Serbia – Former officers of bankrupt Razvojna Banka arrested and charged; IMF staff mission to Serbia issues concluding statement, views Serbia’s banking sector as generally solid except for state-owned banks

On 23 May police arrested two former officers of the bankrupt bank Razvojna Banka Vojvodine (Развојна банка Војводине а.д. Нови Сад – RBV) on suspicion of abuse of office.

The Ministry of Interior issued a press release stating that “G. K.” (Goran Kostić), CEO of the bank from 9 October 2012 until its bankruptcy on 6 April 2013, and “J. K. P.” (Ms. Jelena Kokelj-Protić), a former officer of the bank, had been arrested for granting loans and bank guarantees – without adequate backing – to companies connected to Dušan Borovica, owner of 10 firms involved in transport and maintenance, who was arrested on 9 May.

The criminal report filed by the police accused the two of illegally granting, from November 2010 through October 2012, a total of 10 bank guarantees and 5 loans to the companies of Borovica, allowing the companies to obtain illegal gains of RSD 1.893 bln (€17.1 mln at the present exchange rate).

On 24 May a preliminary hearing by the Special Court in Belgrade granted the prosecutor’s request to remand the two suspects in custody for 30 days.

Video – RTS newscast on arrest of Goran Kostić
and Jelena Kokelj-Protić on 23 May

These arrests followed on the earlier arrest, on 23 March 2013, of Dr. Srđan Petrović, head of the bank from 23 October 2008 to 1 July 2010, of Biljana Jovanović, CEO of the bank from 1 July 2010 to 9 October 2012, and of Slobodan Bajin, former director of the bank's corporate business sector and a member of the bank's credit committee.

The three are accused of violating Serbian laws, regulations, and the bank's own internal procedures in order to grant a total of 28 loans and 16 bank guarantees – without adequate collateral – to the ten companies owned by Borovica between 2009 and 2012, giving the companies an illicit material gain of approximately RSD 2.5 bln.

Video – RTV newscast on arrest of Srđan Petrović,

Biljana Jovanović, and Slobodan Bajin on 23 March

  

As of 31 December 2012 – the last date for which financial results were published for the bank – RBV had total assets of RSD 25.856 bln (€227 mln), total deposits of RSD 18.650 bln (€165 mln), 601 employees, and 30 branches.  (At 31 Dec. 2012 one euro equaled 113.718 RSD.)  As of 30 Sept. 2012 the bank had a market share of 1.5% in deposits among Serbia's 33 commercial banks.

Financial results of RBV, 2008-2012, quarter by quarter (in 000 RSD)

Quarter	Net interest income for qtr.	Net losses on impairment and provisions for qtr.	Other operating expenses for qtr.	Net profit or loss for qtr.
1Q 2013	not published	not published	not published	not published
4Q 2012	193,770	6,041,581	222,827	-6,529,054
3Q 2012	355,497	1,092,750	294,053	-1,057,616
2Q 2012	168,802	206,606	6,765,161	-6,973,103
1Q 2012	426,026	-56,686	218,065	92,759
4Q 2011	182,948	228,878	280,003	-418,123
3Q 2011	397,899	-64,975	247,250	150,493
2Q 2011	336,391	295,456	208,491	-257,508
1Q 2011	504,257	210,576	227,946	-56,543
4Q 2010	227,858	916,979	340,723	-1,193,151
3Q 2010	863,220	582,102	216,616	22,661
2Q 2010	630,480	337,656	194,755	-688
1Q 2010	513,019	214,181	178,746	43,954
4Q 2009	264,179	-404,481	200,491	385,740
3Q 2009	403,491	-343,078	162,486	512,988
2Q 2009	277,593	1,159,700	145,193	-1,118,918
1Q 2009	312,127	-81,931	146,670	245,427
4Q 2008	281,430	4,696,443	211,989	-4,482,069
3Q 2008	273,956	30,529	163,742	60,059
2Q 2008	389,229	-4,963	-30,124	239,961
1Q 2008	290,115	17,068	352,528	118,426

The bank, founded in 1990, was originally known as Metals-Banka («МЕТАЛС-БАНКА» а.д. Нови Сад).  When Metals-Banka encountered difficulties, on 23 October 2008 the National Bank of Serbia placed it under receivership, appointing as trustees Dr. Srđan Petrović and Mr. Đorđe Jevtić, the former of whom was arrested on 23 March 2013.

