In a statement made to the news agency SRNA, also
published on 12 July, the director of the Banking Agency, Ms. Slavica Injac (Славица
Ињац) indicated that the Agency had not placed BIB under the full regime of
a traditional “temporary administration” (привремена управа), but had
merely appointed one individual as a “temporary administrator” (привремени
управник).
There was no need for a traditional temporary administration, she said,
because the bank was both liquid and solvent, but the appointment of a new
individual to head the bank was carried out in order to safeguard the interests
“of shareholders and of the depositary bank” following on the recapitalization
of the bank carried out by the Republic of Srpska Investment-Development Bank (Инвестиционо-развојна
банка Републике Српске) and the Guarantee Fund of Republika Srpska (Гарантни фонд Републике Српске). (The latter
is not to be confused with Bosnia’s deposit insurance fund, the Deposit
Insurance Agency of Bosnia and Herzegovina (Агенција за осигурање депозита
Босне и Херцеговине), of which BIB has been a member since 1 May 2004.)
Radmanović had
previously been director of the bank’s treasury section (direktor sektora sredstava), and subsequently director of
the bank’s financial division (direktor finansijske divizije), and since
at least 1 July 2013 had been the
official representative (zastupnik) of the bank. In an interview published on 14 July, Radmanović
stated that after a shareholder meeting of the new shareholders is held – presently
scheduled for approximately 1 September 2013 – the bank will be
given a new name to reflect its new ownership.
Balkan Investment Bank (Balkan Investment Bank а.д. Бања Лука) was
founded on 4 April 2000 by Lithuania’s Ūkio Bank (AB Ūkio bankas) and its investment
subsidiary, Ūkio Bank Investment Group (UAB “Ūkio banko investicinė grupė” –
ŪBIG). It opened for business on 12
June 2000.
Background data:
Basic data:
Headquarters:
Aleja Svetog Save 61, Banja Luka, Bosnia and Herzegovina (Алеја Светог Саве
61, Бања Лука, БиХ)
SWIFT Code:
BALVBA22
Auditor:
Deloitte d.o.o. Banja Luka (Deloitte д.о.о. Бања Лука)
Market position of the bank
(The following data were
published in the ABRS’s quarterly report on the Republika Srpska banking sector
as of 31 Dec. 2012. The report covers
operations within Republika Srpska (“RS”), both the RS operations of the 10
banks based within RS and the RS operations of 7 banks based in the Federation
of Bosnia and Herzegovina (“FBiH”). N.B.: The Bosnian
mark (BAM) has been pegged to the euro at a rate of BAM 1 = EUR 0.51129 since 1 January 2002 .)
Total assets: BAM 299,594,000
(€ 153 mln) (4.6% of total assets for the 10 RS-based banks.)
Total capital: BAM
9,101,000 (1.1% of total capital for the
10 RS-based banks.)
Number of branches: 12 (Total for the 17 banks operating in RS:
120.)
Number of other locations: 25 (Total for 17 banks: 298.)
Number of ATMs: 14 (Total for 17 banks: 374.)
Number of employees: 216 (6.7%
of the total 3,206 employees of the 10 RS-based banks)
Shareholders as of 31
December 2012:
UAB Balkan
Invest, Kaunas, Lithuania
|
41.58%
|
UAB
Asocijuoto Turto Valdymas, Kaunas, Lithuania
|
25.72%
|
UAB Ūkio banko
investicinė grupė, Kaunas,
Lithuania
|
18.42%
|
Republic of
Srpska Restitution Fund, Banja Luka, RS, Bosnia and Herzegovina
|
7.14%
|
Republic of
Srpska Shares Fund, Banja Luka, RS, Bosnia and Herzegovina
|
7.14%
|
Total
|
100.00%
|
Summary of financial results,
2000-2012:
Annual financial results for
Balkan Investment Bank,
2000-2012 (in BAM)
Year
|
Total assets
at yearend (before provisions) |
Net profit/loss
for year |
2000
|
13,537,000
|
(partial year) -365,000
|
2001
|
49,031,000
|
200,000
|
2002
|
35,168,000
|
50,000
|
2003
|
41,650,000
|
306,000
|
2004
|
45,428,000
|
291,000
|
2005
|
80,013,000
|
440,000
|
2006
|
128,899,000
|
847,000
|
2007
|
186,026,000
|
875,000
|
2008
|
217,282,000
|
-4,468,000
|
2009
|
243,367,000
|
-321,000
|
2010
|
269,213,000
|
895,000
|
2011
|
310,712,000
|
1,572,000
|
2012
|
245,526,000
|
-33,634,000
|
The sudden collapse
of the bank’s capital
According to
unaudited financial statements signed by the bank’s management on 28 February 2013 and submitted to the Banja
Luka Stock Exchange on 2 April 2013 , the bank started
2012 with BAM 35,000,000 in share capital plus BAM 3,885,658 in retained
earnings and BAM 4,272,530 in reserves, for total equity (укупан капитал)
of BAM 43,158,188. At the end of the
year the bank had BAM 35,000,000 in share capital plus BAM 4,327,982 in
reserves, but a loss for the year of BAM 30,227,027 had eliminated its retained
earnings and reduced its equity to just BAM 9,100,954.
In fact the change in
the bank’s situation had come about rather quickly. Financial statements published by the bank
for the first half of 2012 show the bank at midyear with a pre-tax profit of
BAM 650,000, taxes of BAM 141,000, and a net profit of BAM 509,000 for the
first half of the year. In other words,
a net profit of BAM 895,000 in 2010, BAM 1,572,000 in 2011, and BAM 509,000 in
the first half of 2012 were followed by a net loss of BAM 509,000 + 33,634,000
= 34,143,000 in the second half of 2012.
