It is a region that finds itself at an international crossroads of global economic forces. For the Balkans, all directions augur well for growth.
To the west, European integration is the dominant prospect: Slovenia, Croatia and Romania are already in the EU, while others – Serbia, Macedonia, Montenegro and Albania – have applied to join.
To the east, China’s One Belt One Road (OBOR) initiative looms large on the horizon. The Balkan Silk Road is a corridor that both the EU and China view as important for their respective projects.
Ignacio Jaquotot, head of Intesa Sanpaolo’s International Subsidiary Banks Division, sees these two processes as driving economic growth – as long as historical conflicts do not flare up again.
“If not kept in check, political upheaval would delay the economic and social development of the region. EU accession should be seen as a deterrent against the exacerbation of local tensions,” he says.
The Balkan countries are already looking to close the gap on their European neighbours. Jaquotot sees EU integration leading to improved business environments, a stronger rule of law, less corruption and more efficient markets – all positives for growth.
“The economic outlook for the next five years looks brilliant,” he says. “GDP is expected to grow more than 3 per cent on average every year up to 2021, although some volatility from country to country is likely.”
Domestic demand is expected to continue to be buoyed by expansionary central banking monetary polices and an improving economic situation in Western Europe. That will boost capital markets and banking business because of the largely unexpressed potential. The ratio between bank credit and GDP is still well below 100 per cent in all countries in the area.
“It has triggered a rise in competition and the best local banks, mainly from big international groups, see an opportunity to increase their profitability by providing first-class products through innovative distribution channels and service models,” Jaquotot explains.
Intesa Sanpaolo’s expansion in the Balkans has already leveraged the economic development that took place during the transition from planned state economies towards market economies. The bank now serves nearly six million clients in the region and its Balkan subsidiaries account for 5 per cent of group assets and 9 per cent of its revenues.
Intesa Sanpaolo’s network includes Croatia’s second largest bank, Privedna Banka Zagreb, which has an 18 per cent share of banking assets; and the largest Serbian bank, Banca Intesa Beograd, which has 17 per cent. It has banks of varying sizes in other countries such Bosnia and Herzegovina, Slovenia, Albania and Romania. They provide products and services to local clients and for Italian companies investing in the region through specialised desks.
“GDP is expected to grow more than 3 per cent on average every year up to 2021, although some volatility from country to country is likely”
Ignacio Jaquotot, head of Intesa Sanpaolo’s International Subsidiary Banks Division
Small- to medium-sized enterprises (SMEs) account for 99 per cent of all businesses and provide more than half of the jobs and added value in the region. They are a key target for the bank’s dedicated small business services platform. As of July 2017, SMEs made up more than 15 per cent of Group’s loan portfolio in the Balkans with peaks of 23 per cent in Romania and 19 per cent in Serbia amounting to nearly €2billion of disbursed funds.
Intesa Sanpaolo’s subsidiaries channel funds from supranational entities such as the EIB, EBRD and KfW. This has allowed the bank to build up significant market shares in lending to businesses in the individual countries, accounting for 16 per cent in Croatia and 15 per cent in Serbia.
The Balkans could have a significant role in the OBOR project. “China’s increasingly active presence in Central and Eastern Europe is part of Beijing’s global strategy. This engagement has been welcomed by the governments of these countries as China pumps capital into national and regional economies,” Jaquotot explains.
Beijing announced a $10billion credit line to support Chinese investment in the region, as well as a secretariat to facilitate cooperation and a commitment to two-way trade. In addition, the Chinese government has stated its aim to establish a $3billion investment fund for the broader region, including the Western Balkans.
Serbia stands to gain most as the major partner in the region. Beijing has already invested more than $1billion, mostly in the form of loans, to finance the building of transport infrastructure and energy projects in the country.
Intesa Sanpaolo sees OBOR as an important strategic initiative that will benefit the countries in which it operates through its network. Up to €1billion of credit facilities will be provided by its subsidiaries to SMEs in the Western Balkan region. Clients operating in infrastructure and energy supply sectors will have access to funding for their projects, mostly through medium- to long-term loans of up to €15million per borrower over 10 years.
“We definitely expect the OBOR project to be a powerful engine for growth for the entire Balkan region and to spur further business initiatives,” Jaquotot says. “Intesa Sanpaolo expects to continue to play an active role in any future projects.”
“If not kept in check, political upheaval would delay the economic and social development of the region” – Ignacio Jaquotot, Intesa Sanpaolo
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