A PRECAUTIONARY AGREEMENT WITH IMF WILL BE PROTECTING OUR FINANCIAL SYSTEM
People say: New Year, new luck. For the bank sector luck should mean more clients and services, higher proceeds and profits. A number of decisions are to be made as well, mostly by the Bulgarian National Bank (BNB), through which the banking practice will come closer to the conditions of operation in the European Union. After the privatisation of DSK Bank (in October 2003 it was sold to Hungary's OTP for EUR311MN) the appearance of the Bulgarian financial and credit system has been almost finalized. More than 90% of the assets of banks operating in this country are in the hands of foreign owners. This percentage is likely to increase in 2004 if a procedure for the sale of Municipal Bank is invited.Transformations in the bank sector will continue. By February 2004 the BNB is expected to grant a permission to two of the founders of First Investment Bank - Tseko Minev and Ivailo Mutafchiev - to acquire the 39% stake of the Austrian shareholder, the investment fund EPIC. After that operation is effected, the two businessmen will officially hold a total of 63.66% in the bank they established 11 years ago. In 2004 there will be several major events in the financial sector Having lived through eight governments and eight prolongations of its life, the Bulgarian Consolidation Company (BCC), established in 1992, will be liquidated after existing for more than 12 years.When the BCC was set up its statutes included a clause stipulating that within two years it should consolidate and privatize the state-owned banks and afterwards the company was to be deleted from the register of firms. However, that task turned out unfeasible for BCC's managers during the governments of former premiers Dimiter Popov, Philip Dimitrov, Lyuben Berov, Zhan Videnov and Ivan Kostov. Therefore, its liquidation had to be postponed eight times. The last time this was done on December 19, 2003, when the general meeting of the BCC decided to extend its life till August 2004. From the privatisation of state-run banks: United Bulgarian Bank (UBB), Bulgarian Post Bank, SG EXPRESSBANK, HEBROSBANK, BULBANK, Biochim Commercial Bank, and DSK Bank (which began during Ivan Kostov's government in 1997 and was finalized during the incumbent Government of Premier Simeon Saxe-Coburg-Gotha in 2003), the BCC received a total of BGN1.73BN. From that amount, after payment of taxes and distribution of dividends through the years, now there is slightly over BGN700MN (around EUR358MN) in its accounts.The dividends from BCCThe lion's share from the company's liquidation will go to the Finance Ministry which holds 99.5% of BCC's shares. The remaining 0.5% will be distributed between more than 1,000 small shareholders, among which the biggest stakes are in the hands of the Sofia Municipality, ROSEXIMBANK, EIBANK, HEBROSBANK and Chimimport.But before BCC's money go to its shareholders, it should undergo several procedures that could last till the end of 2004. First of all BCC's Board of Directors has to agree with UniCredito Italiano, Bank Austria and Hungary's OTP, the terms under which the Finance Ministry (in its capacity of a State representative) is to assume BCC's commitments to the buyers of BULBANK, Biochim and DSK Bank.Therefore, by end-January 2004 BCC's Executive Director Nelly Kordovska will send to UniCredito, Bank Austria and OTP the draft agreements for transferring BCC's commitments to the Finance Ministry. Within a month the three banks are expected to return the draft contracts with their corrections, and the agreements to be signed by the BCC, the Finance Ministry and the buyers of the three banks. An annual meeting of the BCC is to be held in April or May, when a decision for the distribution of BCC's divident will be made for the last time. At the meeting the shareholders will probably authorize Nelly Kordovska to ask the Sofia City Court to open a procedure for BCC's liquidation. Creditors may file claims to the company within six months after the court extends its ruling. If claims are submitted, the liquidator appointed by the court should set aside amounts for paying the liabilities, and the remaining funds are to be distributed between the shareholders in compliance with their share in the company's equity capital. After the claims and stakes are entirely paid up, the court will wind up the BCC and delete it from the register of companies. The entire procedure is likely to be finalized by the end of 2004, and the BCC will remain in history. A similar fate awaits the two-year stand-by agreement between Bulgaria and the International Monetary Fund (IMF), which will officially come to completion in February 2004. Negotiations will begin for signing a precautionary agreement Negotiations will start with the arrival of IMF's delegation, lead by Hans Flickenshield, expected in Bulgaria in end-April or early-May. According to IMF experts, this will be quite a difficult mission because in addition to negotiating a precautionary agreement, it will also make a review in compliance with the requirements of the so-called Article IV of the IMF Statutes for appraisal of the economic situation of each country which is a member of the international financial institution. The precautionary agreement is expected to be effective for two years. During the very first talks the programme for reforms, to be implemented by the Bulgarian Government within the period of its duration, will be specified. There will be again requirements to the level of proceeds from various taxes, to the amount of the fiscal reserve, to the reduction on overdue tax liabilities, etc. The difference between the future agreement and the currently effective two-year stand-by agreement will be that under the precautionary agreement Bulgaria will be getting money from the IMF only in case the country needs it. By signing a precautionary agreement the Government will demonstrate its capability of carrying out reforms without IMF's financial support and may ensure the necessary external financing by issuing bonds on the intenational markets.In 2004the BNB will celebrate its 125 anniversaryThe official ceremony will be on June 6, i.e. the date on which 125 years ago the central bank effected its first fiscal operation. BNB's Ordinance No 9 is expected to be changed in 2004 and all loans that have not been serviced for more than 90 days will be regarded as losses, and the banks shall be obliged to set aside provisions for them, equal to 100% of the overdue credit. Currently, a similar regulation enters into force for loans that have not been serviced for more than 120 days. In 2004 BNB's Board of Governors should decidethe future of BorikaBefore the New Year central bank's Governor Ivan Iskrov met with representatives of the Management Board of the association of Commercial Banks (ACB) and agreed with them that the association would present to the BNB the chief requirements of banks to Borika. On the grounds of these demands the central bank should draft the strategy for the development of the national card operator. Some managers of credit institutions commented in front of a reporter of the BANKER weekly that the strategy should contain the main products and services, which banks expect from Borika within the next two or three years. According to bank executives, the strategy for the development of Borika should include a special chapter, dedicated to the investments which should be made over the next three years. For the present, however, commercial banks' managers refrain from specifying their size. This, according to them, could be made only after a detailed analysis of Borika's financial state and technological level. An auditing company, engaged in evaluation of IT with which banks and financial companies work, will be probably contracted to prepare such an analysis. On its basis the credit institutions will decide if it's expedient to set up a special company that will buy Borika, or purchase the card operator through Bankservice. On the grounds of the analysis the banks will offer a price for buying by the BNB all shares of the national card operator. These are the main events expected by bankers in 2004. There will be reforms which should bring the Bulgarian finance and bank sector nearer to the conditions of operation within the EU.