The notes to the audited
financial statements for 2012 – particularly Note 10, “Developments in
allowances of values and provisions” (Кретања на исправкама вриједности и
резервисањима) – give some detail on what happened. Whereas 2011 had seen loss reserves (provisions/allowances)
increase by BAM 2,024,000, 2012 saw them soar by an additional BAM 33,798,000. Of this increase, BAM 27,677,000 came under
“loans to customers” (кредити пласирани комитентима), BAM 6,598,000 came
under “accrued interest and other assets” (обрачуната камата и остала
актива), BAM 1,342,000 came under “securities held for trading” (хартије
од вриједности којима се тргује), and BAM 213,000 came under “contingent
and contractual commitments” (потенцијалне и уговорене обавезе), while
“provisions for severance payments” (резервисања за отпремнине радника)
in 2012 actually reduced total provisions by BAM 8,000.
Although the bank’s
financial statements do not indicate the names of the clients holding the
largest non-performing loans, they do provide some additional information.
Firstly, the notes
to the financial statements give generic information on the composition of the
bank’s post-provisioning loan portfolio.
Note 5.2.5 gives balances for total loans by sector at yearend, and the
data for 2010-2012 is as follows:
Sector breakdown of Balkan
Investment Bank loan portfolio at yearend,
2010-2012 (in BAM)
2010
|
2011
|
2012
|
|
Agriculture, Hunting,
and Fishing
|
7,215,000
|
10,072,000
|
13,123,000
|
Mining & Industry
|
37,415,000
|
46,943,000
|
48,180,000
|
Energy
|
1,011,000
|
1,914,000
|
1,185,000
|
Construction
|
4,316,000
|
5,743,000
|
6,446,000
|
Trading
|
32,294,000
|
45,200,000
|
20,539,000
|
Services, Tourism, and
Hospitality
|
4,227,000
|
5,743,000
|
3,321,000
|
Transport, Post &
Telecommunications, Communications
|
497,000
|
1,531,000
|
1,477,000
|
Finance
|
257,000
|
957,000
|
468,000
|
Real-Estate Dealing
|
16,102,000
|
21,057,000
|
43,193,000
|
Governmental &
Public Entities
|
69,000
|
77,000
|
5,327,000
|
Households
|
50,272,000
|
47,960,000
|
36,709,000
|
Other
|
3,056,000
|
6,888,000
|
214,000
|
Total
|
156,731,000
|
194,085,000
|
180,182,000
|
In addition, the same Note provides a breakdown of
loans by country:
Country breakdown of Balkan
Investment Bank loan portfolio at yearend,
2010-2012 (in BAM)
2010
|
2011
|
2012
|
|
Bosnia and Herzegovina
|
137,863,000
|
170,280,000
|
162,028,000
|
Lithuania
|
7,477,000
|
460,000
|
6,340,000
|
USA
|
5,323,000
|
4,418,000
|
6,557,000
|
Italy
|
4,773,000
|
3,760,000
|
0
|
UK
|
683,000
|
6,977,000
|
4,854,000
|
Serbia
|
391,000
|
4,904,000
|
403,000
|
Cyprus
|
0
|
3,286,000
|
0
|
Austria
|
0
|
0
|
0
|
Montenegro
|
221
|
0
|
0
|
Total
|
156,731,000
|
194,085,000
|
180,182,000
|
Additionally, Note 5.3.1 gives a breakdown of loans by
currency:
Currency breakdown of Balkan
Investment Bank loan portfolio at yearend,
2011-2012 (in BAM)
2011
|
2012
|
|
BAM (Bosnian
convertible Mark)
|
38,802,000
|
33,434,000
|
EUR
|
155,283,000
|
146,748,000
|
USD
|
0
|
0
|
Other currencies
|
0
|
0
|
Total
|
194,085,000
|
180,182,000
|
Finally, from Note
29 in the financial statements – “Relationships with related parties” (Односи
са повезаним лицима) – it appears that the loss provisions would not
have been due to deterioration in loans granted to related companies or
individuals in Vladimir Romanov’s Ūkio group:
Loans to related parties for
Balkan Investment Bank at yearend,
2010-2012 (in BAM)
2010
|
2011
|
2012
|
|
Supervisory board and
mgmt. of bank
|
194,000
|
0
|
0
|
Energolinija d.o.o.
Zvornik
|
0
|
5,010,000
|
4,486,000
|
Alumina d.o.o. Zvornik
|
7,708,000
|
6,768,000
|
8,442,000
|
Other loans
|
80,000
|
0
|
0
|
Total
|
7,982,000
|
11,778,000
|
12,928,000
|
(Because the Bosnian convertible Mark has been rigidly pegged to the euro since the introduction of the euro as a physical currency in 2002, the fact that the bank has 80.0% of its loans dominated in a foreign currency does not raise the same exchange-rate risks in Bosnia and Herzegovina that it would in most other countries.)
From the above it
would appear that the bulk of the bank’s loans at end-2012 were in
EUR-denominated loans to businesses in Bosnia and
Herzegovina
A small amount of
additional information can be found in Note 5.2.4, where the loss provisions
for the bank’s loan portfolio are provided for the broad categories of “credit
cards”, “physical persons”, and “legal persons”. (There is a separate category for loans to
banks, but BIB had no bad loans in this category at yearend 2011 or 2012.)
