Serbia merges troubled lender PBB into state-owned Postanska Stedionica
Serbia is going to transfer all deposits and healthy assets of troubled Privredna Banka Beograd (PBB) to Postanska Stedionica in order to protect the stability of the domestic banking sector, the finance ministry said. The government owns 100% of Postanska Stedionica and 65% of PBB.
This means PBB becomes the third state-run bank to collapse in less than a year following the bankruptcy of Nova Agrobanka at end-2012 and Razvojna Banka Vojvodine (RBV) in April. The assets of both lenders were transferred to Postanska Stedionica and it is estimated the state spent some EUR 600mn to save them.
The announcement about PBB comes days after the government revealed its savings measures to combat bulging fiscal deficit, which include cutting state aid to troubled firms.
Local media reported earlier this month that PBB is next in line for state aid since it has been facing serious difficulties in sustaining the high level of non-performing loans.
The finance ministry said in a statement it will offer the government to enable the transfer of PBB’s assets to Postanska. However, the difference between PBB’s liabilities and the assets that would go to Postanska Stedionica will be compensated via government bonds. The ministry provided no figures for the estimated loss that will be covered by taxpayers.
According to the statement, this measure is the only alternative to preserve the financial system stability – and is justified since it will be the cheapest one for the citizens. The ministry assures Postanska Stedionica will continue to operate successfully after the merger. Thus, as of Monday, Oct 28 all PBB depositors will become clients of Postanska and will have free access to their money.
PBB has been in loss since 2009 and the government was reportedly looking for a strategic investor since and-2012 to help guarantee deposits safety and improve the bank’s liquidity. In early 2012, the government injected EUR 20mn in Privredna Banka, raising its stake in it to 64.8% from 19.4%.
The lender reported a RSD 229mn (EUR 2mn) loss for the first six months of 2013, nearly double the RSD 120mn loss from a year earlier. Last year it managed to cut the loss to RSD 173mn from RSD 790mn in 2011. Its accumulated loss reached RSD 3.2bn at end-June, close to the RSD 3.6bn level of its equity capital.
Earlier this month, weekly NIN published a report about the dire state of PBB, alleging most of the troubles come from the lender’s too big exposure to several domestic privately-held firms, also in financial woes, including agriculture holding Farmakom of businessman Miroslav Bogicevic, and engineering firm Inter-Kop owned by Rade Nikolic.
According to the report, PBB’s combined claims against only eight firms already exceeded the size of its total capital by 61%. Furthermore, other state-controlled banks like Srpska Banka and Jubmes Banka (in which the state is the largest single shareholder with 20%), as well as privately-held Univerzal Banka and Jubmes Banka might also face serious trouble soon since the volume of loans they have approved is unsustainable compared to the size of their capital, the report said.