Your bank was established in 1955 as the first commercial bank in Macedonia. As it our readers may not be familiar with your Komercijalna Banka, can you give us a brief historical background of your institution, and what is today your capital structure?
The Bank was first established 45 years ago, actually 46 this years. It was established first as Communal Bank of the city of Skopje, it was mainly dealing with citizens and it had its main role after the earthquake in Skopje when the citizens were in needs of apartments, when many restructurings were needed and so on... It was as a Bank of the city of Skopje and even now more than 60% of the activities of the bank are connected with the economy of the capital of Macedonia. Even our branch network is concentrated mainly in Skopje. In 4 other cities of Macedonia we have our branch offices, although now with the payment operations being performed through the banking system instead of the ZPP, our presence might be increased in additional 4-5 cities. We will be opening one in Ohrid soon - in May - but having in mind that Skopje itself is about 2/3 of the total economic activity in the country and of the population, probably our presence reflects this concentration of the economy and of the population in the country.
During those 46 years, the bank went through several transformations, either those in previous Yugoslavia with the transformation of the banking system, through some ideas that he banks at a certain period were -as they called them - association of enterprises at that time which was probably a bad solution which at some stage even now still reflects something of the ownership structure of the bank. The main restructuring, the main reforms were probably those from '91, when this Bank has been established as shareholder's bank. Now we don't have predominant owner, that is something inherited from the previous period; the largest shareholder has about 30% of the capital of the Bank, the second largest is the EBRD with about 7% of the shares of the Bank and we have only 5 enterprises as additional 5 owners of the Bank - shareholders who have about 3% of the shares of the Bank. The largest shareholders' company - owner of the Bank is the Cement Factory, then the second is the EBRD, afterwards it is FERSPED - transportation and forwarding company, Skopski Pazar, ALKALOID - the pharmaceutical factory, another pharmaceutical and chemistry company - OHIS; those are the largest owners of the Bank. Thus I said the structure is very diversified with not one or two predominant owners. About 80% of the Banks are already privatised, either through privatisation of the shareholders. Out of those 80%, about 15% are shares in the hands of physical persons, employees and physical persons- employees and physical persons-shareholders outside the Banks. The percentage of direct Government ownership is very small, even some of the public enterprises that might be under Government control - it won't be more than 5%. More than 40 different shareholders as public companies or government controlled companies keep about 5% of the Bank.
When did the bank start to get privatised?
The Bank is predominantly privatised. In '97 we already had privatised some more than 70%. The period from '92 until '96 was all through the process of privatisation. At that time, the privatisation of Banks did not go under separate law, it was with the privatisation of the enterprises that started in '92 and onwards.
The privatization of those enterprises that were shareholders of the Banks implied indirectly the privatisations of the banks, i.e. the transformation of the Skopje Brewery which is also a shareholder here, with their privatisation it was considered that also their capital here in the Bank is privatised, similarly like the cement factory USJE and so on...
So, it was not a separate law, and it was just the Bank property and assets - joint consumption of the employees: recreation facilities, hotel resorts and so on, that we did not sell at the time although we have only 2 hotels on that side. That was privatised under a separate procedure. All the rest was privatised through the privatisation of the existing shareholders, enterprises or with the issue of new shares with to physical persons.
Just in order to complete this presentation of your Bank, can you give us an overview of your assets, deposits, and perhaps your market share?
Looking through the capital this is the second largest Bank in the country. But from the point of some different aspects and different criteria the firs and second Bank are the same size especially after the purchase of the elikis?? in the capital of Stopanska through the Greek take over of that bank with additional capital they have .... the largest capital. The Bank has total capital of about 95 million DM, the total assets of the Bank are 90 billion MKD which is around 615 million DM. Assets of the Bank are present through different form either deposits or savings an so on, we have different market share which is about 20 - 25% of the market, although in some aspects we have the total reserve of 40% of the total reserves in the banking system which covers about almost 1/2 of the shareholders capital in the Bank. Even now - during the last few years we are setting aside even small part for the reserves because we consider that not only we have the most in Macedonia but - the capital is (more or less, as assessed) almost 50% current. So even in the distribution of the profit at the end of the year we are setting only small percentage as reserves, just to have that in the report - that we are setting something aside for reserves.
