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EBRD investment in Bosnian banker pays off

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Edin Muftić

Raiffeisen's logo predominates in Bosnian banking

Banking is the backbone of all healthy market economies, which is why one-third of EBRD investment is in that sector. Senior Writer Kate Dunn looks at the long-term impact of the EBRD’s investment in a youthful local financier in Bosnia and Herzegovina.

In 1989, as eastern European communism wobbled, then broke on the Berlin Wall, Edin Muftić was getting ready. At age 27 he was busy with his first job in a state-owned bank in Sarajevo, Bosnia and Herzegovina, part of what would soon cease to be Yugoslavia.

“I was watching the development of private businesses in Yugoslavia and I saw that our state banks could not support these entrepreneurs in the way and with the quality and range of products required. I told my director that we should open a new bank to support the private sector but she didn’t pay any attention. I think she thought, ‘Who is this 27-year-old, he’s just a boy, what does he know?’ ”

Rather a lot, as it turned out, although he says his timing could have been better. Mr Muftić and nine partners launched their own private sector-oriented bank, Market Banka, in 1992, just as entrepreneurship was starting to flourish in the country – and just as war swept across the western Balkans.

Market Banka survived the three-year conflict and went on to do well enough that the EBRD bought a 30 per cent stake in it in 1997. In 2000 the Bosnian financiers attracted the attention of regional leader Raiffeisen Bank of Austria which bought a majority stake of Market Banka in 2000. Mr Muftić is now President of the management board for Raiffeisen in Bosnia and Herzegovina (BiH). With 66 outlets bearing Raiffeisen’s distinctive black-and-yellow logo across the country, it is the largest bank in BiH.

“Mr Muftić is a good example of the happy marriage of local talent with international capital and know-how,” says Kurt Geiger, the EBRD’s Business Group Director in charge of lending to financial institutions. “The banking sector in BiH is now well developed, highly competitive and increasingly profitable.”

As with many enterprises in Bosnia and Herzegovina, the mere fact Market Banka survived the western Balkans war of 1992-95 was ample demonstration of its founders’ toughness, intelligence, and flexibility in meeting changing market conditions (to say the least).

Sarajevo was under siege throughout the war. “Communications worked intermittently,” remembers Mr Muftić. “So, when communications allowed, we were doing transactional services – handling money that people outside Sarajevo were sending to friends and family inside the city. Then the international aid community needed banks to handle their transactions. One transaction led to another. More and more remittances started coming from Bosnians working abroad.”

He laughs when asked why anyone was willing to trust their money to a bunch of young whippersnappers operating this new thing – a private bank. “My father was receiving money from my brother who was abroad. I asked my dad to give me the equivalent of €5000 and said I’d put it in a term deposit in my bank and deliver the interest monthly to his door. No way would he invest. So then I said asked him, ‘Can I borrow the money from you?’ He said okay because he thought it was for me, personally. I deposited it and he was surprised – pleasantly surprised – when I brought him the interest.”

Market Banka didn’t really find its feet until 1995. Peace made things easier, and the bank started attracting bigger clients such as the state-owned power utility.

“We improved our performance, embraced high standards and helped corporate and retail clients realise their own ambitions,” says Mr Muftić. “We were the first in the market to introduce long-term loans for private individuals and credit cards.”

Still, Market Banka’s 35 employees were struggling to find their way in the uncharted waters of a post-war economy still in transition from socialism to capitalism. The EBRD recognised the team’s potential and in 1997 bought €1 million worth of Market Banka’s equity, increasing the latter’s capitalisation €2.15 million.

“When they invested in us, the EBRD also organised donor funds to pay for technical advisors from the Bank of Ireland,” says Mr Muftić. “They taught us international banking practice. Some things we are doing now, we didn’t have a clue about back then – things like risk management and managing client relationships. There were too many habits from the old Yugoslav days. We only had credit officers who said yes or no to loans. Now they are in charge of selling all bank products. Compared to the old attitude, we now start with the clients’ needs and work back from there. The idea is, keep them satisfied and sell them more services.”

“I’m not being polite when I say the EBRD contributed a lot of our bank and to the development of the banking sector in Bosnia-Herzegovina generally. It’s now the strongest sector in the country.”

“Around 80 per cent of the EBRD’s private sector operations in Bosnia-Herzegovina have been in the banking sector,” says Kurt Geiger. “Some challenges remain, including strengthening the capital base of the remaining small, locally-owned banks and improving regulatory and supervisory capacities. But overall, in its banking system Bosnia now has the firm foundation for building a sustainable modern economy.”

16 August 2005