Insight

Regional giants benefit from banking sector consolidation in Serbia and Montenegro

Hungarian OTP and Slovenian NLB strengthen their position in both Serbia and Montenegro as the banking sector continues to consolidate in both countries, raising barriers to entry for new players

The banking sectors of Serbia and Montenegro are both undergoing major changes. There is a clear trend of consolidation, largely to the benefit of two major entities: Hungary’s OTP Group (OTP) and Slovenia’s Nova Ljubljanska Banka (NLB), which is owned by the US-based Bank of New York Mellon.

In February Serbia saw a landmark privatization, with the state selling major bank Komercijalna Banka Beograd (KBB) to NLB. It is likely that KBB will eventually merge with NLB’s existing Serbian subsidiary. Together their assets total more than RSD 500 billion (EUR 4.3 billion), around 12% of all assets in the Serbian banking sector, putting them in third place.

This will also have a knock-on effect in Montenegro, as KBB’s Montenegrin subsidiary is now likely to merge with the Montenegrin subsidiary of NLB. Together, their assets are worth EUR 0.6 billion, around 20% of the country’s banking sector. This will continue a trend of consolidation that started with the bankruptcy and closure of Invest Banka Montenegro and Atlas Banka in January and April 2019 respectively.

The most important step in the consolidation of Montenegro’s banking sector has been France’s Société Générale selling its Montenegrin affiliate to OTP subsidiary Crnogorska Komercijalna Banka (CKB), which is Montenegro’s largest bank. The sale was finalized in July 2019, and a merger should be complete by the end of 2020. This has considerably strengthened OTP’s position in Montenegro. Together, the two banks have assets of more than EUR 1.2 billion, which is around 40% of the country’s entire banking sector. The post-merger entity, which will continue to use CKB’s name, will be Montenegro’s largest bank in terms of total assets, loan portfolio, deposit portfolio, number of branches and number of ATMs.

OTP has made a similar move to strengthen its position in Serbia. In September 2019 the group acquired Société Générale’s Serbian subsidiary and renamed it to OTP Banka Srbija. In 2021 the bank will merge with fellow Serbian OTP subsidiary Vojvođanska Banka. Together, the two banks have assets of more than RSD 550 billion (EUR 4.7 billion), which is around 14% of the sector. This puts them in second place nationally, only behind the Serbian subsidiary of Italy’s Banca Intesa.

Implementation of the Basel III prudential framework and strict enforcement by central banks is likely to drive further consolidation in both markets, resulting in higher barriers to market entry.  At any rate, the positions of NLB and OTP are now stable and unlikely to yield to challenge.