|No. 3 / 2010
SAS Adriatic Region Newsletter
Earlier this summer, over a glass of wine at a completion of a business conference in Montenegro, we invited Giancarlo Miranda to take part in our newsletter. Knowing that he very rarely agrees to media interviews we were pleasantly surprised by the instant acceptance, and even more flattered by the explanation that he provided at the beginning of the interview. This is different, we have a history together, your newsletter is all about business topics and your readers are business people, a short summary to kick-off the conversation and set the scene for the following 60 minutes.
Banking in Serbia
Our banking conversation started with the aftermath of financial crisis, which was in Mr. Miranda’s opinion specific to each country. Unlike most regional markets, where the initial effects of the financial crisis took the shape of a lending contraction, in Serbia the crisis initially affected the area of bank deposits. A significant withdrawal of Euro deposits occurred, a logical epilogue given the fresh memories of the banking bankruptcies of the ‘90s. This time, however, Serbian banks were well capitalised, better regulated and supported by their parent groups. This enabled them to absorb the impact of the deposits withdrawals without any need of public rescue and to rapidly recover their deposit in the following months.
In contrast to most European countries, in Serbia the slowdown of credit activity surfaced later, towards the end of 2009. The governmental schemes for subsidizing interest rates on loans partly mitigated the shortages of liquidity that Serbian companies were facing. However, later last year other factors intervened. The devaluation of the Dinar, coupled with lower corporate selling margins made a damp in the profitability of the corporate sector. To put things plainly, firms started to experience shrinking turnovers at the same time as they were experiencing higher financial costs. The creeping devaluation of the Dinar, in addition, made their loans in Euros more expensive to repay. In sum, the companies’ cash-flows became tighter and their end-of-year financial statements reflected this situation. This clearly made access to credit more restricted for a larger number of companies’.
Another feature specific to Serbian banking is that the Dinar-to-Euro exchange rate normally shows a rather predictable upward trend, which allows companies and individuals to plan for the expected nominal increases in the monthly loan repayment or annuities of their Euro borrowings. However, an abrupt devaluation of the Dinar may make businesses or families have a tough time to stay on course with their loans.
In fact, the devaluation of the Dinar has been managed by the monetary authorities, with the view to prevent any such abrupt movements. Otherwise, the combination of a sudden strong devaluation with the high cost of funding might have pushed a more conspicuous number of businesses into delinquency, like in some neighbouring countries. Instead, on the whole, levels of delinquency still appear more manageable in Serbia, especially in the retail segment. One would expect that given that most salaries are in Dinars and not pegged to Euro, private individuals would experience severe difficulties in repaying loans. Instead, National Bank figures indicate that share of past due retail loans consistently stabilised over the course of the last few quarters.
All in all, the domino-effect of businesses experiencing liquidity shortages, restricted credit access and incapability to meet obligations towards suppliers (which might a have created a critical meltdown situation) eventually did not materialize thanks to the combined support of the commercial banks, the monetary authorities and the government , through liquidity support schemes. In Mr. Miranda’s view, Serbia’s economy proved quite resilient in this situation and the same good fundamentals that enabled the country to overcome the worst of the crisis (i.e. solid banking sector, controlled fiscal balances and public debt) could allow Serbia a faster exiting from the crisis than other countries in the region.
The alternative title to this section could well had been ‘Here to Stay’, as this was the message that best describes Intesa Sanpaolo’s view on their operation in Serbia.
Proud to be the first bank to adopt the previously discussed state subsidy scheme and explaining how if the largest does not lead - the rest may not follow, Mr. Miranda elaborates on how Banca Intesa Beograd strives not only for own results, but also for the Serbian economy overall. One example is the approach to handling delinquent borrowers, whereby the bank always primarily establishes if a client’s delinquency, rather than from a situation of insolvency, arises from a temporary illiquidity situation. In the latter case, the bank first exercises all options to help the clients get back on track before taking any other actions.
We found the best illustration of this commitment when talking on the topic of several banks being de facto not able to draw dividends from their operations in Serbia, due to high provisioning requirements imposed by the National Bank. It is very uncommon to speak to executives from international banking groups that have a completely neutral reaction in this regard. ‘This does not affect us, we in the first place are here to stay, to establish profitable banking operations which are sustainable in the long run, without the obsession of drawing cash dividends out from the country which is typical, allow me to say, of other more speculative international investors'.
Here to Stay.
The most important lesson that Giancarlo Miranda learned in his time as an executive is the understanding that one cannot be the best at everything, a simple statement that fully explains one’s management style. It also served as perfect introduction for Mr. Miranda to further elaborate on synergies that he enjoys with the other members of Banca Intesa Beograd’s management team, where a good balance in competencies, age and personalities appears created an excellent personal chemistry. Within the team, relationships are based on a deep mutual respect and on the awareness that even if opinions on specific topics sometime differ, everyone’s argumentation is presented with an aim to contribute to a common goal.
Understanding that Mr. Miranda spent many years as an executive and having witnessed the passion which he projects when discussing his work, colleagues and the bank, we had to learn where his motivation came from. ‘The intellectual challenge to understand’, an answer which is expected to those who had the privilege to work with the man - and the one that best describes the person to those which haven’t.