STRATEGY. On Managing the Shares of the Banks owned by the Republic of Serbia for the period

Transcription

1 GOVERNMENT OF THE REPUBLIC OF SERBIA MINISTRY OF FINANCE STRATEGY On Managing the Shares of the Banks owned by the Republic of Serbia for the period Belgrade, April 2009

2 INTRODUCTION Reconstruction of the banking system is a long term process in each economy, it is been implemented in several stages and constitutes necessary precondition for solid functioning of the overall economy. In the Republic of Serbia reconstruction of the banking system is being successfully conducted since 2001 and it is currently in its final stage. The Government of the Republic of Serbia has adopted several strategic documents in the recent period, based on which reconstruction of the banking system and sale of shares of certain banks have been carried out. The present document determines the Strategy on the manner in which the state as a shareholder in banks for the period from 2009 till 2012, and it refers to all shares in banks owned by the Republic of Serbia as of beginning of 2009, regardless the origin of acquiring the shares. RECONSTRUCTION OF BANKING SYSTEM IN SERBIA Analyses and structural change Pre-privatization and privatization Final strategy Detailed sector analysis Bank classification and categorization Bankruptcy of 4 big and of a large number of smaller banks Issuance of 5 new operating licenses to banks Amendments of the laws and regulations Debt to equity swap for the claims of the Paris and London Clubs of Creditors and old FX savings Adoption of the basic strategy for sale of state shares Introduction of control and administration by the Agency Definition of the privatization plan and selection of financial advisors Pre-privatization restructuring Sold shares of 7 banks Jubanka, Novosadska banka, Continental banka, Niška banka, Panonska banka, Vojvodjanska banka, Nacionalna štedionica Revenue of app EUR 805 million Institutional building: Poštanska štedionica Komercijalna banka Čačanska banka Merger and/or capital increase: Privredna banka Pančevo Srpska banka Credy banka Sale (3 modes*): Privredna banka Beograd JUBMES banka PB Agrobanka * 3 methods: response to a take-over bid, order to sell on the stock-exchange, tender sale adjoining with minority shareholders Results of the activities implemented till 2008, in line with the basic objectives of the processes, were as follows: In the period between 2002 and 2006, the Republic of Serbia became owner of shares of a number of domestic banks on the basis of the conversion of the debts vis-à-vis the Paris and London Clubs of creditors and old savings in foreign currencies into share capital of the banks 1. In accordance with 1 Bank shares acquired by the Republic of Serbia on the basis of the Law on Settlement of the Public Debt of the Federal Republic of Yugoslavia Based on Households FX Savings («FRY Official Gazette», number 36/02 and «RS Official Journal», number 80/04), and the Law on Settlement of the Relationship Between the Federal Republic of Yugoslavia and Legal Entities and Banks from the Federal Republic of Yugoslavia Territory Original Debtors or Guarantors vis-à-vis the Paris and London Clubs of Creditors («FRY Official Gazette», numbers 36/02 and 7/03). 2

3 legal regulations, 14 banks converted their liabilities vis-à-vis the Paris and London Clubs of Creditors, established at the 1992 level, into share capital in state ownership, and made an additional conversion of liabilities in order to finance 15% of old savings in foreign currencies. By transferring the ownership of these shares from Serbia and Montenegro to the Republic of Serbia, the Republic of Serbia acquired a substantial stake in the banks capital based on the conversion of the total amount of EUR 956, 36 million (EUR million worth principal of the debt and EUR worth interest vis-à-vis the Paris and London Clubs creditors, and EUR million on the basis of old savings in foreign currencies). The basic goal of sale of shares of these banks was improvement in banking sector development in Serbia, in a way to sell the banks to strategic partners with appropriate credibility, and to provide funds for payment of the liabilities related to the old savings in foreign currency and Paris and London Clubs of Creditors. Banks were restructured without budgetary expenses. As fiscal sources were very limited, only the most necessary measures were undertaken so as to preserve the value of banks and to carry out the necessary carve out of the balance sheets (resolution of non-performing loans, takeover of nonperforming loans from enterprises in restructuring with the aim of connecting activities of restructuring the banks and restructuring the real sector, sale of fixed assets not indispensable for performing the basic activity, operational and organizational improvements, etc.). Sale of banks shares was conducted without expenses of implementation of the tender processes, since retainer fees for the privatization advisors (consortiums of advisors lead by investment banks) were financed from the funds provided by the World Bank, while success fees were financed from the sale shares proceeds. Sale of shares in these banks was conducted in a transparent and efficient way, while potential investors were sent a clear signal of the Republic of Serbia Government s readiness to operate in the best public interest. With this sale, the Republic of Serbia got an important inflow of assets into the budget in the amount of about EUR 805 million. This amount ensured funds necessary for settling the liabilities vis-à-vis the Paris and London Clubs of Creditors and obligations based on old savings in foreign currencies. Sale of shares transactions enabled new owners of the banks to secure additional capital necessary for fulfillment of regulatory requirements. Apart from inflow of new capital, change of ownership structure in banking system lead to increase of employment, know-how transfer and improvement of financial services which gave incentive to development of the overall economy. Apart from Alpha Bank which was already present in the market, reputable banks appeared in the Serbian financial market - Erste Bank, Nova Ljubljanska Banka, OTP Bank, National Bank of Greece and Sanpaolo IMI. The appearance of these banks helped in improving the quality and competitiveness of the banking system. In addition to the mentioned banks, seven more banks also participated in the purchase of private banks in Serbia (Credit Agricole, Banca Intesa, Piraeus Bank, HVB, EFG Eurobank, Laiki Bank, Findomestic Banca and ATE Bank), while five banks were given greenfield licenses (Raiffeisen banka, UniCredit Bank, Procredit Bank, Оpportunity banka and Moskovska banka). During 2006 EBRD conducted capital increase in Komercijalna banka a.d. Beograd and Čačanska banka a.d. Čačak, through the closed share issue and jointly with the state controlling package of shares was formed. With natural development of the market and as a result of the mentioned transactions, the market share of the banks owned by the state has decreased from 45% to the level of 15-20% as of beginning of As at 31 December 2008, the banking sector of Serbia was composed of 34 banks in majority ownership of foreign shareholders or of domestic legal entities and natural persons, of which 9 banks are those where the Republic of Serbia has participation in capital. Total assets of the banking sector were as at at the level of EUR 20,055 million, total capital was EUR 4,739 million, and deposit potential 3

