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BUSINESS LEADER MARINOS VATHIS, CEO, VOJVODJANSKA BANKA CHALLENGES IN THE FINANCIAL SECTOR Market will define number of banks S ince 2008 banking system was changed. It all started with the collapse of the US investment bank Lehman Brothers following the near-collapse of its competitor Bear Stearns. The whole financial system in the EU was deeply challenged, however managed to avoid collapse of any systematic bank. We witnessed significant deposit outflows from banks in many countries in Europe; however central banks, regulators and international financial institutions played a key role and promptly acted to support international banking groups to maintain their footprint in all countries where they have subsidiaries present. Yet, crisis left two major legacies, deleveraging and high share of non-performing loans. This changed the agenda and mindset in banks with regulations and risk becoming the predominant factors. Efficiency is of crucial importance, since in a market with slow rates of growth, we have to put emphasis on cost reduction in order to stay profitable and provide the best possible products and services to our clients. Innovation and technological improvements are one of the key pillars and only the banks who follow this path will survive. In Serbia, to my opinion we have four main challenges in the financial sector: low growth, non-performing loans, low interest rates and consolidation. Economic activity in Serbia during 2015 recorded marginal growth, however the most recent projection from the International Monetary Fund for Serbia’s GDP growth for 2016 of 2.5% is highly encouraging. On the other hand the non-performing loans ratio is among the highest levels in the South East and Central East Europe (excluding Ukraine). Accordingly, banks became more careful when approving lending facilities, which slowed down the level rate of lending expansion. This lead to excess liquidity, which further has two consequences: low interest rates and a more flexible risk approach. For example, Vojvodjanska Banka is not Marinos Vathis: The most recent projection from the IMF for Serbia’s GDP growth for 2016 of 2.5 percent is highly encouraging influenced with new developments, we have a strict risk policy and a strong team that analyses and understands the operations of our diverse clients, so as to avoid problems or not to encumber the client because of the impossibility to repay the loan. As to the interest rates environment, bear in mind that the level of interest rates is not only under the unilateral influence of banks; the interest rates on loans affect a series of positive and negative factors - external macroeconomic and internal ones from the banking sector. Positive factors include GDP growth, country credit rating, decrease of the key interest rate both by the NBS in Serbia and by the ECB at the European market followed by the additional cuts of EURIBOR and LIBOR at the interbank market. Low growth, non-performing loans, low interest rates and consolidation are the four main challenges for Serbia’s financial sector On the other hand there are negative factors that could influence interest rates of being high or going high, such as high level of public debt, current account deficit and problem of NPLs. Thus, only in case of having NPLs persistently high for a certain period of time we could face a reversible situation. Regarding the consolidation in the sector, with this size of a market one would expect a smaller number of banks. However, history has shown that a final number will eventually be determined by a self-adjustment of a market itself, and the market will finally determine should it have five, ten or 15 banks present. The mere fact that banks exist for over 2,000 years shows us clearly how important role they play. But banks have to adjust. They need to understand how market operates, to be in ability to control the risk, to be in place to offer to clients and to be financially strong to place customer deposits. Banks have to have the strength and structure which will guaranty that clients’ money is safe. We are in a good position to say that all these exist in the banking sector in Serbia.