Capital Markets and Portfolio Investment

In the absence of a stock market, the country’s banking sector remains the main channel for business financing.  The sector is sound, profitable, and well capitalized, although the high rate of non-performing loans (NPL) remains a concern.  The Bank of Albania’s legal measures to address the problem have generated mostly positive results. The banking sector is fully private.  It has undergone significant consolidation over the last year, shrinking the number of banks to 12, down from 16 at the beginning of 2018. As of December 2018, the Turkish National Commercial Bank had further consolidated its position as the largest bank, with 28.4 percent of the market, followed by Austria’s Raiffeisen Bank, with 15 percent, and Albania’s Credins Bank, with 12.9 percent.  The share of Greek banks has significantly decreased in recent years due to the departure from Albania of the National Bank of Greece and Greece-based Piraeus Group’s Tirana Bank.

The government has adopted policies promoting the free flow of financial resources to promote foreign investment in Albania.  The government and Central Bank refrain from restrictions on payments and transfers for international transactions. Despite Albania’s shallow FX market, banks enjoy enough liquidity to support sizeable positions.  Furthermore, portfolio investments remain limited mostly to company shares, government bonds, and real estate.

Nevertheless, the high rate of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards.  After a slight increase in 2017, the stock of loans decreased by 3.3 percent year-on-year in 2018, due also to the 9 percent appreciation of the domestic currency against the euro.  The credit market is competitive, but interest rates in domestic currency can be high, ranging from 6 percent to 8 percent. Most mortgage and commercial loans are denominated in euros, as rate differentials between local and foreign currency average 2.5 percent.  Commercial banks have improved the quality and quantity of services they offer, and the private sector has benefited from the expansion of these instruments.

Money and Banking System

Albania’s banking sector weathered the financial crisis better than many of its neighbors, due largely to a lack of exposure to international capital markets and lack of a domestic housing bubble.  The sector has contracted in recent years. In December 2018, Albania had 474 bank branches, down from 552 in 2016. Capital adequacy, at 18.2 percent, remains above Basel requirements and indicates sufficient assets, which in 2018 totaled USD 13.54 billion.  At the end of 2018, the return on assets was 1.2 percent. Non-performing loans continued to fall, reaching 11.1 percent at the end of the 2018, down from 13.2 percent compared with 2017, and a significant improvement over 2014, when NPLs stood at 25 percent.

The Bank of Albania has the flexibility to intervene in the currency market to protect exchange rates and official reserves, but not for longer than 12 months.  As part of its strategy to stimulate business activity, the Bank of Albania has persistently lowered interest rates, which in June 2018 reached a historic low of 1 percent, down from a rate of 1.25 percent in place since May 2016.

Most banks operating in Albania are subsidiaries of foreign banks, and just two have Albanian shareholders.  However, Albanian ownership is expected to increase because of the sector’s ongoing consolidation. Foreigners are not required to prove residency status to establish a bank account, aside from the normal know-your-client procedures.  However, U.S. citizens must complete a form allowing for the disclosure of their banking data to the IRS as required under the U.S. Foreign Account Tax Compliance Act.

Foreign Exchange and Remittances

Foreign Exchange

The Central Bank of Albania (BOA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the Law on the Bank of Albania No. 8269 and the Banking Law No. 9662.  Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).

The Bank of Albania maintains a free float exchange rate regime for its domestic currency, the lek.  Albanian authorities do not engage in currency arbitrage, nor do they view it as an efficient instrument to achieve competitive advantage.  The Bank of Albania does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate.  Foreign exchange is readily available at banks and exchange bureaus. However, when exchanging several million dollars or more, preliminary notification may be necessary, as the exchange market in Albania remains small.  A 2018 campaign launched by the BOA with a goal to reduce the domestic use of the euro and other foreign currencies has yet to produce tangible results. The campaign is part of a larger reform that aims to improve the effectiveness of domestic economic policies.

Remittance Policies

The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange.  However, local law authorizes the BOA to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves.  In practice, the Bank of Albania rarely employs such measures. The last episode was in 2009, when the Bank temporarily tightened supervision rules over liquidity transfers by domestic correspondent banks to foreign banks due to insufficient liquidity in international financial markets.  It also asked banks to halt distribution of dividends and use dividends to increase shareholders’ capital, instead. The BOA lifted these restrictions in 2010.