4 was EUR 11,565 million. In this period 26 banks stated profit, 8 banks stated loss, and the overall financial result of the sector was positive and amounted EUR 365 million. The banking sector employs 31,435 workers. Republic of Serbia is majority shareholder in four banks, while is the largest minority shareholder in five banks. Review of the banks in which the Republic of Serbia has stake in capital is presented in the table below. Banks with the stake of state-owned capital Situation as at Bank Name RS share (%)) DIA (bankruptcies) (%) Total share (%) Banks where the state is a majority shareholder Banks in which the state is together with the EBRD a majority shareholder Banks in which the state is a minority shareholder** Banka Poštanska štedionica a.d. Beograd* 97.10% 97.10% Srpska banka a.d. Beograd 96.52% 96.52% Privredna banka a.d. Pančevo 92.98% 2.99% 95.97% Credy banka a.d. Kragujevac 55.18% 10.75% 65.93% Komercijalna banka a.d. Beograd 42.60% 6.67% 49.27% Čačanska banka a.d. Čačak 38.84% 4.46% 43.30% PR Agrobanka a.d. Beograd 20.07% 0.55% 20.62% Privredna banka Beograd a.d. Beograd 19.41% 19.41% JUBMES banka a.d. Beograd 21.14% 8.33% 29.47% * the stake of the Republic of Serbia is 63.73%, the stake of the Public Enterprise PTT Traffic «Srbija» is 30.29, while that of the pension and Disability Insurance Fund is 3.09%, which is in aggregate 97.10% ** in all banks the Republic of Serbia is the largest single shareholder The share of banks in which the Republic of Serbia is a majority shareholder in total assets of the banking system of Serbia was as at at the level of 2.73%, the share of banks in which Republic of Serbia is together with the EBRD a majority shareholder in total assets of the banking system was 10.62%, whereas the share of banks in which Republic of Serbia is a minority shareholder in total assets of the banking sector was 3.69%. The share of banks in which Republic of Serbia is a majority shareholder in total capital of the banking system of Serbia was as at at the level of 3.39%, the share of banks in which Republic of Serbia is together with the EBRD a majority shareholder in total capital of the banking system was 6.98%, while the share of banks in which Republic of Serbia is a minority shareholder was 5.28% in total capital of the banking system. The share of banks in which Republic of Serbia is a majority shareholder in total deposits of the banking system of Serbia was as at at the level of 2.97%, the share of banks in which Republic of Serbia is together with the EBRD a majority shareholder in total deposits of the banking system was 13.94%, while the share of banks in which Republic of Serbia is a minority shareholder in total deposits of the banking system was 3.93%. On Belgrade Stock Exchange, shares of majority of banks are traded with a higher or lower degree of continuity. Prices of most traded shares of banks have been falling from the second half of 2007, and since September 2007 till April 2009 the registered fall was 86%. Prices of individual banks shares that were most traded on Belgrade Stock Exchange, had the following trends: 4

