After of years of hesitating to privatise its largest state-owned bank, Komercijalna banka, Serbia reached a deal to sell it to Slovenian Nova Ljubljanska banka (NLB), which is controlled by Bank of New York Mellon. 

The acquisition was announced in late February, just two months prior to Serbia’s April parliamentary elections and a few days prior to the country’s President Aleksandar Vucic's trip to Washington for the American Israel Public Affairs Committee (AIPAC). 

The presence of Slovenian capital is not new in Serbia due to numerous similarities in working culture and mentality between the two countries, yet NLB’s purchase of Komercijalna banka still came as a surprise to many within Serbia. What makes this step news is the fact that NLB is partially in the hands of a US company and thus indirectly puts Komercijalna banka in the same position. 

Bank of New York Mellon controls 62.32% of NLB shares on behalf of GDR holders, of which between 5% and 10% belong to Brandes Investment Partners, L.P., the European Bank for Reconstruction and Development (EBRD) and Schroders plc. 

The arrival of American capital in the Serbian banking sector, via a Slovenian lender, could be crucial for the realisation of projects related to the stabilisation of relations between Belgrade and Pristina. Some of these projects are the recently announced direct flights and railways between the two cities, mediated by Richard Grenell, the US special envoy for the Kosovo-Serbia dialogue.

On a wider level, the acquisition of Komercijalna banka gives NLB the largest network on the Serbian market which could be a way for the US to spread its influence as well. This would be an additional step in the US’ ongoing campaign to warm up relations with Serbia that started a couple of years ago with a series of videos titled “You are the world” created by the US embassy in Belgrade. The campaign started in the summer of 2018 when the two countries celebrated the 100th anniversary since the first raising of the Serbian flag in front of the White House. 

Komercijalna banka’s acquisition by NLB, if linked with Vucic’s participation at the AIPAC, may be positive news for potential Israeli investors in Serbia too, especially after his March 3 announcement that Serbia plans to buy weapons from Israel. So far, overall trade between the two countries has been modest but some big Israeli names such as Plazza Group and The Strauss Adriatic Company already operate in Serbia.

The improvement of NLB’s position in Serbia is also good news for Serbia since it means more EU capital and that’s the direction Serbia wants to keep working towards and reach once it solves its issues with Kosovo. 

However, despite all positive perspectives, just as the privatisation of NLB was loudly opposed in Slovenia, the privatisation of Komercijalna banka is being criticised in Serbia, mainly by people belonging to the generations that lived under communism in Yugoslavia, a federation to which both countries belonged. While the Slovenian government managed to avoid selling NLB prior to the general election in 2018, Serbia has done the opposite. This likely reflects Vucic’s hope to attract pro-Western oriented voters who actually don’t have an option to pick in the upcoming elections since none of the opposition parties offers a plan for the modernisation of the country, or solutions to the Kosovo issue and thus Serbia’s further progress towards the EU.

A surprising acquisition 

NLB announced on February 26 that it had "entered into a share purchase agreement with the Republic of Serbia for the acquisition of an 83.23% ordinary shareholding in Komercijalna banka. The closing of the transaction is expected in 4Q20 and is subject to mandatory regulatory approvals from, amongst others, the European Central Bank, the Bank of Slovenia and the National Bank of Serbia. NLB said that the consideration for the 83.23% shareholding amounts to €387mn which will be payable in cash on completion. In accordance with Serbian bank privatisation regulations, NLB is not required to launch a mandatory tender offer for minorities’ shareholdings in Komercijalna banka."

Slovenia is one of the leading foreign investors in Serbia with more than 1,000 companies present on the market, among them NLB. The deal is good news for Slovenian investors as its largest local bank is improving its position in a market that is attractive for them as well.

However, the news about NLB’s move to buy Komercijalna banka came out of the blue for many Serbians as there wasn’t a lot of media reporting or speculation about it, even after it became public that NLB took part in the privatisation tender. 

This acquisition will make NLB the third largest bank in Serbia after Italian Bank Intesa and UniCredit Bank, which is the current position that Komercijalna banka holds. According to the Serbian central bank’s latest published quarterly report, in terms of balance sheet total, Banca Intesa remained the leading bank in Serbia in 2Q19 and its market share edged up (by 0.4 pp) from the previous quarter, but decreased from the same period last year (by 0.2 pp). In addition to Banca Intesa, UniCredit Bank (11.5%) and Komercijalna banka (10.8%) both had a market share above 10% at the end of first half of 2019. 

