Bank Lending to Small and Medium Enterprises the Republic of Serbia

1. This report presents findings of a study of Bank lending to small and medium enterprises (SME) in Serbia 1. The study uses methodology developed by the Bank and already used in a number of studies in South America. The study is based on answers to standard questionnaires and detailed on-site interviews with eight banks. The interviewed banks are the most active in SME lending in Serbia and account for about 70 percent of the total market. 2. The SME segment has become strategically important for Serbian banks. The large corporate sector entities were the focus of attention in the early days – but most of the larger corporations have already decided where they will do their banking business. The most successful large clients are dealing directly with " mother " banks. In the next phase of banking markets development, banks' attention has focused on consumer finance, which has resulted in very fast credit growth and borrowing from abroad. The recent banking market trend, however, is the increasing focus on small and medium corporate clients – the markets perceived as having a good growth and profit potential. Banks are competing in developing specific products for this market, in broadening access, as well as in improving the quality of financial services provided to the SMEs. 3. Banks are currently offering a fairly broad range of both tailored and standardized products and are increasingly flexible with product pricing. This includes checking, savings and time deposit accounts; export and import loans; overdrafts for working capital and investment loans; business credit cards; various types of payment services; Internet and phone banking. Other banking services, such as payroll and social security payments are also available. The product offer generally depends on the type of customer. When offering their products, most banks do not use any particular sequencing-they simply offer what the client needs. 4. The majority of Serbian banks have well developed and effective lending procedures. Branch offices still play critical role in providing access points for SME lending and financial services. Significant changes to further improve efficiency and reduce cost are taking place. Technological advancements (better databases, better telecommunications and connectivity, better software packages) are actively exploited to increase flexibility and improve risk management techniques. 5. Basel II Capital Adequacy Standard is likely to have an important impact on the SME lending in Serbia. Larger banks in Serbia are, almost without exceptions, owned by …