Your Bank is continuously under restructuring. In the last few years, especially since EBRD took some shares within your capital, also the international financial institutions are more and more requiring (new??) procedures for local Banks in Macedonia; the Governor of the National Bank, Mr. Trpeski also the Minister of Finance mentioned some major re-structuring such as the one you just mentioned in the beginning of the interview - the transfer of the payment operations from the ZPP to the Banks and the Central Bank. How satisfied are you with the results of this new implementations?
This Bank was never in that sense of restructuring as it was done in cases of some of the Banks in Macedonia. One general restructuring was undertaken in '95 for the total banking system of Macedonia. The specific feature that we have here is the frozen foreign exchange deposits of the citizens remaining after the dissolution of former Yugoslavia. Those deposits were cleaned-off the balance sheet of all the Banks in Macedonia that had such deposits of the citizens and that was like a linear rehabilitation of the banking system in Macedonia so, all the banks of Macedonia have those deposits like off-balance sheet and they operate them on behalf of the Government, including the payments and so on. We were doing it also with our funds, the Government was paying it a little bit later but we wanted to do it for the purposes of the law at that time that regulated how it should be paid to the citizens, we were even in advance with that, just in order to keep the image of the Bank.
For some of the Banks even the portfolio was cleaned at that time with the linear rehabilitation this frozen foreign exchange was taken off the balance sheet and foreign credit lines that were gone through the banks up to the year '92, so they were taken off the balances of the banks and they were set aside - at that time was created the Bank Rehabilitation Agency. Some of the banks at that time with their portfolio cleaned - they were considered problematic banks, even some denar credits were taken from their balance sheets; they had to suffer some consequences like appointment of government member in the Board of Directors and so on... This Bank has never went through such kind of operation so all the coverage of credits with provisions, collection of non-performing loans and so on, has always been done by the Bank itself. Even in all this period we were profitable, also by some international standards like profits, return and assets and equity that were acceptable by international standards. So on that side we have never been a subject of restructuring or any kind of government measures to help the Bank in some of that restructuring; except for what was the general rehabilitation of the banking system as a whole in Macedonia.
The other thing, something we appreciate very much, but it's more a joint interest than appreciation is the deal we have with EBRD, they have now a permanent seat in the Board of the Directors. Part of the agreement we have with the EBRD is equity investment in the Bank and a credit line of 11 million DM for the small and medium size privatised enterprises, also it was the technical assistance jointly financed by us and the EBRD, in which the Bank as a whole went through some kind of a training especially in relation with corporate lending, asset and liability management and so on. All the procedures, manuals that are implemented in some of the Western European banks are implemented here in the Bank together with some training. We are one of the rare Banks in Macedonia that has a complete and fully implements a manual of more than 150 pages on credit policies and procedures, techniques described and included in those manuals etc...
So, we find this kind of activity with the EBRD, the training of the staff that's been provided, were very useful. The new restructuring that we all talk about - there are 2 issues on the restructuring here:
The first one: There are too many small banks in Macedonia which can not afford this competition, they will not be able to cover even the census required for licence for large operations with foreign Banks, it is a period when mergers will happen, some of the smaller banks between themselves or with some of the larger banks. One of the problems that we/I see in the country is too much involvement of the politics in the business and in the every day normal operations(functioning).
There was lately a meeting in the ministry of Finance, on which it was shown to some of the smaller banks (not to the 3 largest that were present there), they were called upon to take activities on mergers and so on. But, even that kind of mergers are influenced by political decisions, political directions, like directing certain banks to merge with some other that are liked or favourized by the Government and so on...
In the case of our Bank, which is thinking on merger with two smaller banks, one of them with quite good credit portfolio, liquid and so on, and another one with not that nice portfolio but has good branch network that we would like present in our Bank so we would be present in other parts of Macedonia, those 2 banks had adopted on their Board of Directors decisions to merge with us - but under a very big pressure coming afterwards from different shareholders there (the merger according to the law has to be approved by the shareholders assembly) some of the shareholders were under a big pressure not to vote for merger with us but to merge with some of the other banks. This happens because many of these banks have lost their authorisations for foreign operations so we cover only with provisions for foreign operations, the wage bill of the bank which they are not in a position to do, so these are important revenues for such bank. Losing that fees for operations with foreign banks they will get less and less fees on their side and they will not be able to afford the reduction of the interest rates now because with their capital, their fees and revenues they get they can not really function. A very small mistake in their credit portfolio, in the credit decision will cost them very high expenses that they won't be able to cover. It is a pity that all those mergers are happening by political decision not bearing in mind the economic interest of these banks in the merger with others.
