP 34% 32% 36% 43% 60% 67%
ROA -8,70% -0,30% -1% 6,50% 1,70% 2,09%
ROE -34,50% -1,20% -4,80% 1,20% 9,67% 11,17%
Serbian banking sector is quickly growing
Still there is room for further growth:In terms of higher Total assets/GDP ratio (35% in 2001, 60% in 2006)And higher Total assets per capita (currently less than 2.000 EUR per capita)
Development and growth of the banking sector, in terms of total assets, profitability and products
Decrease in the number of banks, from >100 to 36 (2001-2007)
Changes in the ownership structure, from 0 to 60% foreign-owned (2001-2007)Bank Purchasing price Buyer P/BJubanka 152.000 Alpha bank 1,83Novosadska banka 73.200 Erste bank 3,48Kontinental banka 49.500 NLB 2,51Niska banka 14.210 OTP bank 0,86Zepterbanka 32.000 OTP bank 2,55Kulska banka 118.600 OTP bank 2,60Delta banka 333.000 Banca Intesa 3,07Panonska banka 122.000 Sanpaolo IMI 3,42Atlas banka 19.500 Pireus bank 3,46Meridijan banka 34.000 Credi Agricole 0,76Eksim banka 43.000 HVB (Unicredit) 4,02Centrobanka 20.000 Laiki bank 2,38Nacionalna stedionica 41.000 EFG Eurobank 4,86Nova banka 22.500 Findomestic bank 1,82Vojvodjanska banka 385.000 National bank of Greece 4,02A banka 96.500 KBC 4,50TOTAL 1.556.010
Merged into Merged into OTP banka SrbijaOTP banka Srbija
Merger Merger announcedannounced
•EBRD´s pre-privatization 25% equity investment in the biggest state-owned banks Komercijalna and Čačanska banka
•Other global and regional players: Societe Generale, Raiffeisen, Hypo Alpe-Adria, Volksbank, ProCredit
Velden forum | 19.9.2007. | 13
Aggregate balance sheet structureAggregate balance sheet structure
Strong growth of retail lending
599
799
272
28,7%
38,4%35,9%
0100200300400500600700800900
Dec-05 Dec-06 Jun-07
In m
il.
EU
R
0,0%5,0%10,0%15,0%20,0%25,0%30,0%35,0%40,0%45,0%
% o
f re
tail r
ec
eiv
ab
les
Volumeofhousingloans
ShareofRetailreceivables
Changes in aggregate liabilities and equity structure
3.895 3.630
4.443 6.118
3.7254.380
2.7383.297
0
5.000
10.000
15.000
20.000
Dec-06 Jun-07
in M
ill. E
UR
Equity
Savings
Otherliabilities
Foreignliabilities
Changes in aggregate asset structure
2,28 2,985,15 5,36
7,379,07
048
121620
Dec-06 Jun-07
In b
ill.
EU
R Receivables
Depositswith NBS
Other items
•Agg. balance sheet grew 17,5% in H1/07 (14,8 to 17,4 billion EUR)
•Due to restrictive measures Deposits with NBS (incl. repo transaction) comprise large percent of the balance sheet (35% Dec/06 and 31% June/07)
•Receivables grew from 50% (Dec/06) to 52% (June/07), due to a reduction of repo interest rates during 2007
•Stable dinar fx rate trend led to a reduction in net long fx position from 28% to 19% during 9 months
•Retail loans reached 2,5 billion EUR (Dec/06) and 3,2 billion EUR (June/07), where housing loans account for 50% of this increase and will continue to be the main driver
•Corporate lending decreased in relative terms from 65% to 59% during last 18 months (but cross-border increased, which shows demand still exists)
•Bad debts are volatile due to changes in regulations (23% in 2005, 33% in 2006 and 29% in 2007). NBS wants to hold-back the agg. demand by increasing loan-loss reserves
•Savings are becoming very important source of funds, comprising more than 25% of the aggregate liabilities and equity (31% of agg. Liabilities)
•Foreign debt has decreased during last 6 months for 7%, while savings increased 18% and equity increased 20%
•Yet, dinar deposits comprise only 36,2% of total deposit, which shows lack of trust in dinar fx rate by the domestic entities
•Average capital adequacy ratio is 25% (significantly higher than required 12%)
•Foreign debt of companies (cross-border) continue to grow, even though NBS managed to curtail the growth of banks’ foreign debt
•Savings and cross-border, along with capital increase will continue to be the main source of financing in the near future
Long-term foreign debt
687 1.2602.9291.361
1.895
5.8284.333
2.895 2.704
381-
2.000
4.000
6.000
8.000
Dec-03 Dec-04 Dec-05 Dec-06 Jun-07
in m
il.
EU
R
Companies Banks
Velden forum | 19.9.2007. | 14
Aggregate income statementAggregate income statement
ROE (%)
6,46 8,24 9,6714,68
11,17
-5,37 -3,96-10,00
0,00
10,00
20,00
Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07
Profit
87,4
-43,4
196,6165,9
-100,0
-50,0
0,0
50,0
100,0
150,0
200,0
250,0
2005 H1-2006 2006 H1-2007
in m
il.