Details on loss provisions for
Balkan Investment Bank loan portfolio
at yearend, 2011-2012 (in 000
BAM)
Credit
Cards |
Physical Persons
|
Legal
Persons
|
Total
|
|||||
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
|
Recoverable loans and
advances
|
2,892
|
2,917
|
36,101
|
38,889
|
78,301
|
145,478
|
117,294
|
187,284
|
Individually provisioned
loans
|
1,874
|
1,711
|
8,204
|
10,739
|
96,448
|
10,312
|
106,526
|
22,762
|
Total loans
|
4,766
|
4,628
|
44,305
|
49,628
|
174,749
|
154,972
|
223,820
|
209,228
|
Allowance for
collectively provisioned loans
|
-454
|
-213
|
-1,157
|
-1,526
|
-1,688
|
-3,009
|
-3,299
|
-4,478
|
Allowance for
individually provisioned loans
|
-1,843
|
-1,621
|
-6,609
|
-7,526
|
-31,887
|
-2,006
|
-40,339
|
-11,213
|
Total loss provisions
|
-2,297
|
-1,834
|
-7,766
|
-9,052
|
-33,575
|
-4,257
|
-43,638
|
-15,143
|
Total loans net of provisions
|
2,469
|
2,794
|
36,539
|
40,576
|
141,174
|
150,715
|
180,182
|
194,085
|
As is clear from the above table, total loss
provisions increased from BAM 15,143,000 at end-2011 to BAM 43,638,000 at
end-2012, an increase of BAM 28,495,000.
This increase is more than accounted for by an increase of BAM
29,881,000 in allowances for individually provisioned loans to legal persons,
from BAM 2,006,000 at end-2011 to an astonishing BAM 31,887,000 at
end-2012. Considering that the bank
started 2012 with equity and accumulated loss reserves of BAM 41,613,213, this
single provisioning item for “legal persons” in 2012 wiped out fully 76% of the
bank’s net worth.
Putting together all of the above, it is clear that
the massive and unprecedented loss registered by BIB at the end of 2012 came
from an increase in provisioning for individually provisioned loans denominated
in euros that were granted to legal persons (i.e., businesses and government)
located in Bosnia that were not related to the Romanov/Ūkio group.
In fact the
possible need for such a reevaluation had been mentioned by the bank’s auditor,
Deloitte, in the opinion that it issued on 15
May 2012 for the financial statements of the preceding year, 2011. The auditor stated that the opinion that it
was issuing for the bank’s 2011 financial statements was a “qualified” opinion
due to the auditor’s inability to verify that loss reserves for loans and
accrued interest had been carried out in accordance with IAS 39 and the rules
of the ABRS.
News report on recapitalization, broadcast on 2 July 2013
by Alternativna televizija
(ATV)
Earlier ATV news report on RS government takeover
of bank, broadcast on 8 April 2013
Putting the pieces together
The question then
becomes, what might have spurred the bank to carry out such a drastic
reevaluation, wiping out 80% of its net worth in one blow? And when was this fateful decision made?
The financial
statements do not answer either question for us, but they do give us one important
hint. Note 21 to the audited 2012 financial
statements mentions that as of 31 December 2012 the bank held a
total of BAM 28,814,000 in deposits from banks and financial institutions. Of this total, BAM 11,189,000 consisted of
demand deposits by foreign banks in foreign currencies, and there were an
additional BAM 10,327,000 in short-term deposits by foreign banks in foreign
currencies. In total, the bank was
holding BAM 21,516,000 in foreign-currency demand deposits and short-term
deposits by foreign banks. The Note then
goes on to explain that of this total of BAM 21,516,000, no less than BAM
21,493,000 – or 99.89% – consisted of deposits by Ūkio Bank of Kaunas,
Lithuania, and that on 24 October 2012 the ABRS had imposed a temporary ban
on the withdrawal of these deposits owned by Ūkio Bank.
The financial
statements do not explain the motivation for this freezing of the account of Ūkio
Bank at BIB, and no additional information has been made available to the
public. In fact Lithuanian media never
picked up on this freezing of accounts, because by the time it became public
knowledge, by the publishing of BIB’s audited and annotated financial
statements for 2012 on 26 April 2013, Ūkio Bank was already dead, having had
its banking license revoked by the Central Bank of the Republic of Lithuania on
12 February.
In former
Yugoslavia bank accounts are often blocked by the central bank or banking
agency if the holder of the account (typically a business) is in arrears on
taxes. Although a number of
Romanov-related companies did have operations in Republika Srpska – for example
the firms “Birač”, “Energolinija” and “Alumina”, all headquartered in the town of Zvornik Bosnia
Another potential
motive for a banking regulator to order the freezing of a bank account is
suspicion of money laundering. It is
true that in August 2012 there had been rumors in the Lithuanian media that Ūkio
Bank was being investigated for money laundering, but the Lithuanian bank published
a statement saying that the “investigation” in question had been spurred by the
bank itself in 2006 when it received some deposits in Lithuania Lithuania Lithuania Lithuania
So the freezing of
the Ūkio Bank deposits at BIB was probably due neither to unpaid Bosnian taxes
nor to suspicion of money laundering. As
a result, the taking of such a strong action by the ABRS must almost certainly
have been a cause for alarm or worry on the part of the management of BIB, as
well as at Ūkio Bank and with Vladimir Romanov himself.24 October 2012 the problems at Ūkio Bank had not yet come to the surface: its need to acquire the remaining 95% of the stadium-development
firm UAB “Žalgirio sporto arena” for EUR € 103.4 mln to avoid loan losses was not
announced until 5 November, as noted
earlier in this column.
