July 23 (Bloomberg) -- Serbian Finance Minister-Designate Mladjan Dinkic said that central bank Governor Dejan Soskic should resign because of the rise in bad debt at several banks in which the state has a stake.
Lenders including Agrobanka AD, Privredna Banka AD and Razvojna Banka Vojvodine ran up debt by granting loans to “certain private tycoon companies that were friends of the ruling political party,” Dinkic, a former central bank chief, told reporters in Parliament today in Belgrade.
“That disqualifies Soskic as the governor because of the problems in the financial sector, not in monetary policy,” Dinkic said. “If I were Soskic, I would resign.”
Dinkic’s comments come amid stepped-up public criticism over the central bank’s failure to prevent Agrobanka’s collapse in December, which President Tomislav Nikolic’s Progressive Party said July 19 was “the most-serious financial scandal.” The bank’s foreign shareholders said on July 16 that the lender’s closing amounted to “the expropriation of property worth more than 70 million euros ($84.7 million).”
While lenders in Serbia face no solvency risk, the currency’s weakness and an expanding bad-loan portfolio could require some banks to boost capital, the central bank said on July 16, presenting a Financial Stability Report. Results of stress tests showed that at least seven and a maximum of nine need to add cash to meet requirements this year.
Serbia’s new ruling coalition of Progressives of President Tomislav Nikolic, the Socialists of Prime Minister-Designate Ivica Dacic and Dinkic’s United Regions of Serbia, has already signaled it wants to replace governor Soskic. Dacic has said his Cabinet will consider removing Soskic if he acts in discord with the government, which will seek to stimulate growth.
Soskic vowed on July 16 not to resign, meaning he could be removed only through constitutional procedures. Since the fall of Slobodan Milosevic in 2000, two central bank governors have been dismissed when new governments took office and changed laws, while one resigned over a disagreement on expansionary fiscal policies and the lack of necessary public-sector reforms.
The governor is elected to a six-year term after being nominated by the president and confirmed by Parliament.
He can be replaced if permanently incapacitated for health reasons, sentenced and jailed for a crime, or if it’s established that his “unprofessional” performance and “serious misconduct” keeps the bank from “accomplishing its primary objective,” according to the central bank law, which sets price stability as the primary goal.
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