The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate.  Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of 1,000,000 lek (USD 9,000) in hard currency and/or precious items.  Failure to declare such assets is considered a criminal act, punishable by confiscation of the assets and possible imprisonment.

Although the Foreign Exchange (FX) Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements.  Persons must submit a request indicating the reasons for the capital transfer, a certificate of registration from the National Registration Center, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred.  In January 2015, The FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.

Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body.  The 2019 INCSR maintains Albania in the “Major Money Laundering Jurisdictions” category following its inclusion for the first time in 2017. The category implies that financial institutions of the country engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.

Sovereign Wealth Funds

Albania does not have a sovereign wealth fund.  A draft law to establish the Albanian Investment Corporation is currently under discussion.  The GOA plans to transfer state owned assets, including state-owned land, and provide initial capital to launch the corporation.  The corporation would develop, manage, and administer state-owned property and assets as public investments.

Capital Markets and Portfolio Investment

Capital markets remain underdeveloped in BiH.  Both entities have created their own modern stock market infrastructure with separate stock exchanges in Sarajevo (SASE) and Banja Luka (BLSE), both of which started trading in 2002.  The small size of the markets, lack of privatization, weak shareholder protection, and public mistrust of previous privatization programs has impeded the development of the capital market.  During the global economic crisis, foreign investment dwindled and investors saw previous gains dissipate on both exchanges. Foreign investment has shown few signs of growth since 2008, shaped not only by the global financial crisis but also by BiH’s lack of political stability and slowdown of reforms.

Both the RS and Federation issued government securities for the first time during 2011, as part of their plans to raise capital in support of their budget deficits during this period of economic stress.  Both entity governments continue to issue government securities in order to fill budget gaps. These securities are also available for secondary market trading on the stock exchanges.

The S&P revised up BiH’s sovereign otulook from stable to positive in March 2019, while keeping the country’s long– and short–term foreign and local currency sovereign credit rating at B/B.  The agency noted the economy has been more resilient than expected to ongoing political tensions, specifically citing the country’s solid fiscal position, reduction in government debt, and steady economic growth.  The agency said it could further improve BiH’s outlook should the country form a government this year, resume reform measures and revive an IMF program.  The agency said political tensions will likely impede BiH’s fiscal-policy creation, large–scale reform of the state owned enterprises, and slow the transition to investment-led growth.

Money and Banking System

The banking and financial system has been stable with the most significant investments coming from Austria.  As of March 2019, there are 23 commercial banks operating in BiH: 15 with headquarters in the Federation and 8 in the Republika Srpska.  Twenty two commercial banks are members of a deposit insurance program, which provides for deposit insurance of KM 50,000 (USD 28,000).    The banking sector is divided between the two entities with entity Banking Agencies responsible for banking supervision. The BiH Central Bank defines and controls the implementation of monetary policy (via its currency board) and supports and maintains payment and settlement systems. It also coordinates the activities of the entity Banking Agencies, which are in charge of bank licensing and supervision. Reforms of the banking sector, mandated by the IMF and performed in conjunction with the IMF and World Bank, are in progress.

BiH passed a state-level framework law in 2010 mandating the use of international accounting standards, and both entities passed legislation that eliminated differences in standards between the entities and Brčko District.  All governments have implemented accounting practices that are fully in line with international norms.

Foreign Exchange and Remittances

Foreign Exchange

The Law on Foreign Direct Investment guarantees the immediate right to transfer and repatriate profits and remittances.  Local and foreign companies may hold accounts in one or more banks authorized to initiate or receive payments in foreign currency.  The implementing laws in both entities include transfer and repatriation rights. The Central Bank’s adoption of a currency board in 1997 guarantees the local currency, the convertible mark or KM (aka BAM), is fully convertible to the euro with a fixed exchange rate of KM 1.95583 = €1.00.

Remittance Policies

BiH has no remittance policy, although remittances are generally high due to a large diaspora.  Remittances are estimated to range up to 15 percent of total GDP. Based on the two entities’ Laws on Foreign Currency Exchange, all payments in the country must be in national currency.

Sovereign Wealth Funds

BiH does not have a government-affiliated Sovereign Wealth Fund.