Komercijalna has the EBRD as a shareholder, Stopanska also has EBRD as a shareholder, I don't think that many other banks has EBRD as a shareholder, but it seems like your benefit came from a lot of help, technical assistance, know-how and expertise from this European Bank, do you believe in the medium run Stopanska, Komercijalna or maybe one of them would become the only interesting bank in Macedonia?
Probably not only three, but five or six banks will be the biggest number that will be. All the others are very small.
Of course assets and capital are the most important in order to have credibility for foreign investors and to boost foreign direct investments and of course these banks which have this amount of assets and expertise will be the ones to manage to survive in Macedonia. How do you think this climate will evolve during the next five or ten years?
As I said, probably after five/six or ten years we'll have five or six banks. In this period, in the next two-three years we will have probably more, ten-twelve or so because in the first stage we see some of the smaller banks merging between/among themselves just in order to get the census and the license. I think even some of this political influence will not allow some... We were in process of getting three smaller banks with us, since they won't be allowed to do it, two of them will merge between themselves. So in the transition period we'll still have some smaller banks waiting for some better times to come, and in an additional period of 3/4/5 years would again get to some of the larger banks. So, probably in a period of 5-10 years the biggest number of banks that we'll have here is five or six. There are about 21 existing now.
Just out of curiosity, the new IMF and EBRD requirements, do they involve higher capital base?
No. IMF and the World Bank are not involved in the capital issue. That is regulated by the new Law , although the same regulation now is smaller than the previous census. The previous was 21 million DM for large licenses as is called the one for foreign operations, now the maximum is 18 million. Still some of the banks will not be in a position to meet the requirement, now already only five or six satisfy that requirement.
Today, what is your main advantage compared with a bank like Stopanska Banka?
Probably we can not speak too much about advantages,
we are both banks at the same level, although Stopanska
had a large clean up of the Government, it was in
the process of the sale to the Greek bank when the
balance sheet of Stopanska was cleaned for 240 million
DM. That is something which all the enterprises
and all the population will be paying during the
next years because those are some non-performing
loans that were taken off the balance sheet of Stopanska
Banka and the Government issued bonds for that purpose.
That helps a lot (ha-ha-ha). So it speaks about
the problems Stopanska had in the previous period
but with the clean up now it is definitely in a
good position. As I said all that clean up of non-performing
loans in our case was done only by ourselves. So
now, even with the investments we are probably on
an equal level. But at least we have it arranged
ourselves, on that side we didn't allow anyone else
to influence. |
Has the presence of the EBRD been significant in helping you to reduce those non-performing loans weight?
Probably it's not so much in helping with the existing ones but in the training of the staff in the credit policies, so that their analysis is done properly so in fact the increase of such loans is stopped, the new portfolio is I think much better. But not in the process of reducing the existing ones, that was definitely done through our employees, our loan and income(welcome?) department, but the training of the staff for their skills in making credit decisions that is the technical assistance that helped a lot.
The problem we see is not the capital, we are very liquid, we are not in a need of capital now, the banks are some kind of a reflection of what is going on in the economy and that is a lack of a good restructuring in the enterprises, lack of good investment projects, export oriented enterprises with projects that have market in Western Europe or any export markets. Until April last year the problem of the Banks was that we had credits ceilings on the denar credits to enterprises and to citizens so we could not finance for longer period, on a longer term those needs for investments in Macedonia. Since those credit ceilings were abolished last year, we had the largest quantity of objections on that measure because the limit was the same for every bank. The central bank was allowing 1/4 increase of credits for 3%, it was the same for us as well as for some of the small banks that don't even have money to finance that while we always had surplus money so those ceilings were a problem for us.
Being liquid now, having funds, we can give credits to good projects in the economy but actually those good projects are lacking.