“The transaction strengthens NLB’s presence and its focus on markets in SEE, consolidating its position as the largest banking group headquartered in the region. Serbia will become the largest foreign subsidiary of the NLB Group, contributing c.24% of the enlarged assets. Komercijalna banka will add more than 770,000 active retail clients and the largest branch network in the country with 203 branches to NLB’s existing operations in Serbia. Komercijalna banka’s subsidiaries in Bosnia & Herzegovina and Montenegro will also complement NLB’s existing operations in those markets,” reads NLB’s press release posted on its website. 

According to the Serbian Ministry of Finance, by the end of the transaction, Serbia will receive a total of more than €450mn. In addition to the €387mn from the sale of its stake in Komercijalna banka, the state will receive interest of 2% per annum, which NLB will be obliged to pay from January 1, 2020 to the date of the completion of the transaction. The agreement also stipulates that 50% of the reported revenue for 2019 will be paid as a dividend, on the basis of which Serbia will receive approximately €31mn. In addition, the payment of dividends from previous years is foreseen, adding approximately €26mn to the total.

Back in November 2018, Slovenia sold 65% of NLB in a dual listing in Ljubljana and London at €51.5 per share or €10.3 per GDR, and went on to sell another 10% minus one share on the stock market at €54.75 or €10.95 in June same year, Slovenian Press Agency (STA) reported. Slovenia’s government remained the largest single owner of NLB with a controlling stake of 25% plus one share. The remaining dispersed ownership consists of institutional investors from the region, Europe and further afield, while there are also a few small investors. Most of the shareholders were represented by Bank of New York Mellon as the depositary, according to STA.

Serbian hopes for future partnership with the US

“We don’t want banks linked to political parties… NLB is a bank that participated in the tender for Komercijalna banka’s acquisition, and it is not Slovenian, only 25% is Slovenian, the remainder is American,” Vucic said on a television show on February 26. 

This statement may not bring him a lot of applause even among members and supporters of his own Serbian Progressive Party (SNS), but it reveals his hopes that the US may help him in solving the decades long Belgrade-Pristina problem, despite the US’ and Serbia’s diametrically different stances on Kosovo’s independence. 

However, the US’ narrative in this regard has changed within the last few years and its unconditional support for Kosovo’s independence has weakened since Pristina imposed 100% taxes on goods from Serbia and Bosnia more than a year ago. This clearly political move by former Kosovan prime minister Ramush Haradinaj brought steep financial losses to both sides but Haradinaj remained in power until February this year despite US warnings and demands to suspend the tariffs. While Haradinaj hoped that imposing sanctions would help him to remain in a leading position in government, Vucic seems to believe that removing them could be crucial for his party’s re-election this spring. He has also realised that the US has a key role in that, even though Pristina hopes that Turkey or another rich Muslim country would step in to help financially should US donations stop. Thus, even the new Kosovan government has been postponing a decision on cancelling the taxes.

In order to bridge this crisis, the US came up with an idea to establish air and railway links between Belgrade and Pristina. As the distance is just about 500km, these lines would have crucial importance for trade and transportation of goods, which first requires the removal of the tariffs. Since neither side is financially capable of covering the costs of the new transport links, a creditor is needed and an American owned bank from the region could be a perfect match. 

Successful removal of this huge barrier to trade could improve the US’ reputation in Serbia, which has been bad for decades — mainly because of the 1999 Nato bombing and Washington’s support for the Kosovo Albanians and their self-declared independence from Serbia. Russia has contributed by working constantly to worsen the image of the US in Serbia. 

Vucic brought this up obliquely when he commented on opposition criticism of the Komercijalna banka privatisation.

While failing to put forward an alternative plan, the opposition has been very loud against the privatisation, as it is against most government moves. Responding to critics, Vucic said:

“They are the ones who sold out all banks, cement plants, Serbian Oil Industry (NIS)…” Vucic said on February 27.

Serbia sold 51% stake in state-owned NIS to Russian Gazprom in 2008, a move that is believed to have provoked the US to recognise Kosovo’s independence the same year. However, this brought Serbia a total dependence on Russian gas as well as so-called “soft influence” from Moscow, to which Russia’s refusal to recognise Kosovo significantly contributes.

However, by increasing its presence and bringing its capital to Serbia and the region, the US seems to be fighting back against the spread of Russian influence.

Within the last couple of years, despite increased pro-Russian and anti-EU and anti-US rhetoric, an increased presence of US brands and culture has been noticed in Serbia. Currently, the most popular clothing brands in Serbia are Levi’s, Tommy Hilfiger, Calvin Klein and Guess, all of which are American. Coca Cola has been a favourite drink even though it costs more than the same kind of sodas made by local producers. About a year ago Starbucks opened in downtown Belgrade, and it is still a favourite place not just for Belgradians but for visitors from across the country. 