Capital Markets and Portfolio Investment

Kosovo has an open-market economy and the market determines interest rates.  Individual banks conduct risk analysis and determine credit allocation. Foreign and domestic investors can get credit on the local market.  Access to credit for the private sector is limited, but improving.

The country generally has a positive attitude towards foreign portfolio investment.  Kosovo does not have a stock exchange. The regulatory system conforms with EU directives and international standards.  There are no restrictions beyond normal regulatory requirements related to capital sourcing, fit, and properness of the investors.  The CBK has taken all required measures to improve policies for the free flow of financial resources. Requirements under the SAA with the EU oblige the free flow of capital.  The government respects the IMF’s Article VIII conditions on the flow of capital.

Money and Banking System

Kosovo has 10 commercial banks (of which 8 are foreign) and 22 micro-financial institutions (of which 14 are foreign).  The official currency of Kosovo is the euro, although the country is not a member of the Eurozone. In the absence of an independent monetary policy, prices are highly responsive to market trends in the larger Eurozone.

Kosovo’s private banking sector remains well capitalized and profitable.  Difficult economic conditions, weak contract enforcement, and a risk-averse posture have limited banks’ lending activities, although marked improvement occurred in the past several years.  On February 2019, the rate of non-performing loans was 2.6 percent, the lowest rate in the last ten years. The three largest banks own 57.5 percent of the total 4.2 billion euros of assets in the entire banking sector.  Despite positive trends, relatively little lending is directed toward long-term investment activities. Interest rates have dropped significantly in recent years, from an average of about 12.7 percent in 2012 to an average of 6.7 percent in 2019.  Slower lending is notable in the northern part of Kosovo due to a weak judiciary, informal business activities, and fewer qualified borrowers.

The Central Bank of Kosovo (CBK) (established in 2008 is an independent government body responsible for fostering the development of competitive, sound, and transparent practices in the banking and financial sectors.  It supervises and regulates Kosovo’s banking sector, insurance industry, pension funds, and micro-finance institutions. The CBK also performs other standard central bank tasks, including cash management, transfers, clearing, management of funds deposited by the Ministry of Finance and other public institutions, collection of financial data, and management of a credit register.

Foreign banks and branches can establish operations in the country.  They are subject to the same licensing requirements and regulations as local banks.  The country has not lost any correspondent banking relationships in the past three years and no such relationship is currently in jeopardy.  There are no restrictions on foreigners opening bank accounts; they can do so upon submission of valid identification documentation.

Kosovo is a signatory country to the United States’ Foreign Account Tax Compliance Act (FATCA), aimed at addressing tax evasion by U.S. citizens or permanent residents with foreign bank accounts.  For more information, visit the FATCA website: https://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA.

Foreign Exchange and Remittances

Foreign Exchange

The Foreign Investment Law guarantees the unrestricted use of income from foreign investment following payment of taxes and other liabilities.  This guarantee includes the right to transfer funds to other foreign markets or foreign-currency conversions, which must be processed in accordance with EU banking procedures.  Conversions are made at the market rate of exchange. Foreign investors are permitted to open bank accounts in any currency. Kosovo adopted the euro in 2002, but is not a Eurozone member.  The CBK administers euro exchange rates on a daily basis as referenced by the European Central Bank.

Remittance Policies

Remittances are a significant source of income for Kosovo’s population, representing over 12 percent of GDP (or over USD 900 million) in 2018.  The majority of remittances come from Kosovo’s diaspora in European countries, particularly Germany and Switzerland. The Central Bank reports that remittances are mainly used for personal consumption, not for investment purposes.

Kosovo does not apply any type of capital controls or limitations on international capital flows.  As such, access to foreign exchange for investment remittances is fully liberalized.

Sovereign Wealth Funds

Kosovo does not have any sovereign wealth funds.

Real Property

In 2002, Montenegro enacted the Law on Secured Transactions and established a collateral registry at the Commercial Court in 2003.  The registry’s operational guidelines have been drafted and approved by the Commercial Court. The main goal of the Law on Secured Transactions is to establish a clear and transparent framework for property transactions.  In 2004, Montenegro adopted a Law on Mortgages by which immovable property may be encumbered by security interest (mortgage) to secure a claim for the benefit of a creditor who is authorized, in the manner prescribed by the law, to demand satisfaction of the claim by foreclosing the mortgaged property with priority over creditors who do not have a mortgage created on that particular property, as well as over any subsequently registered mortgage, regardless of a change in the owner of the encumbered immovable property.  The Real Estate Administration has taken progressive steps over the last few years to improve the quality and service provided in the registry, though additional improvements are needed. The World Bank’s Doing Business Report ranked Montenegro 75th out of 190 on the ease of registering property.