EU
R
•Aggregate profit was very volatile in 2006
•Losses during the 2nd and 3rd quarter 2006 resulted from loan defaults, dinar appreciation and portfolio cleaning-up by the privatized banks
•Net interest income is the main driver of the profitability, while Net FX income is loosing it’s importance as dinar becomes more stable
•Net interest margin is almost constant, around 7%
•Cost-Income ratio is fluctuating between 75% and 85%
•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 measures, which resulted in average interest rates of 6,8%Net FX income/Net Interest income
(%)
47,09
33,4428,79
12,5521,85
15,36
-
10,00
20,00
30,00
40,00
50,00
2004 H1-2005
2005 H1-2006
2006 H1-2007
Velden forum | 19.9.2007. | 15
Market Composition, Management, ProductsMarket Composition, Management, Products
Total assets
Market share
Change during last 6 months
Hypo Alpe-Adria-Bank a.d. Beograd2.007 11,5% up 2 placesBanca Intesa a.d. Beograd 1.727 9,9% no changeRaiffeisen banka a.d. Beograd 1.665 9,6% down 2 placesKomercijalna banka a.d. Beograd1.398 8,0% no changeAIK banka a.d. Niš 1.140 6,5% up 5 placesTOTAL 7.937 46%
Market leaders as of 30th of June 2007
•Top 5 players comprise 46% of the market
•In 2007, Hypo Alpe-Adria-Bank became the market leader with 11,5%
•First half of 2007 witnessed significant market penetration of predominantly domestic-owned AIK banka
•Raiffeisen lost it’s position after several years of being a market leader
•Unicredit, decreased it’s share from 8,10% to 5,34% in one year
•Komercijalna banka, state-owned bank had it’s capital increase by EBRD, and is expected to become very competitive in the coming years
•In terms of productivity Hypo Alpe-Adria-Bank is one of the leaders in the market
•But in terms of profitability it is lagging behind it’s competitors due to soaring interest expenses
•Considering the structure of Income statements, it is noticeable that banks are beginning to specialize. While growth of net interest income is dominant in HAAB and Banca Intesa, Fee income is growing much faster in Raiffeisen and Komercijalna
Productivity and Profitability of the Market Leaders
726441
758
1.245993
2.0054,713,94
4,75
3,82 4,07
2,28
-
500
1.000
1.500
2.000
2.500
Intesa
Komercijalna
Societe
UniCredit
Raiffeise
nHAAB
tsd
. EU
R
0
1
2
3
4
5
%
Average Assets per employee Net Interest Margin/Average Total Assets
•Risk Management (specialized departments) and Corporate governance (Four-eyes principle, Separation of duties) is in the focus of new Law on banks
•Transparency and minority shareholders rights strengthened
•Binding requirement to monitor and manage all types of risk
•Capital adequacy (12%) requirements and loan loss provision are above standard international level
•Large loan losses which several banks suffered in 2006 prove that this approach is necessary in a transitional economy with fragile economy
•Number of new products offered and their diversity is growing quickly
•Number of issued debit credit cards has grown from 0 to 2,5 million in 5 years. Besides Visa and MasterCard, domestic DINA card hold significant market share (32% of debit and 35% of credit card market)
•E-banking, investment banking and private wealth management are offered but it will take some time until these products become regularly used
Velden forum | 19.9.2007. | 16
SummarySummary•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. | 17
Part II
Leasing overview
Velden forum | 19.9.2007. | 18
Leasing overviewLeasing overview
2006 Market share %
Hypo Alpe-Adria-Leasing
29%
Raiffeisen Leasing
20%
S-Leasing13%
NLB Leasing8%
Porsche Leasing
6%
UniCredit Leasing
6%
VB Leasing6%
Others12%
•Major source of funds are foreign borrowing extended by holding banks and companies
•Foreign liabilities account for 84% of total liabilities and equity
•NBS became concerned about high level of foreign liabilities and imposed 10% of reserve for new borrowings from abroad, which was raised to 20% in April this year
•There is still plenty of room for further market growth, having in mind that in similar markets Total Assets/GDP is far greater (5,4% in Bulgaria and 3,2% in Serbia)
•Financial Leasing is present since 2002
•15 companies operating, only 1 domestic
•Hypo Alpe-Adria-Leasing is market leader with Total assets of 254 million EUR
•Entire market is “only” 856 million EUR, and grew 30% in 2006%
•Overall ROE in 2006 reached 11%
•Number of contracts outstanding is 52 thousand and average debt is 17 thousand EUR
•Car (35%) and freights vehicles (29%) purchase are the most common contracts
Leasing market comparison - Serbia and Croatia
52,2
22,516,8
49,2
15
57
0,0
10,0
20,0
30,0
40,0
50,0
60,0
Serbia Croatia
Number of contracts(000)
Size of contract tsd.EUR
Market participants