Dominic Swire in Prague -

Bank of Moscow's recent announcement that it intends to expand into Serbia's corporate banking sector in October has led many to speculate it could once again be looking to take over a local retail bank, with Agrobanka a likely candidate. If so, the dire performance of the Serbian stock market is only likely to spur it on.

That would be somewhat ironic. In December 2006, Bank of Moscow pulled out of a deal to buy Agrobanka after its share price rocketed amid allegations of insider trading. Bank of Moscow has since been working on setting up a bank from scratch and in May the Serbian central bank granted the Bank of Moscow a greenfield license to operate in Serbia, the first such license issued to a foreign bank in seven years. The move means Bank of Moscow, set to operate in Serbia under the name Moskovska Banka, will become the first Russian bank to be present in Serbia.

The company is keen to stress that the main focus of its business will be Serbia's corporate sector - at least to begin with. "One of the main activities of the Bank of Moscow will be to grant loans to other banks in Serbia, and we are already negotiating about this," Vladimir Zecar, chairman of Bank of Moscow, Belgrade executive board, explained in an interview with local daily Blic.

However, the move into Serbia's corporate banking sector next month has led to speculation that it's eying a retail target once again. "Regarding the possible takeover of Agrobanka by the Bank of Moscow, we've heard about some rumors... What we know is that the Bank of Moscow intends to expand its network in Serbia through acquisitions," says Raiffeisen equity market analyst Aaron Alber.

When pushed on whether his bank has any plans of acquiring one of Serbia's few remaining state-owned retail banks, Zecar was careful not to rule anything in or out. "We do not exclude the possibility of acquiring some of the national banks or possibly their network of branch offices. We are considering all the options," Zecar said.

Mladen Dodig, head of research for Synergy Capital in Belgrade, said that if Bank of Moscow did go down this route, it's likely they would target one of the smaller state-run banks with total assets of around €300m or less. Three banks match this criterion: namely, Srbska Banka, Banka PoÅ¡tanska Å tedionica (post savings bank), and Agrobanka. Of these, Dodig says Agrobanka may be the more attractive as the other two are probably too small.

"All stocks are illiquid"

One factor that could push Bank of Moscow down the acquisition route is the current dismal performance of the Belgrade Stock Exchange. Since the start of the year, many stocks have seen their value plummet by as much as 60% with little sign of recovery despite an improved political outlook for the country. "The Serbian stock market has been very weak in the last two to three quarters. Almost all stocks are illiquid. Several foreign investors have already left the market, and retail trading is also down," says analyst Jovan Sikimic from Raiffeisen.

Amidst this slump, Agrobanka shares have dropped to RSD13.60 as of September 2, 2008, compared with RSD21.99 at the start of the year and a historic high of RSD50 in January 2007. A bargain waiting to be snapped up, perhaps - unless a repeat scenario of ballooning prices fuelled by speculation reoccurs. But Alber says sentiment is so low at the moment that this is unlikely. "Due to the current environment, we think that the positive effect on Agrobanka's share price in the case of a successful takeover is rather limited."

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