Intellectual Property Rights (IPR)

The acquisition and disposition of IPR are protected by the Law on the Enforcement of Intellectual Property Rights, which entered into force in 2006.  The law provides for fines for legal entities of up to EUR 30,000 (approximately USD 37,000) for selling pirated and/or counterfeited goods. It also provides ex-officio authority for market inspectors in the areas mentioned above.  Additional amendments to the existing Law on the Enforcement of Intellectual Property Rights were adopted over the last several years (beginning in 2006) in line with the EU regulations, and they are expected to bring more efficiency in implementation as well as a multifunctional approach to property-rights protection.  In 2005, the Montenegrin Parliament adopted the Regulation on Trade-Related Aspects of Intellectual Property Rights (TRIPs) Border Measures, which provides powers to customs authorities to suspend customs procedures and seize pirated and counterfeit goods. Statistics on seizures of counterfeit goods are published by the Customs Administration and available on their webpage www.upravacarina.gov.me  .

Montenegro’s Penal Code penalizes IPR violations, allows ex-officio prosecution, and provides for stricter criminal penalties; however, copyright violation is a significant problem in the outerwear and apparel market, and unlicensed software can be easily found on the general market.  The Law on Optical Disks was adopted in 2006; it requires the registration of business activity when reproducing optical disks for commercial purposes and provides for surveillance of optical disk imports and exports, as well as imports and exports of polycarbonates.

The Montenegrin Intellectual Property Office is the competent authority within the state administration system for the activities related to industrial property rights, copyrights, and  related rights. The Intellectual Property Office was established under the Regulation on Organization and Manner of Work of the State Administration in 2007 and officially opened in 2008.

A regulation on the recognition of IPR was adopted in 2007.  Under this regulation, any rights registered with the Union Intellectual Property Office or with the Serbian Intellectual Property Office, and any pending applications filed with these offices before May 2008, are enforceable in Montenegro.  Any IPR application submitted after that date in Serbia needed to be re-submitted in Montenegro within six months to retain its acquired priority.

IPR market inspectors, police officers, customs officers, and employees of the Ministry of Economy regularly attend a number of training seminars on intellectual property protection and counterfeiting, including an IPR enforcement workshop hosted by the AmCham and its members.  At the end of 2007, the Customs Administration signed a Letter of Intent for acceptance of Standards to be Employed by Customs for Uniform Rights Enforcement (SECURE), adopted by the World Customs Organization (WCO), to promote the efficient protection of IPR by customs authorities.

Montenegro is not listed on the United States Trade Representative (USTR) Special 301 Report, nor is it on the Notorious Markets List.  However, the sale of pirated optical media (DVDs, CDs, software) as well as counterfeit trademarked goods, particularly sneakers and clothing, is widespread.  According to the 2017 joint survey of Business Software Alliance and the International Data Corporation (IDC), the software piracy rate in Montenegro is among the highest in Europe, constituting 74 percent of the market, two percentage points below the 2015 study.  Enforcement is slowly improving as customs, police, and judicial authorities obtain the necessary tools, but institutional capacity and public awareness is still limited.

To further improve intellectual property protection, AmCham Montenegro established an IPR Committee in April 2009, which currently operates under the Grey Economy Committee.  The main goal of the committee is to work closely with the Montenegrin institutions that deal with IPR, to increase public awareness of the importance of intellectual property protection, and to help the Government of Montenegro strengthen its administrative capacities in this field.  More information about the committee’s activities can be found on AmCham’s website http://www.amcham.me/  .

Montenegro became a member of the World Intellectual Property Organization (WIPO) in 2006, and more information is available on the WIPO website http://www.wipo.int/members/en/details.jsp?country_id=193  

Resources for Rights Holders

Contact at the U.S. Embassy in Montenegro:

Kyle Hatcher
Political and Economic Deputy Chief
+382 20 410 500
HatcherBK@State.gov

Capital Markets and Portfolio Investment

The government openly welcomes foreign portfolio investors.  The establishment of the Macedonian Stock Exchange (MSE) in 1995 made it possible to regulate portfolio investments.  North Macedonia’s capital market is modest in turnover and capitalization. Market capitalization in 2018 was USD3.1 billion, a 19 percent rise from the previous year.  The main index, MBI10, increased by 36.6 percent, reaching 3,469 points at year-end. Foreign portfolio investors accounted for an averaged 13.5 percent of total MSE turnover, 3.9 percentage points less than in 2017.  The authorities do not discriminate against foreign portfolio investments in any way.

