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BANKING LICENCE IN BULGARIA IS NOT A NOTION VOID OF MEANING

Hartwig Noll, Executive Director Central and Eastern Europe Division of WestLB Bank, and David Testa, Executive Director Debt Capital Marketsof WestLB, to the BANLKER weeklyHow would you explain foreign banks' great interest to participate in the syndicated EUR75MN loan for Raiffeisenbank (Bulgaria), organized by WestLB and Deutsche Bank?David Testa: - I believe there are two or three major factors which caused that interest. Firstly, these are the fair financial indicators of the loan borrower, i. e. Raiffeisenbank (Bulgaria). Our research has shown that it rates fifth or sixth on the Bulgaria market in terms of its assets, and that it has a very capable managerial team. Secondly, the group of Austria's Raiffeisenbank and its subsidiaries have a good report in the international financial community and it is always ready to react whenever there is a project for organization of loans for institutions from the Raiffeisenbank group. WestLB has participated in the allocation of several such credits. The most recent one was for Raiffeisenbank's branch in Moscow. I'll note that the macroeconomic situation in which Raiffeisenbank (Bulgaria) operates is also significant. The international financial community takes into consideration the progress in the economic development of your country since it is governed by the Cabinet of PM Simeon Saxe-Coburg-Gotha, and according to me, western banks will yet begin to extend credits to Bulgarian financial institutions and companies. Hartwig Noll:- I would like to add that the stable bank system in Bulgaria has played a considerable role for the success in organizing that loan. WestLB maintains very good relations with the Bulgarian National Bank (BNB). We are impressed by the strict control which your bank supervision effect over financial institutions. Unlike in other countries, in Bulgaria the banking licence is not a notion void of meaning. Holders of licences for banking operations in your country satisfy absolutely all requirements for carrying out such activities. This gives security to foreign financial institutions which work with local banks. They can be sure they won't lose their money, as you bank supervision strictly controls banks' financial welfare. You pointed out to the fair macroeconomic situation in Bulgaria as one of the factors for the successful organization of that loan. Aren't you worried by the high deficit in the current account of Bulgaria's payment balance, which is 8.7% of the country's GDP?Hartwig Noll: - I cannot see any causes for worries at present. It is only logical for your country to have such a deficit, because your economy needs many investments and that means import of machines, equipment and technologies. But these investments should raise the quality of goods you manufacture and make then competitive on international markets. In other words, it could be expected that after some time the current import of machines, equipment and technologies will result in an increased export of commodities and will reduce the deficit you talk about. You are saying that investments should be made in Bulgaria. Could you explain why WestLB has not invested in our country so far by setting up a subsidiary bank of a branch or at least a representative office?Hartwig Noll:- We differ from some other big banks which have invested in Bulgaria, e.g. Bank Austria. We are an investment bank, not a commercial bank. Some of the top German savings banks are shareholders in WestLB, which is an abbreviation of Westdeutsche Landesbank. We manage their funds by investing them in bigger operations on international markets. The products we offer are very complex and are intended for big companies. We do not deal with the establishment of banks in other countries. Let's go back to the credit for Raiffeisenbank (Bulgaria). Do you think its organization would had been so successful if the interest rates on international bank markets were not so low? For two years now the London interbank offered rate (LIBOR) has been around 2 per cent.David Testa:- The interbank interest rate does not matter in this case. When making decisions for participation in such syndicated loans, the banks are not influenced by the base interest rate, but by the premium on the base interest rate. In the case of Raiffeisenbank (Bulgaria) this premium is 1.25% and is quite advantageous according to me. Aren't you worried by the fact that the loans released by Raiffeisenbank (Bulgaria) account for 80% of its assets?David Testa:- It's a bank's job to extend loans. What is important is that they are not concentrated in just one sector of the economy and the the share of unserviced credits is not high. Raiffeisenbank (Bulgaria) complies with these two requirements. Of course, the fact that the Austrian Raiffeisen Central Bank had declared in written to the creditors its support for Raiffeisenbank (Bulgaria) was of much importance for the successful organization of the loan. The letter we got from the Austrian bank institution is not a bank guarantee, but is gives us confidence that it will be controlling the work of the managerial team of Raiffeisenbank (Bulgaria)The IMF Mission recommended to the BNB to undertake measures for restricting the growth of crediting. These measures are already a fact. Do you think Raiffeisenbank (Bulgaria) will meet difficulties in lending the EUR75MN from the syndicated credit?Hartwig Noll:- I don't think there will be such difficulties. I will tell you that similar measures to restrict crediting were undertaken in Slovenia some time ago. However, they did not prove very efficient, as firms there negotiated loans from abroad. Business always finds ways to overcome administrative hindrances. And I think your enterprises need credits in order to develop. This concerns mainly small and medium-sized companies, and I believe it is exactly to them that Raiffeisenbank (Bulgaria) will direct the money from the syndicated loan.Are working on other projects for ensuring financing to Bulgarian banks and companies?David Testa:- We offered to several Bulgarian banks to organize syndicated loans for them, too. And they showed interest...Which are these banks?David Testa:-This is a secret. We could mention names only after we have successfully organized a loan for an individual credit institution. Each bank has a set limit for extending credits, both to firms from a certain geographic region and to companies in an individual country. What is the ceiling, set by WestLB for Bulgaria?Hartwig Noll:- This is not public information. I can only tell you that presently WestLB's managerial team discusses the opportunities for increasing that credit limit for Bulgaria. Therefore, we'll have sufficiently wide fields for work on the organization of other syndicated loans.

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