Already in May 2012
the management of BIB had had to publish financial statements for 2011 that
contained a proviso by the auditor, Deloitte, that the accuracy of the loss
provisioning reflected in the 2011 statements could not be verified. Whether it was this lingering doubt in the
mind of the auditor, or the public disclosure of this doubt, or the freezing of
the accounts of Ūkio Bank by the ABRS in late October, something must have made
the management of BIB realize – sometime after the publishing of the statements
for mid-year 2012 in late August 2012 –, that an investigation by the ABRS was
likely to begin soon if not already underway, and that it would be better to
follow the rules and immediately begin applying the mandatory provisioning
standards to the fullest rather than risk being discovered by the banking
agency.
A confirmation of this comes from one other
direction. On 6 March 2013 the management
of BIB published the results of a public offering of shares that had recently
come to a close. The offering, which had
begun on 26 November 2012, ended three months later on 28 February 2013. The goal of the bank in this offering was to
sell 500,000 shares of nominal value BAM 10 (€ 5.11) each in order to raise a
total of BAM 5.0 mln in capital. On 6
March 2013 the bank announced that by the end of the public offering a total of
150 shares had been sold, raising a total of BAM 1,500 (€ 767) in new
capital, or only 0.03% of the amount desired.
The first
indication that a new share offering was being contemplated appeared on 7
September 2012, when the Board of Supervisors of BIB adopted – and subsequently
published – a resolution calling for the convocation of an extraordinary general
meeting of shareholders (the 5th), one of the items of business
being the emission of the bank’s “tenth issue of securities / eighth issue of
shares / second issue of non-accumulative preference shares by public
offering”.
The extraordinary
general meeting of shareholders took place on 27 September 2012 . (It
should be remembered that the bank’s shareholders consisted exclusively of
three limited-liability companies located at 60 K. Donelaičio, Kaunas , Lithuania
The shareholders
passed six resolutions at the meeting.
The first three were standard and procedural, the fourth was for an
increase in the bank’s capital, the fifth outlined the procedures for the
issuance of the now shares, and the sixth modified the bank’s charter on five
points – primarily inserting a Credit Committee (Кредитни одбор) and a Risk
Management Committee (Одбор за управљање ризицима) – but without
referring to any change in the bank’s capital.
The fifth
resolution (number 01-3333/12) provides two reasons for the issuing of the
shares, and the first of them was to increase the bank’s capital buffer.
The shares were
noncumulative preferred shares that gave the owners a right to an 8% dividend
annual dividend on the nominal value of their shares no later than 30 June of
each year.
The resolution
included a “criterion for success of issuance”: the issuance of shares was to
be considered a success if 100% of the offered shares got sold within 30 days
of the beginning of the offering. If all
of the shares were not sold and paid for within 30 days, then the offering was
to be cancelled and the money was to be returned to purchasers.
On 17 October the
bank submitted to the Securities Commission of Republika Srpska (Комисија за
хартије од вриједности Републике Српске) an application for approval of
a prospectus for the stock offering. The
Securities Commission considered the application in meetings held on 31 October
and 7 November 2012 , and at the latter
meeting approved BIB’s application,
requiring that the bank issue a public notice of the stock offering at least 15
days before the new shares went on sale.
On 9 November the bank published a public notice
regarding the share offering, announcing that the sale of shares would begin on
26 November, and that existing shareholders would need to exercise their
preemptive right to purchase the shares within the first 15 days of the
beginning of the sale, i.e., through 10 December 2013.
At 9:24 in the morning on Monday, 10 December 2012,
the bank announced that it would begin accepting orders for the stock via the
Banja Luka Stock Exchange (BLSE): from 10 December through 14 December brokers
would have the opportunity to submit bids at any price higher than the initial
price, and from shortly after 9:30 in the morning on Monday, 17 December,
public offers would be accepted up until the closure of the offering on 25
December.
As we have seen,
despite all these procedures there was virtually no interest in the new
preferred shares, particularly on the part of the existing shareholders. As a result, on 20 December 2012 the bank applied to the Securities Commission to
have the time limit of the share offer extended from 30 days to 90 days, and on
26 December the commission approved the request.
As noted above, on 6 March 2013 the bank published a notice
stating that by the end of the 90-day public offering period, which closed on 28 February 2013 , only 150 shares (BAM 1,500)
had been sold.
From the above, it is
clear that on 27 September 2012, when the voting shareholders – all of them
Lithuanian limited-liability companies – approved the resolution for the new
share offering of BAM 5,000,000, they must still have had no idea that a
massive write-down of BAM 34,143,000 would wipe out 80% of the bank’s share
capital at yearend. And perhaps they
still had no idea of this impending doom when they filed their request for the
stock offering with the Securities Commission on 17 October. It is also clear that once the sale had
begun, by the time the 15-day period for existing shareholders to exercise
their preferential purchase option expired on 10 December the existing
shareholders must have realized that any money they might invest in this new
stock would surely be lost. So between
27 September and 10 December the existing shareholders – not just the three
Lithuanian companies but also the two RS public investment funds – must have
learned something that made them flee in fear from the stock offering.
Given that the
auditor’s qualified opinion on the loss provisioning contained in the 2011
financial statements had been transmitted to management on 15 May 2012 and the
ABRS’s order to freeze the Ūkio Bank accounts was issued on 24 October 2012, it
was more likely the latter than the former that made the shareholders abandon
all interest in the stock offering between 27 September and 10 December.
in Dec. 2005 and Nov. 2009, removed in July 2013 before the end of his second term.