Talking about projects you wish to finance, and in the efficiency sector, how do you think the interest rate are going to evolve in the next two years?
Interest rate will be going down but I'd say with some additional measures. Two issues are of importance here, it's not only a question of demand for credits and so on, I find the following two issues of importance:
1) the inflation and
2) the implementation of the legislation adopted.
Probably we can go with the interest rates under the lowest level compared to the competitors we have now. But those reductions are applied mainly on the active interest rate, so we are squizing the margins between the active and the passive interest rate. As of May last year we are analysing reduction of the passive interest rate, the rates that we are paying to depositors. When the inflation figure came after the implementation of the VAT (it was above 13-14% at the time coming to 10 to 8%) so at that time we could not reduce the passive interest rate, the depositors would have had negative rate of serving. With the reduction of the inflation that we expect additionally in the beginning of this year, we will be going with the reduction also of the passive interest rates, then reduction of active rates. It is expected already in 2001, in May - June 2000 we had the highest inflation gradually going down by the end of the year. We expect it to go down this year as well. If we don't have any movements on the international markets, like the oil price, energy prices and so on then we might intervene with the interest rates. Interest rate are for local depositors, either citizens or enterprises that we are paying; to the depositors on term deposits up to 1 year we were paying interest from 12 to 14%, if we pay that as an expense then definitely the active rates on credits that we are giving would have been 16, 17%.
The other issue influencing the interest rates is the implementation of the legislation we have. Last year new legislation on collateral, movable property and mortgages was adopted but now those laws being done in accordance with the requests of the banks and shortening very much that process and afterwards the banks should automatically become owners of the property and in a position to sell that, but again politics are very much involved here as well. We can not have for instance a law being valid for one company but not for another one. To give you an example, we have started at the same time and according to the new bankruptcy law, procedures against two companies. For one - not interesting for the Government it was not a problem in the course, a bankruptcy manager was appointed and the process has been finished in some three months, for the other that is of Government's interest one can not have any influence at all, not undertaking the regular procedure, it's simply not taken into consideration.
For physical persons, when it comes to start the collateral regulations that we have, on houses , apartments etc, it again depends either somebody is close to the Government, to the political party on power or no. We had cases when the collateral is completely implemented in the course of three months, while for other in more than one year we can not enforce anything. So it's not to have the reforms, the legislation on paper, that should be implemented in practice also because if we don't collect during this three months, we have expenses on our side expenses of the provision on our side. Once the laws are implemented in practice then we will have the real conditions for a real reduction of the interest rates.
All those reforms and the internal reforms within your Bank are meant to attract more investors within the country and especially foreign investors. What do you do exactly to attract the investors in Macedonia and where, in which sectors do you focus?
We are universal bank dealing both with citizens and enterprises, so our presentation as investor in our Bank yes, but for some of the enterprises only the fact that with the Laws of '95 we became dominant shareholder in those Banks in which by the Law we were forced at that time to transfer our credits and equity in those enterprises. Mainly the enterprises are seeking for foreign investors directly by themselves. We are interested, as well as other banks, to be present as a shareholder in our Bank but that is a decision of our Board of Directors whether we would be willing again to give away (depending of the rating of a bank foreign investor that might be interested here) about only 25% of the capital of the Bank if it's not one of the top banks in the world, which is very difficult to expect. For one of those bank we would be willing to sell even 51% - dominant part of the Bank. But it's not to expect that in Macedonia as such small country, with such small economy and number of population, some of those large banks would be interested to be present on this market. Having in mind the other investments - as I said the decision of the Board is - we would be willing to sell at most 20 - 25% of the Bank and a percentage plus of the EBRD shares because EBRD are present with a certain amount (quantity) in any case in any project afterwards they withdraw from the Bank.
We have examples such TELEKOMUNIKACII-MATAV. Banks such as yours are maybe even more interesting for getting involved in such deals. Do you have other deals like this or some that you would be interested in getting involved as a bank service provider?
For the banking services in the country and abroad, payment operations etc. definitely the services of some of the largest banks are used, including ours. But, usually there is an adviser for those privatisations, the Government takes a foreign consultancy companies; we would also like to be shareholders in that kind of projects although here there is a restriction of the percentage that a bank can have as investment in other company (regulated by the domestic legislation)
What would be today your investment policy in terms of upgrading your infrastructure, your services, I see that you are proud with your MasterCard business in Macedonia ?