On 14 July 2009 Metals-Banka was recapitalized with an infusion of RSD 3.785 bln, and the government of the Autonomous Province of Vojvodina (Аутономна покрајина Војводина – hereafter “AP Vojvodina”) became majority shareholder with a 61.8768% stake in the bank.  In 28 April 2010 the bank's name was changed to Razvojna Banka Vojvodine (“Development Bank of Vojvodina”).

The loan portfolio of the bank continued to deteriorate, and on 22 August 2012 the National Bank of Serbia issued a press release on bank supervision actions which included the following: “The NBS has started an on-site examination of the solvency and legality of operations from the aspect of risk management in Razvojna banka Vojvodine, which relied significantly on government assistance in the prior period.”

Despite a recapitalization of RSD 1.58 bln (€13.8 mln) in September 2012, by October 2012 it had become clear that the bank was beyond saving, as roughly 75% of its loans were classified as non-performing, and the national government called on the government of AP Vojvodina to abandon its plans to proceed with another recapitalization of RBV, projected to be €150 mln.

The recapitalizations of the bank from 2009 through 2012 are summarized below:

Recapitalizations of RBV, 2009-2012

Date	Issue No.	Investors	Amount (000 RSD)
2009-07-14	XXV	AP Vojvodina DDOR Novi Sad a.d. Novi Sad	3,498,000 286,550
2010-10-22	XXVI	Development Fund of AP Vojvodina	297,000
2010-10-23	XXVII	Development Fund of AP Vojvodina	1,702,998
2012-03-14	XXVIII	AP Vojvodina	4,280,001
2012-06-11	XXXI XXXII	Republic of Serbia AP Vojvodina	3,679,353 2,836,787
2012-09-24	XXXIV	AP Vojvodina Development Fund of AP Vojvodina	219,993 1,363,581
Total			18,164,262

Excluding the shares bought in the 2009 recapitalization by the insurance company DDOR, in little over three years a total of RSD 17.9 bln in public funds were spent to recapitalize the bank, or approximately 200 million euros.

By December 2012 it had become clear to all sides that the financial condition of RBV was critical.  On 6 December 2012 the Serbian government and the government of AP Vojvodina signed an agreement to transfer the assets and liabilities of RBV to another bank or to a special fund, and on 29 December the National Assembly of Serbia passed a law on the Development Fund of AP Vojvodina in partial implementation of that agreement.  On 14 February 2013 the assembly of AP Vojvodina voted to recapitalize the bank via the issuance of up to RSD 7.0 bln (€63 mln) in long-term bonds, yet at the same time the government of Vojvodina began talking with banks that were interested in acquiring RBV.

On 23 March the first arrests occurred, including that of Biljana Jovanović, who had been CEO less than six months earlier.  On Wednesday, 27 March 2013, at 09:10 in the morning, the shareholders of RBV convened in the 4th floor conference room of the RBV headquarters for an extraordinary general meeting of shareholders.  Present at the meeting was the CEO who had replaced Jovanović, Goran Kostić.  It was the 50^th such extraordinary meeting of shareholders in the history of the bank, it was over quickly (it concluded at 10:15), and it would prove to be the last such meeting.

On 6 April 2013 the National Bank of Serbia revoked the license of RBV, and on 8 April the Commercial Court of Novi Sad commenced bankruptcy proceedings for the bank.  On the same day, the Serbian Business Registers Agency (SBRA) changed the official name of the bank from “Razvojna banka Vojvodine ad Novi Sad - Pod administrativnim upravljanjem” (RVB a.d. Novi Sad - Under administrative control) to “Razvojna banka Vojvodine ad Novi Sad - U stečaju” (RVB a.d. Novi Sad - In bankruptcy).