There is an effective regulatory system for portfolio investments, and North Macedonia’s Securities and Exchange Commission (SEC) licenses all MSE members for trading in securities and regulates the market.  In 2018, the total number of listed companies was 105, two less than a year prior, but total turnover increased by 119.8 percent. Compared to international standards, overall liquidity of the market is modest for entering and/or exiting sizeable positions.  Individuals generally trade at the MSE as individuals, rather than through investment funds, which have been present since 2007.

There are no legal barriers to the free flow of financial resources into the products and factor markets.  The Central Bank respects IMF Article VIII and does not impose restrictions on payments and transfers for current international transactions.  A variety of credit instruments are provided at market rates to both domestic and foreign companies.

Money and Banking System

In its regular report on Article IV consultations, published January 2019, the International Monetary Fund assessed that North Macedonia’s banking sector is well-capitalized, liquid, profitable, and banks comfortably meet capital adequacy requirements and maintain sound aggregate liquidity buffers.  Domestic companies secure financing primarily from their own cash flow and from bank loans, due to the lack of corporate bonds and other securities as credit instruments.

Financial resources are almost entirely managed through North Macedonia’s banking system, consisting of 15 banks and a central bank.  It is a highly concentrated system, with the three largest banks controlling 57.1 percent of the banking sector’s total assets of about USD9.2 billion, and collecting 69.6 percent of total household deposits.  The largest commercial bank in the country has estimated total assets of about USD 2 billion, and the second largest of about USD 1.7 billion. The nine smallest banks, which have individual market share of less than 5 percent, account for one-fifth of total banking sector assets.  Foreign banks or branches are allowed to establish operations in the country at equal terms as domestic operations, subject to licensing and prudent supervision from the Central Bank. In 2018, foreign capital remained present in 14 of North Macedonia’s 15 banks, and was dominant in 11 banks, controlling 71.1 percent of total banking sector assets, 79.9 percent of total loans, and 70 percent of total deposits.

According to the National Bank of the Republic of North Macedonia (NBRNM – the Central Bank) the banking sector’s non-performing loans at the end of the third quarter of 2018 (latest available data) were 5 percent of total loans, dropping by 1.6 percentage points on an annual basis.  Total profits at the end of the third quarter of 2018 reached USD 144 million, which was 66.2 percent higher than in the same period of the previous year.

Banks’ liquid assets at the end of the third quarter of 2018 were 30.6 percent of total assets, which was 1.1 percentage points higher compared to the same period of 2017, remaining comfortably high.  In 2018 NBRNM conducted different stress-test scenarios on the banking sector’s sensitivity to increased credit risk, liquidity shocks, and insolvency shocks, all of which showed that the banking sector is healthy and resilient to shocks, with a capital adequacy ratio remaining above the legally required minimum of eight percent.  The actual capital adequacy ratio of the banking sector at the end of September 2018 was 16.3 percent, 0.5 percent higher compared to the same period of the previous year. Only one individual bank had a ratio below the required minimum.

There are no restrictions on the ability of foreigners to establish bank accounts.  All commercial banks and the Central Bank have established and maintain correspondent banking relationships with foreign banks.  The banking sector did not lose any correspondent banking relationships in the past three years, nor were there any indications that any current correspondent banking relationships was in jeopardy.  There is no intention for implementing or allowing the implementation of blockchain technologies in banking transactions in North Macedonia. Also, alternative financial services do not exist in the economy—the transaction settlement mechanism is solely through the banking sector.

Foreign Exchange and Remittances

Foreign Exchange

The constitution provides for free transfer, conversion, and repatriation of investment capital and profits by foreign investors.  Funds associated with any form of investment can be freely converted into other currencies. Conversion of most foreign currencies is possible at market terms on the official foreign exchange market.  In addition to banks and savings houses, numerous authorized exchange offices also provide exchange services. The NBRNM operates the foreign exchange market, but participates on an equal basis with other entities.  There are no restrictions on the purchase of foreign currency.