5 Bank Name September 2007 March 2008 April 2009 % Change IX/07:IV/09 Agrobanka 36, , ,91-91,88% AIK Banka 11, , ,70-85,83% Čačanska banka 99, , ,35-87,84% Privredna banka Beograd 5, , ,40-92,70% Srpska Banka 72, , ,25-82,82% Univerzal Banka 43, , ,59-86,27% Komercijalna Banka 119, , ,62-85,52% Metals Banka 52, , ,30-95,04% Poštanska Štedionica 55, , ,00-92,48% Credy Banka Kragujevac , , ,00-95,94% Jubmes Banka 123, , ,98-92,86% Total , , ,10-89,29% Belex 15 2, , ,00-85,75% The banks share price index on Belgrade Stock Exchange largely corresponds to the stock exchange index Belex15, in view of the fact that these banks mostly make the index basket of this index. Graph below presents the flow of index Belex 15 since September 2007: Such movements on the Belgrade Stock exchange are in line with the general trend on all international stock exchanges and stock exchanges in the region, and are characterized by the generic fall in trading a smaller volume of trading, a drop in prices and values of almost all shares. Newly occurred situation on international, regional and local capital markets requires adjustment with the aim of greater contribution to the stability of financial sector, efficiency and establishment of public confidence in financial system. As a response to the global financial crises, the Republic of Serbia in cooperation with the National Bank of Serbia, has amended and rendered set of regulations and measures with the objective to maintain macroeconomic stability and stability of banking sector. In December 2008 changes have been made in regards to three laws with the aim to perform the following: To adjust the deposit insurance system of the Republic of Serbia with the systems in the countries in the region and EU countries: in regards to the amount of insured deposit, the amount is increased to the level of EUR 50,000, system of insured deposits of natural persons has been expanded and now includes also deposits of entrepreneurs, small and medium-sized enterprises (which contribute to the strengthening of the confidence and financial stability of the banking system) and status of depositors of the bank in bankruptcy and bank in liquidation has been equalized in regards to the payout right for the insured deposit; To establish legal base for potential intervention of the state in order to enable action which would prevent domino effect when condition of financial status of a certain bank is aggravating, and to maintain confidence in banking system. 5

6 Change of the Law on Deposit Insurance Agency, established legal ground for Government to apply the measures for preventing the negative effects in domestic banking system, on basis of the NBS proposal. After the events occurred on global financial market during 2007 and 2008, it became necessary for state to intervene within the financial system, i.e. to apply different measures in attempt to make financial system more stable, which include also purchase of shares of the banks that have difficulties in performing their operations. Law on Agency has even previously empowered the Agency to apply different measures on behalf of the Republic of Serbia towards the banks in which the Republic of Serbia is a shareholder (coverage of potential losses; take over, purchase and acquisition of bad asset; management of such asset). In accordance with the changes of the Law, the Agency is empowered to apply mentioned measures towards all banks that operate in the Republic of Serbia, regardless of the origin of the capital of a bank, all in line with an act of the Government. One of the changes of the Law is broader scope of measures that now include also purchase of shares of any bank endangering financial stability. All these measures are to be taken in accordance with the act of the Government of Serbia issued on basis of the NBS proposal since this institution has supervisory role in banking system. All this enable the Republic of Serbia to apply efficient and timely measures aiming towards the stability of banking and financial system. Positive effect of these activities is immeasurable comparing to potential funds that would have been provided for purchase of shares of banks that have problems in their operations. A Memorandum of Understanding has been signed between the Government of Serbia, National Bank and Deposit Insurance Agency that defines the responsibilities of each of the institutions for maintaining the financial stability in the Republic of Serbia. This measure created the basis for coordinated performance and division of duties and responsibilities among state institutions. In case of state intervention in banking system, each institution: the National Bank of Serbia, the Government and the Agency, has its role, and each institution will within its mandate define eligible criteria, procedures for conduct and point out the necessity of rendering and/or changing applicable regulations in situations when state needs to react in banking system and prevent potential negative effects of the disturbances on global financial market. In addition, the Committee for financial stability has been formed and situation in the banking sector is subject of permanent review. The Strategy on the Manner of Handling the Bank Shares owned by the Republic of Serbia has been the subject of review during the whole year of During the preparation for the approval of the Strategy, i.e. in the second half of 2008, global financial crisis emerged which has impact primarily on international banking sector. Having in mind changed global environment, it was necessary to reconsider once again further handling of existing shares of banks owned by the Republic of Serbia. After the recognition of the financial status of the banks, particularly of the banks owned by the Republic of Serbia and results of the financial crises so far, it is necessary to render the Strategy on managing the shares of the banks owned by the Republic of Serbia for the period In the first stage of implementation of the Strategy it is planned to continue with the activities such as preparation and implementation of the institutional building plans, analysis of economic justification of mergers of certain banks and capital increase. These activities will enhance corporate governance, improve the procedures for management of credit and other risks, deal with the non-performing loans and assist in internal reorganization and enhancement of services to clients, thereby increase and maintain the value of state participation in banks. Sale of state participation in banks shall be conducted on a later stage, once the conditions on the market get favorable. 6

