Serbia’s savings sat in its banks, not its capital market.
The investors who would deepen a debt market were too small, and too little existed for them to buy.
Location / capital-markets photographySerbia had set itself a clear ambition. Its Capital Market Development Strategy set out how the country would build markets that could finance its economy alongside the banks, and a cardinal part of that plan was the non-bank institutional investor base: the pension funds, insurers and asset managers whose long-term money is what deepens a debt market. We were engaged for Serbia’s Ministry of Finance, on a project commissioned by the EBRD under the local capital markets initiative supporting that strategy, to diagnose why the investor base had stayed so small and to set out a sequenced roadmap for growing it.
The shape of the problem was plain enough. The government issued bonds, and issued them well, but it was very nearly the only issuer worth the name. Corporate bonds barely existed, and what did trade changed hands quietly over the counter. The institutions that should have been the market’s natural buyers were themselves small, holding only a fraction of the nation’s savings, while the bulk of the country’s money stayed inside the banking system the capital market was meant to complement. The task was not to catalogue that shortfall, which was well known, but to find what was holding it so firmly in place.
- Market & landscape analysis
- Liquidity analysis
- Regulatory & legal analysis
- Investment risk analysis
- Benchmarking
- Recommendation & roadmap design
- Stakeholder validation
- Workshop facilitation
- Interviewing
- Surveys & questionnaires
- Desk research
- Synthesis & report writing
- Solution & mechanism design
- Financial modelling
- Executive & board-grade communication
Client
Supported byThe buyers were too small. The market, too shallow.
1 Serbian dinars (RSD), against a fixed-income market of roughly RSD 1.3 trillion, almost all government bonds. As at end-2020.
2 Pensions 0.86%, insurance ~3.56%, asset management 0.95%. As at end-2020.
3 As at end-2020.
Everyone was acting rationally. That was the trap.
The shallowness presented as a list of separate shortcomings, and they are real, but underneath them sat a single more stubborn fact: nearly every actor in the market, behaving entirely rationally, chose the course that kept it shallow. A company that needed money could raise it from a bank faster and more cheaply than by issuing a bond, and aggressive competition between highly liquid banks often pushed loan rates below what a bond would even have to yield. So corporates borrowed, and did not issue. The non-bank institutions that might have pulled issuance into being were too small to absorb it, and without credit ratings or reliable pricing they were shut out of much of what did exist.
Nobody in between had a commercial reason to build the missing parts: market makers who tried quoting prices gave up when it did not pay, companies turned down the transparency that listing asks for, and the memory of past defaults had drained trust from the market. That was the knot: not an absence of rules or good intentions, but a set of incentives that all pointed away from the capital market, with no single actor willing or able to move first. A roadmap that merely named the symptoms would have moved nothing. What was needed was the sequence of steps that could make the market worth choosing.
What we did differently
We anchored each proposal in a precedent that had actually worked.
Rather than design mechanisms from first principles, we drew them from places that had already solved the same problem. The guarantee fund we proposed to unlock corporate issuance was modelled on the Asian Bond Markets Initiative’s Credit Guarantee and Investment Facility, and the market-data platform we recommended took its lessons from the Asian Development Bank’s AsianBondsOnline. The sequencing strategy as a whole drew on approaches proven in emerging markets elsewhere, most of all in Asia, markets that had travelled the road Serbia was starting down.
We modelled why corporates don’t issue, instead of asserting it.
Everyone could tell us that bonds cost more than bank loans. We built the number. Costing a bond issue end to end against a comparable loan, we showed issuance came out around 30% more expensive, and that fierce competition between highly liquid banks often pushed loan rates below what a bond would even have to pay. That turned a common complaint into a precise, arguable figure a policymaker could act on, and pinned down exactly where the cost gap would have to close.
We built the roadmap around the two-sided trap, not a one-sided list.
Because supply and demand each waited on the other, a set of fixes aimed at one side would have failed, or unbalanced the market further. Our sequencing grew issuance and investing capacity together across the plan, and it accepted a hard truth most roadmaps avoid: a market this illiquid needs deliberate pump-priming, vehicles built to supply velocity until the market can carry itself. The plan answered the root cause rather than tidying its symptoms.
We prioritised on hard reality, and left the disagreements in.
The recommendations were ranked with stakeholders on urgency and impact, with the buy-side’s voice deliberately weighted highest, since the buy-side was the point. Where our own judgment differed, we said so: participants wanted inflation-linked bonds, but with inflation climbing we lowered the priority rather than flatter the survey. Where the National Bank of Serbia rejected a recommendation, it stayed in the report, next to it. A roadmap that hides its frictions is not one a client can execute.
What we delivered
The study needed two things that rarely sit in one firm: people who had built an institutional investor base before, and people who knew Serbia’s own market, regulators and participants from the inside. A diagnosis is only as good as the doors it opens, so the team was built to hold both.
InvestorConnected led with the international capital-markets specialists. Thierry Clarke led the work, having spent years across Central and Eastern European and Balkan capital markets, working with the region’s central banks, pension and insurance regulators and institutional investors. Alongside him, Reuben Fenech carried the non-bank institutional investors themselves, across asset management, pensions and insurance, with the rarer grounding in regulation and policy where half the barriers turned out to live, and Patrice Archer covered the money and debt markets and the mechanics of issuance.
For the local half of the problem we partnered with Deloitte’s practice in the region, and not just for access. Darko Stanisavić, the partner in charge of its financial advisory work across Serbia and its neighbours, brought deep knowledge of the country’s financial sector and its government; Darko Lakic brought regional capital-market and pension-development experience; and Stefan Antonić held the Serbian legal and regulatory terrain from inside Deloitte Legal. International expertise on one side, local depth and trust on the other, with every face of the problem owned by someone who had met it before.