Above: photo used in 2001 and 2002 annual reports.
Below: photo used in 2009 and 2010 annual reports.
The road to
recapitalization
As we have seen above, on 6 March 2013 the bank had
been forced to reveal to the world that the stock offering had been an
atrocious failure, as not even the bank’s current shareholders had been
interested in investing as much as an additional 1,000 euros in the bank. Likewise on 28 February the bank’s management
had had to sign off on unaudited financial statements for 2012 that revealed
the enormous loan write-down to the public, statements that would eventually be
made public on 2 April.
At this critical juncture, on 18 March the President
of the bank’s Supervisory Board – Ms. Angele Dementavičiūtė of Lithuania –
adopted a resolution calling for the convocation of another extraordinary
general meeting of shareholders (the 6th), on 8 April 2013 at 14:00. Among the items on the agenda were the reviewing
and approving of the 2012 annual financial report, and two new share issuances,
to be carried out simultaneously, one to decrease the bank’s share capital and
one to increase it. One interesting item
of business was the replacement of the bank’s Supervisory Board. When the meeting convened in the headquarters
building of BIB in Banja Luka on 8 April, one resolution passed by the voting
shareholders dismissed the entire Supervisory Board, which at the time
consisted of the following:
1. Angelė Dementavičiūtė, President.
2. Carl Håkan Källåker, Member.
3. Irmantas Degutis, Member.
4. Laura Ivaškevičiūtė, Member.
5. Skrimantaus Sutkus, Member.
The next resolution to be passed named the following individuals
to the Supervisory Board:
1. Vladimir Romanov, President.
2. Oksana Kovtun, Member.
3. Yana Voronovych, Member.
4. Ivan Vidović, Member.
5. Dragana Tučić, Member.
The first name on the above list is none other than the
famous Russian investor Vladimir Romanov, head of the entire Ūkio/Romanov group.
The fourth and fifth names on the list – Ivan Vidović and Dragana Tučić
– are the executive directors, respectively, of the Macroeconomic Analysis
Division and the Sales and Restructuring Division at the government-owned
Republic of Srpska Investment-Development Bank (Инвестиционо-развојна банка
Републике Српске а.д. Бања Лука – IRBRS). The IRBRS manages the two public investment
funds that owned non-voting, preferred shares in BIB. The role of the two IRBRS directors on BIB’s
supervisory board was to oversea the infusion of BAM 24 mln in funds into BIB
via three investment funds managed by IRBRS (with an additional BAM 6 mln to
come from another RS public investment fund not managed by IRBRS). The role of Vladimir Romanov as head of the
supervisory board, on the other hand, was to be an unpleasant one: to oversee
the wiping out of virtually the entire investment he had made in BIB since
founding the bank in April 2000: his paid-in capital of BAM 30,000,000 was to
be written down to BAM 18,810, a loss of 99.94% of his investment.
The extraordinary general meeting of shareholders established
a detailed procedure by which two simultaneous stock issuances would be used to
write down the bank’s loss and recapitalize the bank:
1. Issuance XI, to decrease the bank’s share capital to cover BAM
29,981,190 in losses. The figure of BAM
29,981,190.00 is equal to the bank’s loss for 2012 (BAM 33,657,232.62) less
retained earnings (BAM 3,430,204.82) and legal reserves (BAM 245,837.80). This issuance would consist of 1,881 ordinary
shares of nominal value BAM 10 each. At
the end of this issuance the bank’s share capital would total BAM 5,018,810,
consisting of BAM 5,000,000 in noncumulative preferred shares and BAM 18,810 in
ordinary shares. By this issuance the
BAM 30,000,000 in ordinary shares owned by Romanov’s three Lithuanian
limited-liability companies would be reduced to BAM 18,810, but the BAM
5,000,000 in non-voting, preferred shares owned by the two RS public investment
funds would remain intact.
2. Issuance XII, to recapitalize the bank by increasing the bank’s
share capital by an additional BAM 30,000,000 to BAM 35,018,810. This issuance would consist of 3,000,000
ordinary shares of nominal value BAM 10 each, with a minimum purchase of BAM
100,000 per investor. At the conclusion
of this issuance the bank’s share capital would total BAM 35,018,810,
consisting of BAM 5,000,000 in noncumulative preferred shares and BAM
30,018,810 in ordinary shares. Existing
shareholders would have preemptive purchase rights for the first 15 days of the
offering.
As these adjustments to the bank’s capital were being
prepared, in the meanwhile on 26 April 2013 the bank published its audited,
annotated financial statements for 2012.
In
the auditor’s opinion signed on 10 April, Deloitte noted that the losses for
2012 had reduced the bank’s capital below the threshold for capital adequacy
established by the laws of Republika Srpska and the ABRS, putting into question
the bank’s status as a “going concern”.
Deloitte also noted that Note 5.4.1 to the financial statements indicated
that in 2013 the bank would be encountering a maturity mismatch between
financial assets and financial liabilities equivalent to BAM 66,101,000 for
assets and liabilities of less than one-year’s duration. In the notes to the financial statements, the
bank indicated (Note 29) that as of 31
December 2012 its capital adequacy ratio had fallen to 2%, far
below the minimum of 12% established in Republika Srpska, and that its net
capital amounted to only BAM 6,598,000, well below the minimum of BAM
15,000,000.