The arrests of 23 March and 23 May 2013 were not the first time that a CEO from the bank had been in trouble.  Two years earlier, on 12 April 2011 the police in Novi Sad announced that they had arrested nine people, including Ananije Pavićević, who had been CEO of Metals-Banka until 23 October 2008, on suspicion of fraudulently obtaining loans from Metals-Banka in 2007-2008 without sufficient guarantees, costing the bank the equivalent of nearly €18 mln.  In addition, the same Dr. Srđan Petrović who was arrested on 23 March 2013 on suspicion of granting loans fraudulently had been arrested earlier, in November 2010, on suspicion of money laundering in connection with approximately €3.5 mln in proceeds from cocaine sales of the criminal gang of Darko Šarić, and in April 2011 Petrović began serving one year of house arrest after a plea bargain with prosecutors.

Principal sources:

Interior Ministry press release regarding arrest of Goran Kostić and Jelena Kokelj-Protić on 23 May: 23. 05. 2013. Осумњичени због продуженог кривичног дела злоупотреба службеног положаја (2013-05-23)

News – 30-day custody for Goran Kostić and Jelena Kokelj-Protić: Oсумњиченима за РБВ одређен притвор до 30 дана (2013-05-24 15:30)

Video – RTS newscast on arrest of Goran Kostić and Jelena Kokelj-Protić on 23 May: Афера РБВ, одлука о притвору осумњичених (2013-05-23 08:00)

Video – RTV newscast on arrest of Goran Kostić and Jelena Kokelj-Protić on 23 May: Покренута истрага и предложен притвор за двоје из ИО РВБ (2013-05-23 08:21)

News – arrest of Goran Kostić and Jelena Kokelj-Protić on 23 May: Istraga u RBV: Kredite nameštali Borovici (2013-05-23 20:58)

Interior Ministry press release regarding arrest of Srđan Petrović, Biljana Jovanović, and Slobodan Bajin on 23 March: 23. 03. 2013. Злоупотреба службеног положаја (2013-03-23)

Video – RTV newscast on arrest of Srđan Petrović, Biljana Jovanović, and Slobodan Bajin on 23 March: Ухапшеним бившим челницима Развојне банке Војводине притвор до 30 дана (2013-03-24 09:16)

Video – RTV newscast on arrest of Srđan Petrović, Biljana Jovanović, and Slobodan Bajin on 23 March: Ухапшено троје бивших челника Развојне банке Војводине (2013-03-23 08:24)

News – arrest of Srđan Petrović, Biljana Jovanović, and Slobodan Bajin on 23 March: Приведени осумњичени за незаконито одобравање кредита у РБВ (2013-03-23)

Financial results of RBV through 2012-09-30: Биланс стања и успеха, Beogradska berza – Razvojna banka Vojvodine a.d. , Novi Sad - Najnovije vesti,  RBV – Financial Reports

Other data on RBV as of 2012-09-30: БАНКАРСКИ СЕКТОР У СРБИЈИ: Извештај за III тромесечје 2012. (2012-11-20)

NBS press release about bank supervisory actions: NBS Steps Up Bank Supervision (2012-08-22)

News – RBV’s ratio of NPLs estimated to be 75%: Dinkić pozvao pokrajinu da ne dokapitalizuje RBV (2012-10-24 18:51)

News – Calculation of public funds expended to Oct. 2012 in attempting to save RBV: „Razvojna“ vreća bez dna (2012-10-27)

News – Government of Serbia and government of AP Vojvodina sign agreement about RBV: Постигнут договор око Развојне банке Војводине (2012-12-06 21:49)

News – National Assembly adopts law on Development Fund of AP Vojvodina in accordance with agreement about RBV: 11. седница Одбора за привреду, регионални развој, трговину, туризам и енергетику (2013-12-29)

Law on Development Fund of AP Vojvodina: Закон о Развојном фонду Аутономне Покрајине Војводине (2013-12-29)

