Transition of the Serbian Banking Sector and European Integration

The Serbian banking sector after four years of transition is almost completely different from the situation before. Last year the growth rate of GDP in the sector was among the highest in neighborhood and even among all transition countries. Ten big acquisitions of domestic banks, with majority stake possessed by the state or private persons or legal entities, were realized with results that 2/3 of the sector now belong to foreign investors. Necessary prerequisite for transition was really independent role of National bank in definition and realization of monetary policy and supervision of banking sector. Transition of the banking sector was realized step by step threw three lines of activities.Firstly, restructuring and rehabilitation of existed banks. This painful step included closing of 18 banks and merging of small, week banks. National bank introduced tight financial discipline and international banking standard. Secondly, financial market was opened for foreign investors. At the beginning monetary authorities gave several license for green field investments, but later on foreign banks could penetrate the market threw acquisition of domestic banks, only. Thirdly, recently the state started privatization of majority stake in domestic banks owned by the state. This process will be finished by the end of 2006. At the same time domestic private shareholders recognized their interest to sell majority stake in several others banks. Although Serbian banks improved their efficiency and increased total amount of credit lines and assets for several times, there is still room for further transition steps. Among others, the law on banks and other financial institutions has to be amended, especially regarding stronger supervisory role of National bank, higher responsibility for bank management and auditors, as well. Important role for National bank would be also transition of insurance market, which is now at the very beginning phases of overall reform. Serbian banking sector with linkages to banks from EU countries and full introduction of international banking standards can be solid basis for European integration of Serbian economy.