M&A in Serbia’s Banking Sector – Optimizing through Consolidation

July 29, 2021

M&A in Serbia’s Banking Sector – Optimizing through Consolidation

July 29, 2021

Milan Novakov

Milan Novakov

Senior Associate

Miloš Velimirović

Miloš Velimirović

Partner

At the end of 2020, there were 26 banks* in Serbia. Today there are 24 banks, and at the end of 2021, it is expected that 22 banks* will be active with market talks of future consolidation leading up to 19 active banks* until 2022.

Significant banking sector consolidation started in December 2017 with Hungarian OTP acquiring Serbian Vojvođanska banka, followed by OTP’s acquisition of the French Societe Generale in September 2019 and merging of the Serbian branch of OTP bank to Vojvođanska banka in May 2021. Consolidation continued with Slovenian NLB acquiring 88,28% of shares in Komercijalna banka in December 2020 whilst Greek Eurobank is currently absorbing Serbian Direktna banka, a transaction that is expected to be finalized by the end of 2021. Likewise, on 1stJuly 2021, the Republic of Serbia’s Banka Poštanska štedionica concluded absorption of MTS Banka.

2021 – 2022 consolidation process is set to encompass an acquisition by a majority shareholder in Serbia’s banking sector of a French banking group’s branch office in Serbia, whereby there are also talks of Serbian AIK bank acquiring the local branch of the Russian Sberbank.

The aforementioned acquisitions will not impact Banca Intesa as the market leader with 6,1 billion euros in assets. However, UniCredit will fall to 3rd place in asset value after OTP’s merger with Vojvođanska banka, and by late 2021 or early 2022 subject to current market deals being completed, UniCredit may dissolve to 4th place. NLB, AIK, and Banka Poštanska štedionica would follow in 5th, 6th, and 7th place respectively, while Erste bank and Eurobank would hold 8th and 9th marketplace by asset value. The list of systemically important banks in Serbia would end with Eurobank holding approximately 5,6%** of market share in asset value, with the remaining banks being below 5%.

However, by viewing CIR (“cost/income ratio“) and ROAE (“profit/average equity“), it could be concluded that Serbia’s banking sector still has potential for further consolidation.***

Banca Intesa, UniCredit, and Raiffeisen as sector-leading banks have an average CIR of 53% with ROAE of 6,8% (UniCredit), 10% (Raiffeisen) and 10,4% (Intesa) respectively. If the ratios of market-leading banks would be considered as a standard for the Serbian market, Adikko bank and Halkbank would be considered as underperformers with ROAE of 2,6% (Adikko) and 4,3% (Halkbank). However, considering the high CIR ratios of both banks there is great potential for optimization of costs through M&A as a number of operating expenditures could be split between two banks, leading towards lowering of CIR and hence increase in ROAE.

While Adikko and Halkbank would be considered as underperformers, in the same example, Telenor bank with ROAE -13,1% and CIR of 142,2% and Expobank with ROAE -7,6% and CIR of 155,8% would seem ripe for the taking.****

*Operating independently from other banks.

** Direktna banka calculated into Eurobank’s market share.

*** Statistical market data valid as of 31 December 2020.

**** AIK is the sector champion with 31% CIR and 19,7% ROAE.

 

 

 

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

Contact:

Miloš Velimirović, Partner
milos.velimirovic@sog.rs

Milan Novakov, Senior Associate
milan.novakov@sog.rs

 

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