Parallel foreign exchange markets do not exist in the country, largely due to the long-term stability of the national currency, the Denar (MKD).  The Denar is convertible domestically, but is not convertible on foreign exchange markets. The NBRNM is pursuing a strategy of a pegged Denar to the Euro and has successfully kept it at the same level since 1997.  Required foreign currency reserves are spelled out in the banking law.

Remittance Policies

There were no changes in investment remittance policies, and there are no immediate plans for changes to the regulations.  By law, foreign investors are entitled to transfer profits and income without being subject to a transfer tax. All types of investment returns are generally remitted within three working days.  There are no legal limitations on private financial transfers to and from North Macedonia. Remittances from workers in the diaspora represent a significant source of income for households in North Macedonia.  In 2018, net private transfers amounted to USD 2 billion, accounting for 15.8 percent of GDP.

Sovereign Wealth Funds

North Macedonia does not have a sovereign wealth fund.

Capital Markets and Portfolio Investment

Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. The Government removed restrictions on short-term portfolio investments April 2018. Residents of Serbia are now allowed to purchase foreign short-term securities, and foreigners are allowed to purchase short-term securities in Serbia. Payments related to long-term securities have no restriction.

In 2018, Serbia recorded net outflows of USD one billion in portfolio investment, according to the National Bank of Serbia (NBS). The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached USD 9.9 billion in January 2019, with 67.3 percent in Serbian dinars, 32.1 percent in euros, and 0.6 percent in U.S. dollars.

Total Serbian government-issued debt instruments on the domestic and international markets stood at USD 13.3 billion in January 2019 (see http://www.javnidug.gov.rs/upload/Bilteni/2019 percent20Mesecni/Mesecni percent20izvestaj percent20Uprave percent20za percent20javni percent20dug percent20- percent20CIR percent20Januar percent202019.pdf ).

Serbia’s international credit ratings are improving. In March 2017, Moody’s upgraded the Government of Serbia’s long-term issuer ratings to Ba3, from B1. In December 2017, Standard & Poor’s raised its ratings for Serbia from BB- to BB with a positive outlook. Also in December 2017, Fitch raised Serbia’s credit rating from BB- to BB. The improved ratings remain below investment grade.

Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE). Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2018 was USD 584 million, which is almost unchanged compared to the volume of 2017. However, trading volumes have declined since 2007, when the total turnover reached USD 2.7 billion.

Established in 1995, the Securities Commission regulates the Serbian securities market. The Commission also supervises investment funds in accordance with the Investment Funds Law. As of March 2019, 21 registered investment funds operate in Serbia (see http://www.sec.gov.rs/index.php/en/public-registers-of-information/register-of-investment-funds  ).

Market terms determine credit allocation. In September 2018, the total volume of issued loans in the financial sector stood at USD 21 billion. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 65 percent of all lending is denominated in euros, an additional 3 percent in Swiss francs, and 0.7 percent in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers. Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.

Money and Banking System

Serbian companies often do not access credit, and look to friends or family when they need investment and operational funds. Only a few corporate and municipal bonds have been issued so far, and the financial market is not well developed.

The NBS regulates the banking sector. Foreign banks are allowed to establish operations in Serbia, and foreigners can freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91 percent of the total assets of the financial sector. As of September 2018, consolidation had reduced the sector to 28 banks with total assets of USD 35 billion (about 80 percent of GDP), with 76 percent of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets are Banca Intesa (Italy, USD 5.6 billion); UniCredit (Italy, USD 4.0 billion); Komercijalna Banka (Serbian government, USD 3.8 billion); Société Générale (France, USD 2.9 billion); Raiffeisen (Austria, USD 2.7 billion); AIK Banka Nis (Serbia, USD 1.9 billion); Erste Bank (Austria, USD 1.9 billion); Eurobank EFG (Greece, USD 1.6 billion); Postanska Stedionica (Serbian government, USD 1.6 billion); and Vojvodjanska Banka (Hungary, USD 1.2 billion). See http://www.nbs.rs/internet/latinica/55/55_4/kvartalni_izvestaj_III_18.pdf .

Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly USD 1 billion. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. In December 2018, savings deposits in the banking sector reached USD 11.6 billion, exceeding pre-crisis levels.

In December 2017, the IMF assessed that Serbia’s banking sector remains robust, with large liquidity and capital buffers. Profitability of the sector is on the rise. Deposit growth has continued, and results of lending surveys point to more relaxed lending standards for SMEs amid greater competition, cheaper sources of funding, and higher risk tolerance. The IMF said it supports NBS efforts to enhance prudential policies in the context of implementing the Basel III framework on capital adequacy. In a recent review, the IMF pointed to the continued resilience of the banking sector, with an average capital adequacy ratio exceeding 22.8 percent in September 2018 and a gradual improvement in asset quality.

The IMF assessed in 2018 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. NPLs have declined to 5.7 percent as of December 2018, their lowest level since January 2009. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 22.2 to 5.7 percent of the total loan portfolio. NPLs remain fully provisioned. In addition, there are significant foreign exchanges risks, as 74 percent of all outstanding loans are indexed to foreign currencies (primarily the euro). As of April 2019, the government was considering action to protect consumers who had taken mortgage loans denominated in Swiss francs. These measures would reportedly include mandatory conversion to euros, with banks and the state sharing losses from a reduction of outstanding principal and interest balances. However, no measures had yet been finalized.

The NBS, as chief regulator of the financial system, has announced that cryptocurrencies are not regulated by law in Serbia. NBS is not currently preparing such regulations, as the volume of cryptocurrency use is still very low. NBS said it therefore does not have the authority to issue licenses for trading in cryptocurrencies or for setting up cryptocurrency ATMs. Nor are cryptocurrency traders or internet platforms subject to NBS oversight. NBS stressed that those engaging in cryptocurrency transactions or activities are the sole carriers of risk.

Despite the lack of regulation, trading in cryptocurrencies in Serbia does occur. The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, and Ethereum ETH) at https://ecd.rs/  . The company claims to have over 1,000 registered users of the platform. ECD Group has also installed three ATMs for cryptocurrencies in Serbia, two of which are only for buying bitcoins and litecoins, while one supports two-way transactions – i.e. both buying and selling. Trading in crypto-currencies dropped by 90 percent in 2018 in Serbia compared to 2017, EDC Serbia said. Previously, some users would buy up to four to five bitcoins per day, but in 2018 Serbians were mostly selling bitcoin. Bitcoin “mining” also dropped in Serbia, and many are selling their equipment used for this purpose, according to EDC’s CEO, who is also the founder of the BitCoin Association of Serbia. (http://www.bitcoinasocijacija.org  )

Hostile takeovers are extremely rare in Serbia. The Law on Takeover of Shareholding Companies regulates defense mechanisms. Frequently after privatization, the new strategic owners of formerly state-controlled companies have sought to buy out minority shareholders.

Foreign Exchange and Remittances

Foreign Exchange

Serbia’s Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia, and foreign exchange is available. Serbia permits the free flow of capital, including for investment, such as the acquisition of real estate and equipment. Non-residents may maintain both foreign currency and dinar denominated bank accounts without restrictions. Investors may use these accounts to make or receive payments in foreign currency. The government amended the Foreign Exchange Law in December 2014 to authorize Serbian citizens to conclude transactions abroad through internet payment systems such as PayPal.

The NBS targets inflation in its monetary policy, and regularly intervenes in the foreign exchange market to that end. In 2018, the NBS sold the equivalent of USD 280 million on the interbank currency market, and bought USD two billion, to prevent sharp fluctuations of the dinar. In the one-year period ending March 2019, the dinar appreciated 3.2 percent against the euro and depreciated 8.6 percent against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad.

Remittance Policies

Personal remittances constitute a significant source of income for Serbian households. In 2018, total remittances from abroad reached USD 3.1 billion, or approximately 7.2 percent of GDP.

The Law on Foreign Exchange Operations regulates investment remittances, which can occur freely and without limits. The Investment Law allows foreign investors to freely and without delay transfer all financial and other assets related to the investment to a foreign country, including profit, assets, dividends, royalties, interest, earnings share sales, proceeds from sale of capital and other receivables. The Foreign Investors’ Council, a business association of foreign investors, confirms that there are no limitations on investment remittances in Serbia.

Sovereign Wealth Funds

Serbia does not have a sovereign wealth fund.