News – Assembly of AP Vojvodina decision to recapitalize RBV: Skupština poništila odluku o dokapitalizaciji RBV (2013-02-14 00:10)

Assembly of AP Vojvodina decisions: 130. Покрајинска скупштинска одлука о престанку важења Покрајинске скупштинске одлуке о покретању и начину спровођења поступка емитовања дугорочних хартија од вредности ради јачања финансијског потенцијала Развојне банке Војводине and 131. Покрајинска скупштинска одлука о покретању и начину спровођења поступка задуживања емитовањем дугорочних хартија од вредности (2013-02-14), p. 84, item 130

Minutes of 50^th extraordinary general meeting of RBS shareholders: Zapisnik - L vanredna sednica Skupštine Razvojne banke Vojvodine (2013-03-27)

Declaration of bankruptcy of RBV by the Commercial Court of Novi Sad: Привредни суд у Новом Саду: Пословни број 1. Ст.30/2013 (2013-04-08)

NBS press release about revoking of RBV banking license: Народна банка Србије одузела дозволу за рад Развојној банци Војводине (2013-04-06)

SBRA change of name descriptor for RBV: Број предмета: БД 39281/2013 (2013-04-08)

News – Ananije Pavićević arrested in 2011, Dr. Srđan Petrović arrested in 2010: Ухапшени оштетили "Металс банку" за 18 милиона евра? (2011-04-12 21:34)

News – Dr. Srđan Petrović begins serving house arrest: Srđan Petrović u kućnom pritvoru (2011-04-15 11:17)

News – Background on Ananije Pavićević and AP Vojvodina's 2009 takeover of Metals-Banka: Vlast izigrala “Metals banku”? (2009-01-31 04:46)

Metals-Banka brochure from 2005: Make the Right Move (2005-12-25)

Data on recapitalizations: Beogradska berza – Razvojna banka Vojvodine a.d., Novi Sad - Najnovije vesti,  RBV – Vesti

In earlier news, on 20 May a staff mission of the International Monetary Fund concluded a visit to Serbia and issued in Belgrade a public statement.  The statement, relatively brief, noted above all that the economy remains weak and that the fiscal situation is unsustainable, with a general government deficit in excess of 8% of GDP, and public debt passing 65% of GDP, and recommended that the country resolve these problems by increasing exports.  The section of the statement dedicated to the banking sector is reproduced verbatim below, with emphasis as per the original).

Financial Sector: Preserving Financial Stability and Reviving Credit Growth

10. The financial system remains stable overall. Capitalization and liquidity indicators are high and NPLs are well-provisioned. However, recent resolution cases are suggestive of weaknesses in some state-owned banks. Maintaining regular communication between MOFE, NBS and the Deposit Insurance Agency (DIA), developing a strategy for state-owned banks, and improving their management, would minimize the need for future resolutions.

11. Addressing structural impediments to credit growth and reducing banking-system vulnerabilities are priorities. Serbia’s banking sector has not been as impacted by deleveraging pressures as other European peers. However, credit growth is low despite abundant liquidity in the banking system due to perceived lending risks and high non-performing loans (NPLs). Relevant policy issues include:

·     Addressing high NPLs. While several measures have been taken recently, reducing bottlenecks in corporate debt restructuring and work on additional actions for NPL resolution discussed during the Belgrade Forum, such as improving out-of-court debt restructuring procedures, the judicial system, and collateral execution procedures, should be expedited.

·        Implementing a comprehensive strategy of dinarization. This should include deepening local currency financial markets and fostering development of institutions that are likely to operate in these markets, such as insurance companies and pension funds.

·         Avoiding significant relaxation of prudential policies. Serbia’s tight regulatory policies in this area have helped establish vital safety cushions to guard against the resurgence of financial stress. Changes to the provisioning framework before additional analysis should therefore be avoided.

Source:

Serbia—2013 Article IV Consultation Concluding Statement of the Mission (2013-05-20)