7 STRATEGIC DETERMINATIONS IN CONNECTION WITH THE STATE-OWNED PACKAGES OF SHARES IN BANKS FOR THE PERIOD The Government of Republic of Serbia is strongly committed to continue and finalize the financial sector restructuring through implementation of necessary reforms and privatization. By adopting and implementing the Strategy, the Republic of Serbia is aiming at: Improvement of the base for further development and maintenance of a stable banking sector in Serbia; Strengthening the confidence in the banking sector; Reduction of state participation in the banking sector; Creation of institutional prerequisites for its increased efficiency and competitiveness; Improvement of overall performance of the Serbian economy. Republic of Serbia intends to keep its share in a certain number of banks, primarily in Banka Poštanska štedionica a.d. Beograd and Komercijalna banka a.d. Beograd, by way of strengthening their market position, introducing corporate governance, increasing their profitability, efficiency, competitiveness, etc. Definition of the time frame and the manner for handling the shares of other banks in which the Republic of Serbia has a stake in capital will differ from bank to bank. The deadline for completion of the sale of shares depends on general economic environment and on further development of the financial and real sectors. Moreover, concrete deadline for the sale of shares will for each bank depend on the interest expressed by potential investors and on the result of the analysis to be carried out by privatization advisors. Republic of Serbia will on the basis of all relevant criteria decide on share sale procedure for each bank individually or for a group of banks. Deposit Insurance Agency is the institution with the mandate to administrate the banks, in which the Republic of Serbia is a shareholder, and organize and conduct the sale of shares of such banks and perform other activities on behalf of the Republic of Serbia. The method of sale of the controlling state s stake in banks is the public tender where the National Bank of Serbia checks if the criteria for participation in the tender have been fulfilled (checking of participants in the pre-qualification stage). The tender is organized and followed up by the Agency, which also selects and appoints the privatization adviser for rendering assistance to the tender preparation and conduct. In carrying out the sale of the state owned packages of shares in banks, the following principles will be observed: The procedure will be carried out in a transparent and internationally recognized manner; The sale of shares will be at market set prices; The procedure will be public, efficient and speedy; The sale will be to internationally recognized investors, with defined development plan; Shareholders will be given certainty in regards to their ownership and possibility to sell their shares. Merger of banks with majority state participation will be analyzed and considered in order to preserve and enhance the value of the banks. As a result of a merger the following positive effects are expected to be achieved: Broader market coverage and larger market share; Increased capital which allows for business extension and introduction of new products; Economy of scale leads to decrease of expenses and increase of net profit. In order to improve the operating result of banks and to increase their value, the state may consider a possibility of allowing the interested international and domestic professional investors to participate in this procedure through the capital increase of the banks. 7

8 In banks where the Republic of Serbia owns a minority stake in capital, the decision on the time of sale will be made following the assessment of the market conditions as well as the needs for funds in the budget of the Republic of Serbia. The sale may at any time be simply carried out in organized market, either by responding to a takeover bid or by issuing an order to sell. Also, in banks where the Republic of Serbia owns a minority stake in capital, and if a need will be therefore, Republic of Serbia may consider a possibility of forming the controlling package of shares with private shareholders of such banks after which the tender sale of such package would be organized and conducted by the Deposit Insurance Agency. Group 1. Banks in which the Republic of Serbia is a majority shareholder Banka Poštanska štedionica a.d. Beograd Measured by total assets, the Bank has a share of 1.37% in the banking sector of Serbia. Its share in total deposits of the banking sector is 1.50 %, and in total capital is 1.38%. The Bank has a total of issued 361,053 ordinary controlling shares in ownership of 373 shareholders, and 6,941 preference shares owned by 66 shareholders. The Republic of Serbia s stake in the Bank s capital is at the level of 63.73%, the stake of the Public Enterprise PTT Traffic «Srbija» is 30.29%, while that of the Pension Insurance Fund is 3.09%, which is in aggregate 97.10%. The Bank s shares have been continuously traded in Belgrade Stock Exchange since May The Bank is operating in its 33 organizational parts, but in performing its activities it also relies on the network of the Public Company PTT traffic «Srbija» and its 1,530 organizational parts. As at 31 December 2008, the Bank employed 1,465 persons. During the second quarter of 2009, an analyses on economic justification of a merger between Banka Poštanska štedionica, Srpska banka and Privredna banka Pančevo will be performed in coordination with an authorized external auditor, as well as analyses of the relation of the exchange of the shares and other analyses based on which the Government will make a decision at the end of second quarter of 2009, and the management bodies of these banks will implement the merger till September 2009, at latest. Simultaneously, the position of Credy banka Kragujevac on the market will be followed and analyzed, as well as a possibility of its privatization or/and capital increase, all with the aim of making its perfmance more stable. If during the first half of 2009 no interested strategic partner or/and professional investor is found, the Government will render a decision to merge Credy banka Kragujevac with Banka Poštanska štedionica. Objective is to have the merged banks operating as a one during the second half of 2009, to define the size, financial status and market position of the future Banka Poštanska štedionica, to recognize the segments that require restructuring and organizational improvements. Depending on dynamics of rendering strategic decisions related to the banks merger, in the last quarter of 2009, Terms of Reference for an institutional building advisor for the future Banka Poštanska štedionica will be defined, and international tender for the selection of such advisor will be announced. The intention of the Republic of Serbia is to define a development strategy of this Bank in coordination with the Public Company of PTT Traffic «Srbija». In cooperation with the selected advisor, the definition and adoption of the Institutional Building Plan (Plan) will be performed. In accordance with the Plan and the best international practice, the following activities and dynamics of the implementation will be defined: necessary reorganization, IT modernization, corporate governance enhancement, introduction of new banking services and introduction of contemporary banking procedures related to the risk and clients credit rating assessment, improvement and development of the credit portfolio, introduction of new banking products and services, strengthening of the clients base, etc. The implementation of the Institutional Building Plan is planned to be finalized till the end of