We were the first one to start with issuing cards in Macedonia. We also have very diversified policy, diversified portfolio. In our credit policy we have set criteria about diversification in the different part of the economy like the industrial sector, the agriculture and so on... So we follow the limits that we have established ourselves in the credit policy; even in a separate credit decision we are some more conservative than what the Law allows as total exposure to a single client - though the Law allows up to 25% of the capital of the Bank as a credit exposure per single client we go with 10 up to 15% , although if we want for a separate client with a decision of the Board of Directors we can go up to the maximum prescribed by the Law. So, there is no concentration of the credit portfolio in the single industrial sector, even in all this trade finance and so on, it is very diversified. We don't have the problems that most of Banks of Macedonia have - being above the limits established by the Banking Law either for exposure to a single shareholder, to a single borrower etc...
So, as I said, very diversified, we also have set criteria for agriculture - up to 15% of the capital, even inside it for different segments like winery production, tobacco production, export ... As a separate part the one for small and medium size enterprises for their businesses.
Regarding investment climate in Macedonia, your Bank is of course involved in many activities, so you would know which ones are the fastest growing sectors. How would you describe to our readers who are potential investors in any sectors, the investment climate potential in Macedonia?
I find that one of the problems that domestic enterprises have looking legally - the climate is favourable. The laws allow more favourable tax and customs conditions to foreign investors, better than some other countries, better even than necessary. But the problem as I see is the lack of good management in some of the domestic companies, because it is not enough to be oriented to the domestic market. The domestic market for any Macedonian company is nothing actually. If anybody oriented to the domestic market, then the company has bad future. If they don't connect to some of the large markets, whether in the EU in US (as it's been presented on the US-Macedonia Chamber of Commerce meetings) is that we have enough funds, Komercijalna Banka is one of the re-qualified banks in Macedonia using the qualified credit lines of the World Bank, EBRD, even with the famous Taiwanese deals, we were accepted from their side as qualified bank for their credit lines for the enterprises; we are now in the final stage of signing our separate agreement with the IFC on a credit line to the Bank without any Governor's guarantee just our relations which is already approved by the IFC Board and we have reached the final stage of signing that contract with them. We have funds available here, it's not that we need foreign funds to finance some of these projects. The domestic companies will definitely have to see the future in merging, getting relations with foreign companies that will enable them the life and to be present. This is too small market for an enterprise to be viable.
What about you, your past and your future can you give to our readers more information about your professional background and what are your personal prospects within the bank for the next five or ten years?
I was re-elected now because the new Law on the Banks was adopted in July last year and we had 6 months to comply with the Law. Now the new Law requires two general managers which is explaining the principle of four eyes which is I thing something that the Government understood wrong as principle. It is not only two general managers the principle of four eyes, that is something else, it is the whole process of approval where there is more than one person deciding on the credit exposure. In our process, in our credit policy there is a very significant delegation of the authority for approval so we have set limits in which up to five million denars the director of the credit department decides, for credits up to 25 million decides the sector for corporate lending and the manager there, above that (125?) but every proposal will have to go either from two credit officers to the director, then with it to a higher level. If it comes to me it comes with five signatures. That is the process of the approval, the four eyes principles is not on the top of the bank, it should be implemented from the start and that is what we have, because no credit proposal can come only from one client-officer. In this aspect we fully adjusted to the new Law, since January two General Managers were appointed in the Bank, myself as a first and a second one. We have a term of six years now. There are other ideas and pressures from outside, still I think we will sustain the next six years here.
I am am here for five years already.
To start with the beginning, I was the best student at the Faculty of Economics in Skopje, afterwards I was taken at ATT as advisor in the Government for economics issues, '94 and '95 I was deputy Minister of Finance, I spent two years in the World Bank as assistant to the Executive Director and from there I came here in October '96. For the future we'll se, for the time being I see it here, connected with the Bank.
I want to work in this financial issues, that is what I was learning, studying, I am trained for, that is my preference also.
Thank you very much for the interview. |
