BANKS' PROFITS LOW
The profits of Bulgarian banks for the first three months of 2002 are the lowest since 1999, BNB's statistics show. (The analysis does not include the performance of local branches of foreign credit institutions.) Either because they have decided to economize on taxes or due to higher expenses, banks' aggregate profits amount to some BGN54.1MN. BULBANK alone accounts for more than BGN20.5MN of them. A year earlier financial institutions profits (for the same period) totaled BGN157MN, marking a significant increase from the BGN56.8MN in end-March 2000, and up from the BGN71.7MN for the first quarter of 1999.Are the low profits of Bulgarian banks an indication that they are entering into a revenue crisis, or is it just a transitory state? A trustworthy answer of that question can be given after mid-2002 at the earliest when it will become clear if the present alarming situation has been overcome or is worsening.In order to get fair profits till last year the banks relied mainly on their revenues from deposits in big foreign financial institutions. But the decline of the London interbank offered rate (LIBOR) - from 5.2% (in January 2001) to 2.4% (in March 2002) - rendered investments in foreign deposits unprofitable. Therefore, the alternative for Bulgarian banks was to increase crediting in Bulgaria because the interest on loans is still high - between 10% (for big corporate clients) and 16% (for private persons) - and bring fair income to creditors. But such a restructuring of activities requires both time and money.BNB's statistics show that within a year (from end-March 2001 till March 31, 2002), the money attracted by banks from citizens and companies went up from BGN6.8BN to BGN7.2BN. And the aggregate amount of credit institutions' assets rose from BGN10BN to BGN11.7BN, but this did not result in higher profits. For that reason, in the end of the first quarter of 2002 the return on assets of most of the banks registeerd a decrease from the first three months of the previous year. As a result, the group of the best Bulgarian banks according to the rating of the BANKER weekly included only three financial institutions in end-March 2002 - BULBANK, DSK Bank, and HEBROSBANK. In end-2001 the club of the best Bulgarian banks included BULBANK, Biochim Commercial Bank, DSK Bank, HEBROSBANK, SG EXPRESSBANK, and First Investment Bank.The BANKER Since 1999 the BANKER weekly has been rating each quarter all credit institutions according to five indicators: balance sheet value, equity capital, profit, return on assets, and return on share capital. The banks listed among the top ten financial institutions according to all five criteria, are included in the group of the best Bulgarian banks.Bulgarian-American Credit Bank (BACB) rates first according to resturn on share capital and on assets. These two indicators show how efficiently is a bank institution managed. But BACB is not in the group of the leaders beacsue of its small equity capital (BGN26.2MN) and its low baalnce sheet value (BGN138.8MN). But BACB, which has been operating for just five years and a half, cannot be expected to quickly catch up with the balance sheet value and equity capital of financial institutions, dating back to socialist times, which have inherited state assets worth several hundred millions of leva. Unlike the long-lived mastodons in Bulgarai's banking system, BACB's policies are directed to the developing local business. More than 81% of its assets (amounting to BGN112.7MN in end-March, 2002) have been invested in credits to companies that have either just begun work or a developing. BACB is unique in Bulgaria in that respect. The financial institution's fair profits and the high efficiency of its operations are a natural outcome of its policies.