After the necessary paperwork, the two stock issues
were carried out successfully:
1. Issuance XI, to decrease the company’s share capital, was carried
out internally. The Securities
Commission recorded the results of this issuance in its registry on 4 July
2013, and the Central Registry of Securities (Централни регистар хартија од
вриједности а.д. Бања Лука) recorded this issuance in the central
securities registry on 8 July.
2. Issuance XII, to recapitalize the bank, was carried out publicly. A public announcement of the sale of shares
was issued on 30 April, and the sale of shares started on 1 May and concluded
on 28 June. Existing shareholders had
preemptive purchase rights for the first 15 days, but none of the existing
shareholders exercised those rights. The
BAM 30,000,000 in new shares were bought exclusively by 4 public investment
funds of Republika Srpska: three administered by IRBRS, and one administered
independently. The Securities Commission
placed the results of this issuance in its registry on 4 July, and the Central
Registry of Securities recorded this issuance in the central securities
registry on 9 July.
Detailed shareholder data published weekly by the
Central Registry of Securities reveal how the capital of the three
Romanov-controlled Lithuanian companies was diluted almost to zero while RS
public investment funds recapitalized the bank.
Below is the shareholder structure of the bank as of 4
July 2013, before the registry changes that were carried out on 9 July:
Shareholder
|
% of
all shares
|
% of
voting shares
|
UAB
“Balkan Invest”, Kaunas, Lithuania
|
41.5692857
|
48.4975000
|
UAB
“Asocijuoto Turto Valdymas”, Kaunas, Lithuania
|
25.7233429
|
30.0105667
|
UAB “Ūkio
banko investicinė grupė”,
Kaunas, Lithuania
|
18.4216571
|
21.4919333
|
Republic
of Srpska Shares Fund, Banja Luka, RS, BiH
|
7.1428571
|
0.0000000
|
Republic
of Srpska Restitution Fund, Banja Luka, RS, BiH
|
7.1428571
|
0.0000000
|
Total
|
99.9999999
|
100.0000000
|
Here is the shareholder structure as of 11 July 2013,
after the changes had been entered in the registry:
Shareholder
|
% of
all shares
|
% of
voting shares
|
Republic
of Srpska Shares Fund, Banja Luka, RS, BiH
|
49.9999857
|
49.9999833
|
Republic
of Srpska Restitution Fund, Banja Luka, RS, BiH
|
24.9999929
|
20.8359359
|
Guarantee
Fund of Republika Srpska, Banja Luka, RS, BiH
|
17.1336490
|
19.9874679
|
Dev.
and Employment Fund of the Rep. of Srpska, Banja Luka, RS, BiH
|
7.8126584
|
9.1139522
|
UAB
“Balkan Invest”, Kaunas, Lithuania
|
0.0260431
|
0.0303810
|
UAB
“Asocijuoto Turto Valdymas”, Kaunas, Lithuania
|
0.0161056
|
0.0187882
|
UAB “Ūkio
banko investicinė grupė”,
Kaunas, Lithuania
|
0.0115652
|
0.0134915
|
Total
|
99.9999999
|
100.0000000
|
As a result of the
simultaneous issuances, the voting rights of the three Lithuanian firms fell
from 100% to 0.06%, while the voting rights of the two public RS funds that
previously had been minority shareholders in the bank rose from 0% to
70.84%. From the above data it is
possible to calculate the number of new shares bought by each of the four RS funds:
Shareholder
|
Shares bought
|
% of Issuance XII
|
Republic
of Srpska Shares Fund
|
1,500,940
|
50.03%
|
Republic
of Srpska Restitution Fund
|
625,470
|
20.85%
|
Guarantee
Fund of Republika Srpska
|
600,000
|
20.00%
|
Dev.
and Employment Fund of the Rep. of Srpska
|
273,590
|
9.12%
|
Total
|
3,000,000
|
100.00%
|
At a price of 10
BAM/share, it is clear that the three funds managed by the IRBRS invested a
total of BAM 24,000,000 in the recapitalization, while the investment fund
Guarantee Fund RS invested the remaining BAM 6,000,000.
Principal sources:
BIB announcement (Form И-ЗДР) of 8 July 2013 court registry change by bank, dated
2013-07-12: Балкан
инвестмент банк а.д. Бања Лука - Извјештај о значајним догађајима
(2013-07-15 13:04 )
Interview of
director of Banking Agency of RS: Ињац
: Није уведена класична привремена управа (2013-07-12)
Interview of
temporary administrator Radmanović: Влада
Српске омогућила стабилно пословање банке (2013-07-14)
Interview of
Snežana Vujnić, director of RS Investment Development Bank: IRB
u Balkan investment banku ulaže 24 miliona KM (2013-06-25 19:02)
ABRS quarterly report on banks in Republika Srpska as
of 31 Dec. 2012 : Извјештај
о стању у банкарском систему Републике Српске за период 01.01.2012.-31.12.2012.