9 Simultaneously, in the forthcoming period the mutual relationship between the Public Company of PTT Traffic «Srbija» and the Bank will be redefined, within economically acceptable conditions for both companies that are in state ownership. The final goal is to clearly and for the long run define contractual relationship, that would form a basis for the Bank on one side, to strengthen its competitive position on the market by using comparative advantages that emerge from the synergy with PTT Traffic «Srbija», and on the other side, redefinition of the relationship will contribute to the restructuring and foundation of permanently profitable public enterprise PTT Traffic «Srbija». As the Republic of Serbia intends to keep the stake in the Bank in a long term basis, and if necessary, the capital increase of the Bank by professional investors will be considered. Privredna banka a.d. Pančevo The Bank has a share of 0.36% in the banking sector of Serbia measured by total assets, a share of 0.20% in total deposits of the banking sector and of 0.96% in total capital. The Bank has a total of issued 242,021 ordinary controlling shares, which are owned by 231 shareholders. The Republic of Serbia s stake in the Bank s capital is at the level of 95.97% (out of which banks in bankruptcy own 2.99%). The Bank s shares are traded on Belgrade Stock Exchange. The Bank has a business network covering the territory of Vojvodina, mostly of the south of Banat. The Bank operates in its 16 organizational parts. The Head Office is in Pančevo. As at , the Bank has 332 employees. Merger of the Bank with Banka Poštanska štedionica a.d. Beograd will be considered. An advisor will be hired in Q to assess the economic justification of a potential merger, based on which the Government will decide on the merger. In the course of 2009 a pre-merger restructuring of the Bank will take place, including takeover of nonperforming fully provisioned loans (carve out), with the aim of cleaning the balance sheet of the Bank and resolution of such loans. Srpska banka a.d. Beograd Measured by total assets, the Bank has a share of 0.57% in the banking sector of Serbia. It has a share of 0.65% in total deposits of the banking sector, and a share of 0.78% in total capital. The Bank has a total of issued ordinary controlling shares which are owned by 84 shareholders. Majority shareholder is the Republic of Serbia with a stake in capital of 96.52%. The Bank operates in 11 organizational parts. The Bank s head office is in Belgrade. As at , the Bank employed a total of 381 persons. Merger of the Bank with Banka Poštanska štedionica a.d. Beograd will be considered. An advisor will be hired in Q to assess the economic justification of a potential merger, based on which the Government will decide on the merger. If the analyses prove to be necessary, a pre-merger restructuring of the Bank will take place, including takeover of non-performing fully provisioned loans (carve out), with the aim of cleaning the balance sheet of the Bank and resolution of such loans. 9

10 Credy banka a.d. Kragujevac Measured by total assets, the Bank has a share of 0.44% in the banking sector of Serbia. It has a share of 0.62% in total deposits of the banking sector, and a share of 0.28% in total capital. The Bank has a total of issued 142,655 ordinary controlling shares, which are in ownership of 1,447 shareholders. The stake of the Republic of Serbia is at the level of 65.93% (out of which banks in bankruptcy own 10.75%). Bank s shares are traded on Belgrade Stock Exchange. Credy banka has a developed network of branches countrywide. It covers about 80% of the territory of Serbia, particularly in central Serbia. The Bank operates in the head office in Kragujevac and 95 organizational units. As at 31 December 2008, the Bank has 707 employees. Financial condition of the Bank and foreign exchange rate trend questions the fulfillment of the prescribed ratios and capital census according to the Law on Banks, which requires further performing of capital increase of the Bank during Simultaneously, the position of the Bank on the market will be followed and analyzed, as well as a possibility of its privatization or/and capital increase, all with the aim of making its operation more stable. Based on assessment of the amount needed for the Bank to continue its operations, the Government could decide the following: to sell the shares at current market price, or to perform a capital increase by strategic partner and/or institutional investor. The positive effect of capital increase would be strengthening of the Bank s capital base, as well as a long-term positioning of the Bank in the banking market. If there is an interest on the market for capital increase of the Bank, and in case the Republic of Serbia keeps certain number of shares in the Bank, the possibility for engaging the reputable institution building advisor will be considered in order to enhance the performance of the Bank and support the Bank during the restructuring period. An Institutional Building Plan will be developed and approved for the period covering The Plan will include the following elements: detailed time schedule of activities, the necessary steps and the persons responsible for each activity in the implementation of the mentioned Plan and identified key areas in the Bank s operation to be in the focus of the Plan s implementation. If during the first half of 2009 no interested strategic partner or/and professional investor for capital increase is found, the activities related to the process of merger of the Bank with Banka Poštanska štedionica will take place. Group 2. Banks in which the Republic of Serbia is a majority shareholder with the European Bank for Reconstruction and Development (EBRD) Komercijalna banka a.d. Beograd The Bank has a significant share in the banking sector of Serbia and in terms of the balance sheet sum is the second largest bank in the banking system. Measured by total assets, the Bank has a share of 9.62% in the banking sector of Serbia. Its share in total banking sector capital is 6.06% and in total deposits 12.97%. The Bank has a total of issued 870,931 ordinary controlling shares in ownership of 1,186 shareholders and 37,351 preference shares in ownership of 554 shareholders. The Republic of Serbia s stake in the Bank s capital is at the level of 49.27% (out of which banks in bankruptcy own 6.67%). The stake of the second largest shareholder EBRD is at the level of 25%. The Bank s shares are traded on Belgrade Stock Exchange. The Bank has a developed business network consisting of 297 organizational units and covers the territory of whole Serbia. The Bank s head office is in Belgrade. The Bank has two subsidiaries banks, 10

