The World Bank Implementation Status & Results Report State Owned Financial Institutions Reform Project (P156837) State Owned Financial Institutions Reform Project (P156837) EUROPE AND CENTRAL ASIA | Serbia | Finance, Competitiveness and Innovation Global Practice | IBRD/IDA | Investment Project Financing | FY 2018 | Seq No: 2 | ARCHIVED on 12-Dec-2018 | ISR34752 | Implementing Agencies: Republic of Serbia, Ministry of Finance Key Dates Key Project Dates Bank Approval Date: 20-Mar-2018 Effectiveness Date: 22-Aug-2018 Planned Mid Term Review Date: -- Actual Mid-Term Review Date: -- Original Closing Date: 01-Aug-2022 Revised Closing Date: 01-Aug-2022 pdoTable Project Development Objectives Project Development Objective (from Project Appraisal Document) The Project Development Objective is to improve the performance of Banka Postanska Stedionica AD Beograd and promote the reform of Development Finance Institutions and Other State-Owned Financial Institutions. Has the Project Development Objective been changed since Board Approval of the Project Objective? No Components Table Name Support the Reform of State Owned Financial Institutions:(Cost $34.87 M) Strengthen Institutional Capacity:(Cost $15.00 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Moderately Satisfactory Overall Implementation Progress (IP) Satisfactory Moderately Satisfactory Overall Risk Rating Substantial Substantial Implementation Status and Key Decisions The Project became effective on August 22, 2018. Overall, there has been moderately satisfactory progress in implementation of the Project, as verified during the implementation support mission between November 28 - December 7, 2018. Based on the information provided to the team, BPS is progressing well towards achieving the relevant DLRs within the specified timeframes. The bank has been successful in reducing its nonperforming loans and loans to medium and large enterprises. The bank’s financial results remain strong and, if future growth is prudently managed, BPS’ prospects are good. However, the team draws the authorities’ attention to the importance of making progress with the DLR that is meant to be achieved in 2019, namely reaching agreement between BPS and Serbia Post on their future business relationship and the need to implement a market-based compensation scheme for BPS management and staff. 12/12/2018 Page 1 of 5 The World Bank Implementation Status & Results Report State Owned Financial Institutions Reform Project (P156837) The reforms related to development finance are being advanced under the leadership of the Ministry of Economy. The Development Fund and AOFI have each adopted Decisions consistent with the quantitative and qualitative requirements of their respective Conclusions, in line with the requirements of DLR 2.2, according to the responsible Ministries. The Development Finance Working Group met for the second time in November 2018 and the process of developing the Development Finance Strategy has started. The reform area related to the resolution of state-owned NPLs has progressed well. On October 11, 2018 the Deposit Insurance Agency issued the first tender for a portfolio of receivables of banks in bankruptcy as well as receivables in the name and for the account of the state, in the amount of EUR 240 million. This corresponds to DLR 3.1 which was only expected to be achieved in 2019. There have been delays in hiring the consultant who will undertake the independent verification of achievement of DLRs, however those have now been resolved and a consultant has been engaged. The team therefore expects that all relevant documents related to the verification of the achievement of DLR 1.1 and DLR 2.1 (retroactive) as well as DLR 2.2 and DLR 3.1 will be submitted to the World Bank by 31 December 2018. Regarding the technical assistance component, the team was made aware in October 2018 that BPS and the MoF are no longer intending to use Project funds for the procurement of the new IT system for BPS and related services as well as the advisory services for business plan implementation, amounting to a total of EUR 6.6 million. The funds will remain in the component until after the mid-term review of the Project. At that time it will be decided whether these funds can be usefully applied to other reform areas. Six consultants have been hired for the MoF financial sector unit under the Project. The procurement for five additional consultants is currently in progress. In addition, the procurement for the consultants who will support the preparation of the development finance strategy is expected to be launched soon. It is expected that the first outreach session with business representatives as part of the citizen engagement strategy will be held by end May 2019. This is delayed from agreements reached in June 2018. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance Substantial Substantial Substantial Macroeconomic Moderate Moderate Moderate Sector Strategies and Policies Moderate Moderate Substantial Technical Design of Project or Program High High High Institutional Capacity for Implementation and Sustainability Substantial Substantial Substantial Fiduciary Substantial Substantial Substantial Environment and Social Moderate Moderate Moderate Stakeholders Substantial Substantial Substantial Other -- -- -- Overall Substantial Substantial Substantial Results PDO Indicators by Objectives / Outcomes Improve the performance of Banka Postanska Stedionica AD Beograd IN00609196 ►BPS gross amount of performing credit exposures to medium and large private sector enterprises is reduced compared to end-2016 (Number, Custom) 12/12/2018 Page 2 of 5 The World Bank Implementation Status & Results Report State Owned Financial Institutions Reform Project (P156837) Baseline Actual (Previous) Actual (Current) End Target Value 4,050.00 -- 5.60 1,620.00 Date 31-Dec-2016 -- 28-Sep-2018 31-Dec-2021 IN00609197 ►BPS gross NPLs are reduced compared to end-2016 (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 23.32 -- 7.20 11.66 Date 31-Dec-2016 -- 28-Sep-2018 31-Dec-2021 Promote the reform of Development Finance Institutions and Other State-Owned Financial Institutions IN00609198 ►Reduction in state-owned NPLs compared to end-2016 (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 3.10 -- 3.10 1.20 Date 31-Dec-2016 -- 05-Dec-2018 31-Dec-2021 Intermediate Results Indicators by Components Restructure Banka Postanska Stedionica AD Beograd IN00609201 ►BPS is in compliance with the prudential ratios set forth in Selected NBS Decisions (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value Yes -- Yes Yes Date 30-Dec-2016 -- 28-Sep-2018 31-Dec-2021 IN00609205 ►BPS in compliance with limit on lending to State Owned Enterprises (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value Yes -- Yes Yes Date 30-Dec-2016 -- 28-Sep-2018 31-Dec-2021 IN00609199 ►BPS BoD adopts (i) strengthened risk management policies and the Executive Board adopts implementing procedures, and (ii) compensation scheme in line with approved 2018-2020 business plan (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No -- No Yes Date 30-Dec-2016 -- 05-Dec-2018 31-Dec-2021 IN00609200 12/12/2018 Page 3 of 5 The World Bank Implementation Status & Results Report State Owned Financial Institutions Reform Project (P156837) ►BPS completes installation of core banking system and associated software, hardware and services (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No -- No Yes Date 30-Dec-2016 -- 05-Dec-2018 31-Dec-2021 Implement NPL Resolution Strategy and State-Owned Banks Strategy IN00609202 ►Updated NPL resolution strategy, which includes a strategy for state-owned NPLs with a separate action plan, has been adopted (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No -- No Yes Date 30-Dec-2016 -- 05-Dec-2018 31-Dec-2021 IN00609203 ►Tender issued for the sale of SOFIs' NPLs, in an approximate amount of EUR 145.6 million (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No -- Yes Yes Date 30-Dec-2016 -- 05-Dec-2018 31-Dec-2021 Complete Reforms and Develop Strategy on Development Finance IN00609204 ►Strategy for Development Finance has been adopted (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value No -- No Yes Date 30-Dec-2016 -- 05-Dec-2018 31-Dec-2021 Support the Reform of State Owned Financial Institutions IN00609206 ►Number of outreach sessions organized with business representatives as a two-way interaction (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 -- 0.00 3.00 Date 30-Dec-2016 -- 05-Dec-2018 31-Dec-2021 Data on Financial Performance 12/12/2018 Page 4 of 5 The World Bank Implementation Status & Results Report State Owned Financial Institutions Reform Project (P156837) Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P156837 IBRD-88320 Effective USD 50.00 50.00 0.00 0.47 49.49 0.9% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P156837 IBRD-88320 Effective 20-Mar-2018 21-Mar-2018 22-Aug-2018 01-Aug-2022 01-Aug-2022 Cumulative Disbursements Restructuring History There has been no restructuring to date. Related Project(s) There are no related projects. 12/12/2018 Page 5 of 5