године (2013-04-16)
BIB annual financial statements, audited, 2001-2011: Izvještaji
BIB annual financial statement, 2011, audited, with
notes: Балкан
инвестмент банк а.д. Бања Лука - Ревизорски извјештај за 2011. годину
(2012-06-08 13:07 )
BIB annual financial statement, 2012, unaudited: Балкан инвестмент
банк а.д. Бања Лука - Финансијски извјештај за 2012. годину (2013-04-02 14:03 ),
BIB annual financial statement, 2012, audited, with
notes: Балкан
инвестмент банк а.д. Бања Лука - Ревизорски извјештај за 2012. годину
(2013-04-26 13:00 )
BIB semi-annual financial statements, 1H 2012: Балкан инвестмент
банк а.д. Бања Лука - Полугодишњи финансијски извјештај за 2012. годину
(2012-08-29 13:16 )
BIB
announcement of unsuccessful result of Nov. 2012 - Feb. 2013 share
offering: Балкан инвестмент
банк а.д. Бања Лука - Извјештај о резултатима 8. емисије акција (2013-03-06
15:19)
BIB announcement of 2012-09-07, calling for
convocation of shareholder meeting on 2012-09-27: Balkan investment
bank а.д. Бања Лука сазива 5. ванредну Скупштину акционара (2012-09-25 13:17 )
BIB resolutions of 5th extraordinary shareholder’s
meeting of 2012-09-27: Балкан инвестмент
банк а.д. Бања Лука - одлуке 5. ванредне Скупштине акционара (2012-10-03 14:58 )
RS Securities Commission decision of 2012-11-07
approving share offering: Rješenje
kojim se emitentu BALKAN INVESTMENT BANK a.d. Banja Luka odobrava jedinstveni
prospekt za desetu emisiju hartija od vrijednosti/drugu emisiju prioritetnih
nekumulativnih akcija javnom ponudom i uvrštenje akcija na Banjalučku berzu
hartija od vrijednosti a.d. Banja Luka u iznosu od 5.000.000 KM.
(2012-11-08 10:07:09)
BIB public announcement of upcoming share offering (X),
2012-11-09: Балкан
инвестмент банк а.д. Бања Лука - јавни позив за упис и уплату X емисије
приоритетених некумулативних акција (2012-11-09 16:01 )
BIB public announcement of beginning of share sales on
stock exchange: Балкан
Инвестмент Банк а.д. Бања Лука - Jавна понуда акција на берзи (2012-12-10 09:24 )
RS Securities Commission decision of 2012-12-26
approving amendments to prospectus: Rješenje
kojim se odobrava emitentu „BALKAN INVESTMENT BANK“ a.d. Banja Luka izmjena
prospekta za desetu emisiju hartija od vrijednosti/ osmu emisiju akcija/ drugu
emisiju prioritetnih nekumulativnih akcija javnom ponudom u dijelu koji se
odnosi na vremenski period upisa i uplate akcija, tako da rok za upis i uplatu
akcija traje ukupno 90 dana. (2012-12-27 14:15:20 )
BIB public announcement of 2013-03-18 calling of 6th
extraordinary shareholder meeting on 2013-04-08 to approve share offerings XI and
XII: Балкан
инвестмент банк а.д. Бања Лука сазива 6. ванредну Скупштину акционара
(2013-03-21 08:30 )
BIB resolutions of 6th extraordinary
shareholder’s meeting of 2013-04-08: Балкан инвестмент
банк а.д. Бања Лука - одлуке 6. ванредне Скупштине акционара (2013-04-12 14:40 )
BIB public announcement on results of Issuance XI: Балкан инвестмент
банк а.д. Бања Лука - Извјештај о резултатима 11. емисије хартија од
вриједности (2013-07-09 13:06)
BIB public announcement on results of Issuance XII: Балкан инвестмент
банк а.д. Бања Лука - Извјештај о резултатима 12. емисије хартија од
вриједности (2013-07-09 13:06)
BIB press release about results of recapitalization: Uspješno
izvršena dokapitalizacija BIB (2013-07-12 16:00 )
Shareholder structure as of 2013-07-04: Deset
najvećih akcionara emitenata (04.07.2013) (2013-07-05)
Shareholder structure as of 2013-07-11: Deset
najvećih akcionara emitenata (11.07.2013) (2013-07-12)
Article on relationship between bank and RS
government: IMA
NEKA TAJNA VEZA: KAKO JE VLADA RS NEPUNIH 60 MILIONA KM PLASIRALA BALKAN
INVESTMENT BANCI I KALDERA COMPANY IZ LAKTAŠA (2013-06-02)
Link to discontinued NASDAQ OMX Baltic page with
financial statements of Ūkio bankas, 1998-2012: Ūkio
bankas (23.05.2013)
On 15 July 2013 , after a six-month trial
period, the Twitter profile of the Central Bank of Bosnia and
Herzegovina
@CBBiH
As of this writing
the profile has published 341 tweets and has 79 followers. The first tweet was published on 3 January 2013 , and consisted of the
following text:
Dobrodošli na oficijelni
twitter profil Centralne banke Bosne i Hercegovine
The second tweet
consisted of the same message written in Cyrillic, and the third tweet was the
same message translated into English:
Welcome to the official
twitter profile of the Central Bank of Bosnia and
Herzegovina
Since that day
there have been no further tweets in Cyrillic, and all tweets have been
published twice: first in Bosno-Serbo-Croatian using the Latin alphabet, and
second in English translation.
The press release
issued on the website of the central bank notes that @CBBiH will be the only
official Twitter profile used by the central bank and its management.
Sources:
ЦББиХ отворила
профил на Twitteru (2013-07-16)
Centralna banka BiH @CBBiH – The official Twitter profile - cbbh.ba - Sarajevo
In other news, on
15 July the Austrian financial daily WirtschaftsBlatt published an
interview with Austrian Finance Minister Maria Fekter in which she revealed
that the deadline for the sale of the Southeast European subsidiaries of Hypo
Alpe-Adria-Bank International AG, described earlier
in this column, had been extended to mid-2015:
Reporter: Welchen Zeitrahmen für den Verkauf des Südosteuropa-Netzwerks gibt es?
Fekter: Wir haben um eine Fristerstreckung bis Mitte 2015 erreicht. ...