11 with the following stakes in ownership: Komercijalna banka a.d. Budva (100%) and Komercijalna banka a.d. Banja Luka (99.99%). As at , the Bank employed 3,209 persons. In the course of 2009, the Bank will continue to implement the Bank s Institution Building Plan. Capital increase performed by the two largest shareholders will be considered in order for the Bank to maintain its compatibility on the market. An option of participation of interested international professional investors in Bank s capital increase will be considered in order to preserve and enhance the value of the Bank and allow for increase of its credit potential. Planned amount of capital increase in the following period is from EUR 100 million to EUR 200 million by way of closed issue of preference convertible shares. Preference shares would not be convertible and marketable for the first three years following the subscription, in which period the Republic of Serbia could use the option to perform capital increase and maintain existing stake in the capital of the Bank. After the period of three years expires, holders of the preference convertible shares in the next three years can use the right to convert these shares into the ordinary capital. Agreement between the Republic of Serbia and professional investors will regulate mutual rights and obligations, as well as the selection of the advisor that will propose the model and time of sale after the period from three to six years expires, in line with the situation on market. Capital increase will enable stable operations of the Bank in the coming period, and will preserve the value of already invested capital, as well as the natural growth of the Bank till decision on final exit strategy of the Republic of Serbia related to the ownership in the Bank is rendered. Čačanska banka a.d. Čačak Measured by total assets, the Bank has a share of 1.00% in the banking sector of Serbia. Its share in total banking sector deposits is 0.97%, and its share in total capital is 0.92%. The Bank has issued ordinary controlling shares held by 436 shareholders and 134 preference shares in ownership of 9 shareholders. The Republic of Serbia s stake in the Bank s capital is at the level of 38.84%, the share of the banks in bankruptcy is 4.46%, which makes a total of 43.30%. The stake of the second largest shareholder EBRD is at the level of 25%. The Bank s shares are traded on Belgrade Stock Exchange. The Bank operates in 36 organizational units. The Bank s head office is in Čačak. As at , the Bank has 397 employees. In the course of 2009, the Bank will continue to implement the Bank s Institution Building Plan. In the mean time, participation in capital increase by interested international and domestic professional investors will be considered in order to preserve and enhance the value of the Bank and allow for increase of its credit potential. In the following period of three years at least, the largest shareholders will make a decision on potential sale of shares. PB Agrobanka a.d. Beograd Group 3. Banks in which the Republic of Serbia is a minority shareholder Measured by total assets, the Bank has a share of 2.23% in the banking sector of Serbia. Its share in total deposits of the banking sector is 2.27%, in total capital 3.63%. The Bank has a total of issued 718,748 ordinary controlling shares owned by 4,977 shareholders and 3,935 preference shares in ownership of 411 shareholders. The largest single shareholder of the Bank is the Republic of Serbia with a stake of 20.07%, the stake of the banks in bankruptcy is 0.55%, which makes a total of 20.62%. The Bank s shares are traded on Belgrade Stock Exchange. The Bank operates in 136 organizational parts. The head office is in Belgrade. As at , the Bank has 883 employees. 11

12 Privredna banka Beograd a.d. Beograd Measured by total assets, the Bank has a share of 1.07% in the banking sector of Serbia. Its share in total deposits of the banking sector is 1.45%, and share in total capital is 0.67% The Bank has a total of issued 2,492,828 ordinary controlling shares, each of a nominal value of 1,000 dinars, which are owned by 2,255 shareholders. The largest single shareholder of the Bank is the Republic of Serbia with a stake of 19.41%. The Bank operates in 49 organizational units. The head office of the Bank is in Belgrade. As at , the Bank has 356 employees. JUBMES banka a.d. Beograd Measured by total assets, the Bank has a share of 0.40% in the banking sector of Serbia. Its share in total deposits of the banking sector is 0.21%, in total capital 0.99% The Bank has a total of issued 154,177 ordinary controlling shares owned by 931 shareholders. The largest single shareholder of the Bank is the Republic of Serbia with a stake of 21.14% whereas the stake of the banks in bankruptcy is 8.33%, which makes a total of 29.47%. The Bank operates in the head office located in Belgrade. As at , the Bank had 116 employees. Strategic determinations for the three Banks in which the Republic of Serbia is a minority shareholder The share price trends on the Stock Exchange will be followed and on that basis a decision on sale of shares owned by the Republic of Serbia will be made. Depending on budgetary needs on one side and the real share price movements on the Stock Exchange, on the other, it will be necessary to assess the right moment when to issue the order to sell. This relates both - to taking into consideration a possibility for the Republic of Serbia to respond to a take-over bid, and to a possibility for the state to initiate the sale. If there is a need and if the market conditions are favorable, an option of adjoint sale of a controlling package consisting of state-owned shares and shares of private shareholders may be considered. Also, if needed, the possibility of capital increase of these banks will be considered. If shareholders express their interest, the Republic of Serbia may sign the Deed of Undertaking with shareholders that would regulate the relations till the moment of sale and/or adjoint sale of shares. 12

13 Strategic determinations aggregate table Group 1. Banks in which the Republic of Serbia is a majority shareholder Bank name Mode of restructuring/ Restructuring / privatization activities Timeframe privatization Banka Poštanska štedionica a.d. Beograd Institution building (restructuring) - Selection and engagement of an advisor to assess the merger - Decision of the Government on the merger with Srpska banka a.d. Beograd and Privredna banka a.d. Pančevo - Implementation of the decision of the Government and merger - Announcement of the international tender for selection of institution building advisor - Development and implementation of the Bank s development plan - Capital increase with the participation of professional investors - Selection and engagement of an advisor to assess the merger - Q End of Q September End Starting from 2010 and on - Q Privredna banka a.d. Pančevo Merger with Banka Poštanska štedionica a.d. Beograd - Decision of the Government on the merger with with Banka Poštanska štedionica a.d. Beograd - Preparation for merger (pre-merger restructuring) - End of Q Q Implementation of the decision of the Government and merger - Selection and engagement of an advisor to assess the merger - September Q Srpska banka a.d. Beograd Merger with Banka Poštanska štedionica a.d. Beograd - Decision of the Government on the merger with with Banka Poštanska štedionica a.d. Beograd - Preparation for merger (pre-merger restructuring) - End of Q Q Implementation of the decision of the Government and merger - September 2009 Credy banka a.d. Kragujevac Sale or capital increase and institution building or Merger with Banka Poštanska štedionica a.d. Beograd - Initiation of sale to strategic partner or - Capital increase by professional investors - Development and implementation of the Bank s development plan - Beginning of the process of merger - End of Q Q

14 Group 2. Banks in which the Republic of Serbia is a majority shareholder with the European Bank for Reconstruction and Development (EBRD) Bank name Mode of restructuring / Restructuring/privatization activities Timeframe privatization Capital increase by EBRD and other - by mid 2009 professional investors - Potential capital increase by state - by 2012 Komercijalna banka a.d. Beograd Institution building and capital increase - Institution building finalized - Announcement of the international tender for selection of privatization advisor - by end by end Decision of the shareholders on sale of shares - from 2012 and on - Capital increase by professional investors - by end 2009 Čačanska banka a.d. Čačak Institution building and capital increase Sale of shares - Institution building finalized - Decision of the shareholders on sale of shares - by end end 2010 beginning Initiation of process of sale of shares Group 3. Banks in which the Republic of Serbia is a minority shareholder Bank name Mode of restructuring / Restructuring/privatization activities Timeframe privatization Privredna banka a.d. Beograd JUBMES banka a.d. Beograd PB Agrobanka a.d. Beograd Sale of the shares on the stock exchange (or by response to take-over bid or the state initiates the sale) To consider possibility of joining privately owned shares to state owned shares and sale by tender Capital increase support - Follow-up and analyses of share price trends on the stock exchange - Giving an order to sell, or - Acceptance of a take-over bid, or - Organization of a tender Sale by end

15 A N N E X E S 15

16 BANKS IN WHICH THE REPUBLIC OF SERBIA IS A SHAREHOLDER basic caracteristics Banks wherein the Republic of Serbia has a majority stake in capital can be divided into three groups: (1) banks with the state s majority share; (2) banks wherein the state has a majority share together with a professional investor; (3) banks wherein the state has a minority share. Group 1. Banks in which the Republic of Serbia is a majority shareholder Banka Poštanska štedionica a.d. Beograd As one of the leading retail banks in the market, Poštanska štedionica is being considered as the systemic bank of national importance. Based on the analysis of the financials of the Bank in 2005 and 2006, the Republic of Serbia has performed the capital increase of the Bank on December 28, 2006 in the amount of RSD 1.0 billion, and realized another two issues of shares in 2008 in the amount of RSD 3.47 billion. The Bank performs its operations in 33 organizational parts, however for its performance it relies to the network of the Public Company of PTT traffic «Srbija» and its 1,530 organizational parts. As of December 2008 the Bank had 1,465 employees. Total assets, capital and deposits are as follows: in RSD million Assets Capital Deposits As of December 31, 2008 the structure of the balance sheet is as follows: (in thousands RSD) Assets Liabilities Short-term operations Short-term operations F/X F/X RSD RSD Long-term operations Long-term operations F/X F/X RSD RSD Fixed assets Capital and reserves Total Total Srpska banka a.d. Beograd The Bank performs its operations in 11 business units. At the end of 2008 the Bank had 381 employees. The Bank has all operating indicators compliant with those set by the Law on Banks. In 2008 due to problems in operations and bankruptcy of the company Agroživ a.d. Pančevo and its related persons, the Bank has performed the corrections in provisioning, which had negative impact to the operational outcome of the Bank. 16

