Experiences of an American woman who was married to a Serb.

Sunday, October 5, 2008

Will Serbian or Croatian Banks Fail in the Economic Crisis?

I'm of two minds on this, and would very much appreciate any feedback you have if you're the sort of person who knows things...

Banks in Serbia are required to keep something like 40% of deposits in cash at the national central bank. So if there's a bank run during say a Global Economic Crisis, they can pay off 40% of the funds customers gave them . In Croatia that rate is 17%. (In comparison, banks in the US are required to keep something like 5% of their deposits with the Fed, the remainder can be loaned out or invested elsewhere. So if there's a bank run, we're in trouble.)

However, unlike the US which now offers $250,000 per account federal insurance, backed by a 200+ year old government, the far newer country of Serbia only offers a few thousand dollars-worth of account insurance. And it's not like they could vote to make that much bigger, there just isn't all that much money to spend on bailouts, nor friendly countries to borrow it from easily.

The banking sector has been one of the top three booming industries in Serbia for the past five years (the other two being telecommunications and construction.) Most of the banks are new, and have expanded super-aggressively. Our small city of Sombor is served by more than a dozen different name brand banks. Those brands are mainly European - Ernst, Raiffeisen, etc. You'll find most of these same banks in Croatia now as well. But there's one huge difference. The Croatian branches tend to be direct divisions or subsidiaries of the main bank. The Serbian branches tend to be franchises. They got the logo from the main bank, and maybe some management advice, but they're not directly owned 100% by that main bank. So, if they fail... the main bank may not be obliged or interested in bailing them out.

Consumer lending has already tightened in both countries - Croatians are having a much harder time getting mortages, according to a friend of ours who is a real estate developer in Zagreb. Serbs can still get modest mortgages, but interest rates are going upwards fast and may have already hit 10%. Oddly, this hasn't stopped real estate prices from continuing to rise sharply in Belgrade. I don't know who the Belgrade bubble buyers can possibly be... surely the supply of newly rich Montenegrins can't continue forever? Fairly soon they're going to run out of waterfront property to pawn off on Russians and/or Madonna.

So anyway, things are looking rough for the Serb and Croatian economies in the next couple of years. My gut is that Serb banks will be OK, aside from another big wave of M&As, so we'll see fewer name brands coming out the other end of the economic tunnel. For some reason I believe Serbia's isolation can be its salvation. It won't be pulled down by external forces, because the country isn't intertwined enough with Europe yet to be.

My gut doesn't feel like Croatian banks are as safe. Croatia is much further along in the process of integration with the capitalist world. More Croatians have mortgages and credit cards, the government of Croatia has an astonishingly high public debt (in the tens of billions) in comparison with the actual size of the country, and Croatia relies heavily on Europeans for everything from tourism revenues to running its banks. In fact, unlike Serbia, there are no banks in Croatia that are majority owned by locals.

If you have money in a Croatia or Serbian banks and you're considering flying home to yank it out, there's one bit of good news. Last minute flights from the US to Europe are extremely cheap right now, and plenty of seats are available. I know, I've been booking them.

6 comments:

Anonymous said...

Ask husband to translate my comment on Serbian, just I do not want to make some translating mistake... U Srbiji drzava je garant(jemac) za polozeni ulog, sto ce reci dace drzava isplatiti ulog, ali ne postoji rok u kom ce to uraditi i na koji nacin :)... Kao na primeru sa "starom deviznom stednjem" koja se jos uvek isplacuje...

Rosemary Bailey Brown said...

My husband is in Serbia right now, so I can't get him to translate this for me... so I have no idea what you've said. Hope to learn it soon!

Nenadski said...

Hi,

I'll translate it for you (don't know if the info anonymous gives is a 100% correct):
The comment says:
In Serbia the state guarantees all the money in an account. However there is no time limit defined in which the state needs to pay out the gauranteed money ;-) That's the reason the state is even now still paying out "old style foreign savings accounts" ....

Love your blog BTW

Rosemary Bailey Brown said...

Actually from what I've heard, in Yugoslavia the government guaranteed all accounts, but the new government of Serbia does not. They only guarantee dinars worth a few thousand dollars. Granted this may be about the size of an average Serb's in-bank savings at this time. Also granted the Serb government is still paying citizens, little by little, under the old Yugoslav laws for all the funds they lost when banks fell in the early 90s.

By the way, we just learned banks in Serbia and Croatia which used to allow same-day withdrawals, have adding "waiting periods" of up to a week now for large cash withdrawals.

Rosemary Bailey Brown said...

This just in. I heard Croatia is raising their insured bank amount max to something like US$50,000. So that's roughly double the old insurance.

Rick Halen said...

Rosemary, don't be naive. If you ask anyone about economy or banking in the Balkans they'll tell you that your best option is silver and gold coins hidden under a dung heap (where no one wants to look).

If I were you I wouldn't trust the serbian banking system at all. Just ask around about a serbian businesswoman named Dafina and her Dafinvest Bank...

The Croatians are better off there, mainly thanks to the tight cooperation with and supervision by the Germans.

I'm sorry to say this but businesswise you'll find way more crooks and ruffians in Serbia than honest people. And so much dreaming and fantasies that sound wonderful, except nothing materializes. Take everything you hear with a grain of salt. Or perhaps two grains.