Source:
In earlier news, on
3 July 2013 the International Monetary Fund published a staff report on Bosnia
and Herzegovina entitled, “Bosnia and Herzegovina: Third Review Under the
Stand-By Arrangement and Request for Waiver of Applicability of a Performance
Criterion”. The 41-page document, dated
13 June, was drawn up after a visit to Banja Luka Sarajevo
POLICY
DISCUSSIONS
[...]
C. Ensuring Financial
Sector Stability
11. The banking system is showing
the effects of subdued economic activity as lending remains muted and
non-performing loans (NPLs) continue to creep up. Financial sector indicators
through end-March 2013 suggest that the banking system—predominantly owned by Austrian
and Italian banks—remains profitable and adequately capitalized at the
aggregate level. Foreign parent banks’ exposure to their BiH subsidiaries has
broadly stabilized over the last several quarters. However, NPLs have edged up
to around 14 percent and are likely to rise further in the near future,
although provisioning stands unchanged at around 65 percent of non-performing assets.
With credit growth expected to pick up only modestly, reflecting banks
tightening of credit standards and weak credit demand, profitability in the
sector will be adversely impacted. In this context, the banking agencies have
engaged some smaller banks that exhibited tighter capital positions under the
stress tests with more severe shock scenarios. A number of these banks already increased
their capital. One bank in the RS, however, failed to meet minimum capital
requirements after writing down non-performing loans, and the RS authorities
are considering options to deal with this bank, including ways to attract new
capital. While the bank is relatively small—accounting for less than 4 percent
of RS banking system assets—the authorities are concerned about possible spillover
effects on the system from a depositors’ loss in confidence. Fund staff has
been actively engaged with the authorities providing a strategy that would
limit the potential fiscal costs without creating undue risks to the banking
system.
12. The authorities are taking
further measures to strengthen bank supervision and the crisis resolution
framework. Specifically:
· The Central Bank of Bosnia and Herzegovina (CBBH) and the
Banking Agencies completed the identification of systemically important banks
with a view to closely monitoring financial sector developments and better
assessing potential risks. The design and implementation of bottom-up stress
tests for this set of banks is also envisaged.
· The changes to Banking Agency laws to bring the treatment of
confidential information in line with EU practices will help the authorities
enhance cooperation with foreign bank supervisors, including by signing of
Memoranda of Understanding. In addition, to facilitate information exchange
among home and host country supervisors and parent banks, the authorities are
planning to host a cross-border forum this fall.
· To further strengthen the crisis preparedness toolkit, the
authorities, with the assistance of Fund staff, will agree on a set of detailed
procedures describing the responsibilities of and the coordination between
responsible institutions in the event of a systemic financial crisis (a new
structural benchmark for end-December 2013). The members of the Standing Committee
on Financial Stability will be responsible for the development of such overarching
contingency plans for financial stability.
13. Addressing high levels of
NPLs in BiH will require a comprehensive strategy, including changes to the
legal and regulatory frameworks. The authorities, together with Fund staff,
have conducted a thorough review of the NPL resolution framework, including an
evaluation of laws and regulations as well as current practices. The review has
identified a number of measures to be implemented over time with further
support from IMF staff. In particular:
· Maintaining adequate provisioning levels is key to absorbing
possible deteriorations in asset quality. A new law on corporate income tax in
the Federation should clarify the tax treatment of loan loss provisioning by
banks with a view to encouraging such provisioning. The RS will also review and
enhance its tax treatment of loan loss provisioning to achieve the same objective.
· The sale of NPLs to third parties, an effective method to
improve liquidity management in banks and cleaning banks’ balance sheets, will
be facilitated by submitting legislation, in line with Fund staff
recommendations, regulating the establishment and supervision of asset management
companies to the respective entity parliaments (new structural benchmarks for end-June
2014). This new legislation will fill the vacuum that currently exists and
clear up the uncertainty that currently surrounds loan sales.
· Other legislation influencing the NPL
resolution framework will also be reviewed and amended as needed. In
particular, the corporate insolvency laws should be revised to: (i) strengthen
restructuring provisions so that companies that are viable can be quickly reorganized;
(ii) reduce barriers to entry into bankruptcy, as these delays lessen both the chances
of a successful reorganization and creditors’ recoveries; and (iii) speed up bankruptcy
proceedings which can currently extend for many years.
· Consideration should also be given to
establishing an out-of-court restructuring mechanism so that viable companies
have a better chance of remaining productive.
· Finally, the law on protection of consumers
of financial services under preparation in the Federation should clarify the
rights and obligations of such consumers with a view to ensuring well-balanced
rights and obligations of both lenders and borrowers.
14. A comprehensive overhaul of both entities’ banking laws is
needed to keep up with ever more complex financial markets. Financial
sector developments in BiH have highlighted the need to further strengthen
financial sector legislation and regulation. Thus, the entities’ Ministries of Finance
and Banking Agencies, and the Deposit Insurance Agency, with assistance of the
Fund staff, will prepare and submit to the respective entity parliaments new
laws on banks and other lending institutions in line with Fund staff
recommendations (new structural benchmarks for end-June 2014). These laws,
meant to replace the existing banking laws, will represent a significant step
toward modernizing and harmonizing BiH’s legal and regulatory framework on
banks with EU legislation and will also further expand the toolkit for dealing
with problem banks. The Deposit Insurance Agency Law will also be reviewed and
amended as needed to guarantee full consistency with the new laws. Moreover,
the establishment of a bank restructuring agency should also be considered.
Source:
