Bloomberg News

Serb Central Bank to Boost Oversight as Criticism Hardens

July 19, 2012

Serbia’s central bank said it will step up oversight of lenders after identifying expanding risks in the second quarter following the collapse of Agrobanka AD late last year.

To boost financial stability, “the Council of the Governor supports the National Bank of Serbia’s initiative to additionally intensify controls in all banks which have a high level of credit risk and whose ownership structure” may impede shareholders’ ability to oversee management, the five-member council said in an e-mailed statement today from Belgrade.

The announcement comes amid stepped-up public criticism over the central bank’s failure to prevent Agrobanka’s collapse in December, which President Tomislav Nikolic’s Progressive Party today called ’’the most serious financial scandal.’’ The bank’s foreign shareholders said on July 16 that the lender’s closure amounted to “the expropriation of property worth more than 70 million euros” ($86 million).

Authorities fired Agrobanka’s management on Dec. 29 and placed it in receivership after inspectors discovered its capital didn’t match the risk it had assumed. Agrobanka, in which the government held a 20 percent stake, had an unaudited 2011 loss of 29.7 billion dinars ($311.4 million) following a full-year pretax profit of 1.18 billion dinars in 2010 and a loss of 2.27 billion dinars at the end of September 2011. The central bank revoked Agrobanka’s licence on May 26.

Expanding Risks

Risks in the banking industry are expanding “as a consequence of the deteriorating situation in the economy and Serbia’s public finances, as well as problems in banking sectors in neighboring countries,” the council said.

While lenders in Serbia face no solvency risk, the currency’s weakness and an expanding bad-loan portfolio could require some banks to boost capital, the central bank said on July 16, presenting the Financial Stability Report and results of stress tests that showed at least seven and a maximum of nine needing to add cash to meet requirements this year.

Serbia’s new ruling coalition of Progressives, the Socialists of Prime Minister-Designate Ivica Dacic and the United Regions of Serbia of Finance Minister-Designate Mladjan Dinkic has already signalled it wants to replace governor Dejan Soskic. Dacic has said his Cabinet will consider removing Soskic if he acts in discord with the government, which will seek to stimulate growth.

Milenko Dzeletovic, a senior Progressive Party official, listed four central-bank failures in an op-ed published today in the Belgrade-based newspaper Politika, including Agrobanka, above-target inflation in 2011, a weakening dinar and Soskic’s salary amounting to 17 times the average wage.

Past Dismissals

Soskic vowed on July 16 not to resign, meaning he could be removed only through constitutional procedures. Since the fall of Slobodan Milosevic in 2000, two central bank governors have been dismissed when new governments took office and changed laws, while one resigned over a disagreement on expansionary fiscal policies and the lack of necessary public-sector reforms.

The governor is elected to a six-year term after being nominated by president and confirmed by Parliament. He can be replaced if permanently incapacitated for health reasons, sentenced and jailed for a crime, or if it’s established that his “unprofessional” performance and “serious misconduct” keeps the bank from “accomplishing of its primary objective,” according to the central bank law, which sets price stability as the primary goal.

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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