If you are looking to see what Central European
countries have done to respond to the credit crunch, look no
further than Serbia’s new policies on lending to lessors.
Just two weeks after publishing third-quarter
2008 results for the leasing sector, the National Bank of Serbia
(NBS), the regulator of the country’s finance leasing industry,
abolished the need for lessors to keep large reserves.

This represented an about-turn from the policy introduced in
January 2006, which required a 20 percent capital reserve
requirement against any foreign borrowing by lessors.

The reasons for the U-turn are clear. Three years ago Serbian
leasing companies (85 percent of which are foreign banks) were hit
by an influx of foreign money. In 2005 alone Serbian leasing had
expanded by 85 percent.

This was on the back of a credit boom in Serbia. Branches of
foreign banks in Serbia had flooded the domestic market with easy
credit, shored up by plentiful liquidity from foreign parents.

“We had a tremendous problem,” recalls Vladimir Jelacic, a
senior associate at the NBS. “We were really worried that an
unsustainable bubble was forming.”

The NBS struck back with a battery of regulatory structures
intended to limit the credit expansion, including capital
requirement stipulations, and the limiting of individual credit
growth to 150 percent of bank capital.

As a direct result of this intervention by NBS, investment in
leasing – not regulated and therefore not subject to restrictions –
began to grow. Ever quick to react to a crisis, in January 2006 the
NBS imposed fresh restrictions, this time on leasing companies,
requiring the 20 percent capital reserve requirement against any
foreign borrowing by lessors.

This had an immediate effect on Serbian leasing volumes which
grew by 57 percent during 2006, and only 30 percent in 2007.

By October 2008, foreign credit obligations made up 82.6 percent
of total liabilities for Serbian leasing, while domestic credits
made up only 6.7 percent. However, the sum of capital put into
reserve since the advent of the requirement had increased by 16
times to reach €834 million.

Today, the credit boom has died as the liquidity shortages have
taken a grip on the Serbian economy. Rather than being inundated
with cash, it is desperate for cash. The 2006 restrictions, in the
mind of NBS, were no longer valid and have been done away with.

Commenting on the abolition of the restrictions, Jelacic said:
“We’ve abolished what was set up in 2006. We don’t have data yet to
say if it has made things easier for the leasing companies, but we
will see soon enough.”