17 Total assets, capital and deposits are as follows: in RSD million Assets Capital Deposits As of December 31, 2008 the structure of balance sheet is as follows: (in thousands RSD) Assets Liabilities Short-term operations Short-term operations F/X F/X RSD RSD Long-term operations Long-term operations F/X F/X RSD RSD 296 Fixed assets Capital and reserves Total Total Privredna banka a.d. Pančevo The Bank has a business network covering the territory of Vojvodina, mostly of the south of Banat. The Bank operates in its 16 organizational parts. The head office is in Pančevo. As of , the Bank had 332 employees. Total assets, capital and deposits are as follows: in RSD million Assets Capital Deposits As of December 31, 2008 the structure of balance sheet is as follows: (in thousands RSD) Assets Liabilities Short-term operations Short-term operations F/X F/X RSD RSD Long-term operations Long-term operations F/X F/X RSD RSD Fixed assets Capital and reserves Total Total

18 Foreign exchange risk ratio and exposure risk ratio to a single entity or a group of related entities (NIS a.d. Novi Sad and HIP Azotara d.o.o. Pančevo) are not in compliance with regulations. The reason for noncompliance of these mentioned ratios are the Paris and London clubs of creditors loans. National Bank of Serbia has requested the Bank to adjust the ratios in accordance with the regulations until June 30, Credy banka a.d. Kragujevac Credy banka has a developed network of branches countywide, and operates in its the head office in Kragujevac, 5 principal branches, 12 branch offices, 32 branches, 2 business units, 4 agencies and 37 counters. As of December 2008 the Bank had 707 employees. Total assets, capital and deposits are as follows: in RSD million Assets Capital депозити In December 2007 the Bank has realized a share issue amounting to RSD cca 402 million in order to fulfill all operational ratios and maintain the capital minimum prescribed by the Law on Banks. As of December 31, 2008 the structure of balance sheet is as follows: (in thousands RSD) Assets Liabilities Short-term operations Short-term operations F/X F/X RSD RSD Long-term operations Long-term operations F/X F/X RSD RSD Fixed assets Capital and reserves Total Total As of December 31, 2008 the Bank s capital was at the level of EUR 10.5 million. Already at the beginning of 2009 the Bank might face a problem with fulfilling of operating ratios (basic capital and capital adequacy), depending on FX rate RSD/EUR and/or operating losses. Group 2. Banks in which the Republic of Serbia is a majority shareholder with the European Bank for Reconstruction and Development (EBRD) Komercijalna banka a.d. Beograd Participation of the Republic of Serbia in the Bank s capital is at the level of 42.60%, participation of bankrupt banks and bankrupt insurance companies 6.67%, totaling 49.27%. Participation of the second largest shareholder (EBRD) is at the level of 25%. The Bank has a well developed business network 18

19 consisting of 297 organizational units countrywide. The head office is in Belgrade. As of December 2008 the Bank had 3,209 employees. Komercijalna banka has two subsidiaries banks, with the following ownership structure: Komercijalna banka a.d. Budva (100%) and Komercijalna banka a.d. Banja Luka (99.99%). The bank is the founder of the Entity for managing the investment funds ComBank Invest a.d. Beograd. Total assets, capital and deposits are as follows: in RSD million Assets Capital Deposits As of December 31, 2008 the structure of balance sheet is as follows: (in thousands RSD) Assets Liabilities Short-term operations Short-term operations F/X F/X RSD RSD Long-term operations Long-term operations F/X F/X RSD RSD Fixed assets Capital and reserves Total Total The commencement of negotiations on capital increase of the Bank has taken place in 2008 between the two biggest shareholders Republic of Serbia and EBRD. Čačanska banka a.d. Čačak Participation of the Republic of Serbia in the Bank s capital is at the level of 38.84%, participation of bankrupt banks 4.46%, totaling 43.30%. Participation of the second largest shareholder (EBRD) is at the level of 25%. The Bank performs its operations in 36 organizational units. The head office is in Čačak. As of December 2008 the Bank had 397 employees. Total assets, capital and deposits are as follows: in RSD million Assets Capital Deposits

20 As of December 31, 2008 the structure of balance sheet is as follows: (in thousands RSD) Assets Liabilities Short-term operations Short-term operations F/X F/X RSD RSD Long-term operations Long-term operations F/X F/X RSD RSD Fixed assets Capital and reserves Total Total Group 3. Banks in which the Republic of Serbia is a minority shareholder PB Agrobanka a.d. Beograd The Bank performs its operations in 136 organizational units. The head office is in Belgrade. As of December 2008 the Bank had 883 employees. Total assets, capital and deposits are as follows: in RSD million Assets Capital Deposits As of December 31, 2008 the structure of balance sheet is as follows: (in thousands RSD) Assets Liabilities Short-term operations Short-term operations F/X F/X RSD RSD Long-term operations Long-term operations F/X F/X RSD RSD Fixed assets Capital and reserves Total Total Privredna banka Beograd a.d. Beograd The Bank performs its operations in 49 organizational units. The head office is in Belgrade. As of December 2008 the Bank had 356 employees. 20