Serbia’s banking sector: Record profits amidst high interest rates and market concentration

The situation in Serbia’s banking sector is indeed notable, especially with the record profits and high concentration of financial assets. Here are some key points and considerations based on the information you’ve shared:

1. High concentration and profitability: The Serbian banking sector, accounting for about 91% of the financial sector’s assets, shows significant concentration, with the top six banks controlling 74.5% of the market. This high concentration could raise concerns about potential lack of competition and the need for regulatory oversight.
2. Lack of sector analysis: The Agency for the Protection of Competition has not conducted a sectoral analysis of the banking industry, which is unusual given the sector’s dominance and profitability. The National Bank of Serbia (NBS) currently oversees banking operations, but there are calls for a more detailed examination by the competition authority.
3. Impact of high interest rates: Banks have seen record profits due to high interest rates, but the absence of alternative investment options for citizens may be contributing to this profitability. The reliance on banks for financial assets could be inflating their market power.
4. Capital market development: There are ongoing efforts to revive the capital market in Serbia, but significant progress is needed. The capital market could provide alternatives to bank deposits, fostering more competition. Encouraging the development of pension funds, health funds, and public offerings by large companies could enhance market dynamics.
5. Need for reform: Experts like Milojko Arsić and Milko Štimac suggest that a cross-section of competition in the banking sector is necessary. This analysis could help uncover potential collusion or monopolistic behaviors and drive improvements in the sector.
6. Foreign banks and market dynamics: The presence of foreign banks, which have been active in Serbia for over 20 years, has influenced the market dynamics. However, the market remains highly concentrated, with a few banks holding substantial market shares.

In summary, while the banking sector in Serbia is highly profitable and dominant, there are calls for a thorough analysis of competition and market conditions. Developing the capital market and increasing alternative investment opportunities could play a crucial role in enhancing competition and balancing the financial sector’s influence.