The current US ambassador to Serbia, Anthony F. Godfrey, has become hugely popular as since he arrived in the summer of 2019 he has been posting his impressions about sightseeing and food in Serbia. This has turned him into the first ambassador in the country that every family secretly wants to invite over to show him great hospitality and food. And of course, no one in the region likes to be complemented more than Serbs do, as for the last few decades they have been the designated “bad boys” of the Balkans.

In addition to all these factors, an investment in the banking sector and through that creating jobs, giving people a chance to earn and live well with a decent salary, and helping in the fight against corruption and nepotism could definitely be a chance for the US to improve its position in Serbia in the race with Russia. NLB’s acquisition is a good step down that road. 

Leaving communism behind — or not

Serbia and Slovenia remained friends after the breakup of Yugoslavia 30 years ago, though their paths have diverged. While Slovenia rapidly developed and joined the modern Western community as well as the EU and Nato, Serbia has been struggling to recover from the wars it lost in Croatia, Bosnia and Kosovo. However, both countries continue to face the legacy of communism, which had been the ruling model of Yugoslavia. Part of that is the popular belief that capital is safe only if is owned and controlled by the state. Consequently, as a large portion of the population in both countries are still people who lived and worked under communism, any kind of privatisation is seen as a betrayal and the arrival of “capitalism and slavery”. This was the reason why selling stakes in the two banks had been repeatedly postponed, even though both markets required that. 

Vucic has been trying to explain the benefits of the Komercijalna banka privatisation, but many of his voters fear the consequences of putting a state-owned bank into the hands of a private owners. 

Several people informally polled by bne IntelliNews reflected these fears. Thus, Svetlana Stankovic (73) from the southern city of Vranje ran to Komercijalna banka to take out her few hundred euros of savings to avoid losing them when she heard about the sale.

“Did you remember what Dafina [Milanovic] and Jezda [Vaisljevic] did to people? I don’t want my hard earned money to be taken by some foreigners!” she told bne IntelliNews.

Milanovic and Vaisljevic ran two banks in the 1990s, during the wars in Yugoslavia and the economic crisis and embargo in Serbia. They promised sky-high interest rates and encouraged thousands of people to put their money into the banks, hoping their savings would grow. However, the pair disappeared with more than $1bn in hard currency and never came back. 

Despite these unhappy memories, Stankovic added that she will vote for Vucic anyway. “There is none better than him in this country and I understand that he had to sell the bank event though I disagree with that. My former colleague Zorica thinks the same,” Svetlana added.

Zorica Cvetkovic (71) almost started crying when asked about Komercijalna banka. Like most people that worked and still work in government institutions, such as schools, hospitals and the police, she was getting her salary and now gets her pension via Komercijalna banka. Now she is thinking to change her bank but doesn’t know where to go as virtually all the other banks in Serbia are also private; many people chose to bank with Komercijalna banka precisely because it was state-owned. 

“It’s hard for us now, very hard. I worked for 40 years and my money is now in the hands of someone I didn’t even know who that is. Everything will be sold one day and we will all be slaves,” she told bne IntelliNews. 

But, when it comes to the younger generation, thoughts and feelings are mixed. Dejan Pavlovic (41) from Belgrade says that his only concern is if the new owner will make bad choices and keep on corrupt people but fire hard workers. 

“That happens all the time. New owners don’t really have a lot of insight and they usually rely on a very small number of people that, traditionally in Serbia, abuse that trust. That’s why I think that the presence of US capital can be an advantage. They don’t give money easily and they check everything multiple times,” he told bne IntelliNews. 

“I don’t know what happened to all of us born after 1970! When did we turn into such lazy bugs, and communists who like to be bureaucrats and work a little for little money but claim they have a “government job” and thus “a job for a life”. When I was a student, I was embarrassed to say that my parents worked as administrative workers with only high school [education]. I wanted to have a father with his own company or a mother working for some big retailer. I am always happy when hear that private capital comes to our country so I welcome this one too, American or Slovenian, I don’t care!” Dragan Djordjevic (37) from Belgrade told bne IntelliNews.

Vucic, meanwhile, has sought to stress the benefits of the privatisation, while framing it as an inevitable part of the modernisation of the Serbian economy. 

He said that the bank will be working in Serbia, paying taxes to Serbia, local workers will work there while the owner will do with the profit whatever he wants, which is normal, he said on February 27 as reported by local media. Responding to the criticism coming mainly from the opposition, he commented: “I can’t understand that kind of criticism… like someone has missed a couple of centuries.”