One Year Later: Domestic Bank Took the Risk, ASA Bank Secured Financial Market Stability with Sberbank Acquisition

SARAJEVO, (Patria) - The Russian aggression on Ukraine, which began on February 24, 2022, caused tectonic shifts in the global market, especially after the introduction of economic sanctions against Russia, Russian banks, and businessmen. Numerous global companies withdrew from the Russian market. Economic trends were unpredictable, and the market demanded stabilization, especially fragile economies like Bosnia and Herzegovina.

Sberbank, a Russian bank operating in BiH and the region, and its clients found themselves in an uncertain situation at that moment. Clients massively withdrew funds and closed accounts fearing the bank's collapse. Countries in the region also reacted quickly and restructured Sberbank.

At that moment, as the world feared the consequences of the war, regulators in the region took over the management of the process, and the same happened in the FBiH and RS.

In the FBiH, the domestic, BiH-based ASA Bank assessed the risk and decided to take over Sberbank in the FBiH.

From this temporal distance, with the acquisition fully completed and the banks operating as a single legal entity, the Banking Agency believes that, in terms of legality and management of all the risks that were highlighted in the past year, the chosen restructuring option was the only sustainable and justifiable one.

"The Banking Agency of the FBiH, on March 1, 2022, based on its legal powers and in order to protect the banking system in the FBiH and depositors, initiated the restructuring process for Sberbank BH d.d. Sarajevo. The key risks related to this bank are linked to events outside of BiH, with potential ultimate effects on the bank's liquidity, capital, and solvency. In this case, the dynamics and deadlines for implementing activities in BiH and the FBiH had to be aligned with the dynamics of activities imposed by the ECB and other regulators in our region.

As of June 30, 2022, the immediate risks related to the events of the first quarter of 2022 were eliminated, the stability of the banking system was preserved, and the interests of depositors were protected. Public and international partners' confidence in our institutions and regulatory framework was further strengthened," the Agency stated.

When asked how significant it was in economic terms to save the bank from collapse and what it would have meant for BiH if Sberbank had not been 'saved,' they said that it would certainly have caused permanent damage to the country and the economy.

"Upon the occurrence of the crisis caused by the war in Ukraine, the Agency analyzed the situation regarding economic expectations and announcements of international sanctions against the Russian Federation, as well as activities announced by supervisory and resolution authorities of EU countries and the region, which had an increased additional negative impact on the solvency and liquidity position of Sberbank BH.

The key negative effect was the announcement of the bank's exclusion from the 'SWIFT' system, which completely prevents international and domestic payment transactions, i.e., excludes the possibility of most business processes and services for depositors and other clients, in all segments of operations. A bank that is illiquid, insolvent (blocked), poses a risk to any financial system, especially if it is a bank with a significant market share and can cause wider disruptions in the country, the operations of institutions, other entities, and individuals.

Conscious delay or postponement of the implementation of the Agency's available legal powers would have put BiH in an inexplicable, unique, and extremely unfavorable position compared to all other countries where the said banking group operated. It is difficult to estimate the potential final damage that would have resulted from restrictions on access to deposits, temporary or long-term," they explained.

The Agency confirmed that the applied restructuring model ensured the continuity of the bank's operations through the transfer of ownership, and all procedures were within the legally defined powers and competencies.

Economic expert Igor Gavran told Patria that the acquisition ensured the survival and continuation of successful operations.

"Just as then, I see it positively, because this move practically saved a successful and healthy bank that, without any justified reasons or its own business errors, found itself facing an exodus of panicked clients and severe consequences, perhaps even collapse. This acquisition ensured its survival and the continuation of successful operations, in the interest of the bank itself, its clients, and the overall financial market," said Gavran.

Regarding the takeover of the Russian bank by a Bosnian-Herzegovinian bank, the economic expert said that this significantly increased the share of domestic banks in the total market.

Compared to the same period last year, BiH now has a domestic bank among the TOP 3 banks in BiH, with significant potential for further growth and improvement of its market position.

"Finally, we have at least some serious competition for banks in foreign ownership. It is still too early to judge how all this affects the rest of the economy, but it would be logical for a domestically owned bank to show greater interest in actively supporting the domestic economy and greater understanding of the specific needs of domestic clients. It is also logical that it has full independence of action, without the influence of any external owner whose interests may not be aligned with the interests of the bank itself or the market," he explained.

In addition to retaining the existing jobs at Sberbank through the acquisition and ensuring regular payments, the question also arises as to how much this contributed to the financial stability and stabilization of the banking sector.

"Certainly, the effects were positive in every respect, because the collapse of any bank, especially one like this, would have negatively affected market stability, and in case of inability to pay deposits, it would have caused concrete damage by shifting the burden to the Deposit Insurance Agency of BiH and the loss of client funds. There could also have been 'offset' collection of loans from debtors and a whole series of related harmful events. All of this was avoided, and the operations of the specific bank and the market situation quickly stabilized," concluded Gavran. 

ASA Bank is today the largest domestic bank and the third leading bank in the BiH market with the largest share capital of 340 million KM. As a strong systemic bank, it employs nearly 700 employees in 67 branches across BiH. The Bank's assets amount to nearly three billion convertible marks, with a loan portfolio of 1.7 billion KM and a deposit base of 2.4 billion KM.