BATTLE IN CREDITING EXPANDS ON ALL FRONTS
Banks have obviously gone crazy about crediting. Both the biggest and the smallest financial institutions spend considerable amounts of money and invest in technology in order to gain a firm hold on that market, which according to BNB's data was the one developing most dynamically in 2003. From the beginning of the year till end-December the aggregate amount of allocated loans increased by 51.74 per cent. This would hardly impress very much those who do not follow closely statistics of the bank system, but the almost BGN3BN growth is significant indeed (released credits rose from BGN5.79BN to BGN8.78BN year-on-year). In order to compare the size of that growth let's mention that it is approximately equal to the revenues from value added tax (VAT) for 2003. It would be hardly necessary to give other examples in order to understand that banks approach very seriously matters of expansion, even so seriously that the International Monetary Fund (IMF) is worried by the increase of extended credits and has asked BNB to undertake measures for restricting that process. Most of the big credit institutions, with balance sheet value above BGN500MN, such as BULBANK, DSK Bank, United Bulgarian Bank (UBB), Biochim Commercial Bank, First Investment Bank (FIB), SG EXPRESSBANK, HEBROSBANK, Raiffeisenbank (Bulgaria) and ROSEXIMBANK, spread their credit expansion on all fronts in 2003 - loans to corporate clients, to small and medium-sized enterprises (SMEs), and to citizens. However, they lay the main accent on crediting the population (with the exception of DSK Bank). The aggregate amount of consumer loans, extended by some big credit institutions, has increased several-fold: 8 times in the case of HEBROSBANK, 6 times in the case of Biochim, 5-fold in the case of Raiffeisenbank (Bulgaria), 4.5-fold in the case of FIB and about 2-fold in the case of UBB. Banks with smaller assets, such as Central Cooperative Bank (CCB), EIBANK, UNIONBANK and INVESTBANK, count mainly on corporate clients, but they also try to step onto the market of consumer and mortgage loans. Considerable growth of released loans has been reported by ProCredit Bank (182.07%) and Incentive Bank (152.34%), both specialized in financing SMEs. Up to here we can put a full stop on fair statistics and continue withthe harsh reality for clientsThere is hardly anyone who has tried to draw a credit without facing a chain of obstacles in receiving it. For an ordinary citizen it is still extremely difficult to get a consumer or a mortgage loan if he/she does not know the right people from the respective bank's branch office or does not work for a company which has signed a contract for complex services with a specific credit institution. One of the heads of internal security of a big Bulgarian bank recalls how his former colleagues from the Ministry of Internal Affairs asked for his intercession in order to engineer loans for their friends or relatives. In fact, cronyism in matters of crediting flourished still prior the large-scale bank failures and immediately provided fertile soil for corrupt practices. Banks still suffer from overdosednon-transparency in the relations with customersIt is a fact that private citizens and owners of small and medium-sized firms do not have access to the entire information concerning all fees and commissions they would have to pay if they get a loan. There are a number of cases as well when the banks beguile more naive people, luring them by seemingly lower interest rates, and charging afterwards high fees and commissions. However, the heads of credit institutions realized that such practices won't have fair consequences. That is why in the Ethics Code (drafted by the Association of Commercial Banks) special attention is paid to the comprehensiveness and correctness of the information which clients get.Another unsettled problem is the prompt and polite service of customers. In many bank branches citizens get irritated by the long queues and the bored faces of clerks. Frequently, a client who has promptly come to pay an instalment under a loan contract, has to wait for half an hour until the respective bank employee finishes smoking a cigarette or gossiping with colleagues and is back at the desk to attend to the customer. Businessmen who have to knock on banks' doors for financing are often is a similar situation, too. It is extremely difficult for them to get a credit, especially if they are not acquainted with the financial institutions' internal rules. For instance, they have to pay heavily to consulting firms for a business plan without even knowing if the spent money would bring a positive result. In fact, some of the so-called consultants give promises that their services will certainly guarantee a loan, but demand a much higher remuneration for their advice. This is merely a variety of corruption and in order to get the better of it many banks already oblige their employees to work out business plans for their clients. Other credit institutions do not insist on getting from the owners of small and medium-sized firms accurate forecasts about the development of their businesses, but demand a housing mortgage as a security against the launched credit. That is why many people are forced to clench their teeth and give up financing from banks. On the background of the above-described picture one can only ask on what grounds that business develops so rapidly. The answer is quite simple: people need money for the purchase of furniture, electric appliances and consumer electronics, for wedding parties (or funerals). So, it is people's everyday needs that has conditioned the expansion of crediting over the last two years. As any market, this one has its leaders, too. For three years now the BANKER weekly has been closely watching the competition between banks in the extension of loans and each quarter publishes the rating of the most actively crediting banksThe newspaper ranks them according to three criteria - the volume of extended loans, the share they occupy in the respective financial institution's assets, and the growth of allocated loans registered within a year. The list includes the top ten banks according to all three indicators. According to BNB's data for 2003, only Biochim satisfied all the three criteria. It was sold to Bank Austria Creditanstalt in November 2002 and during its first year as a private financial institution it started to pursue an active policy regarding credits.The aggregate amount of loans allocated by the bank increased by 78.44% in 2003, reaching BGN754.3MN, up from BGN422.7MN. This rates it fourth according to the volume of extended loans. Biochim's new owners decided to follow an aggressive style of conduct and to make a a wide pathway in the sector of consumer crediting where the bank had a negligible share up to then.In May its managerial team launched on the market consumer and mortgage loans, accompanied by a massive advertising campaign, regarding both financial expenses and presence in the mass media. The financial institution managed to attract ordinary citizens' attention to the loans it offered. From May till the year-end it extended consumer and mortgage credits exceeding BGN300MN. But it turned out that Biochim should pay a certain price for this extension. In addition to the honest clientsthe services offered by the bank attracted some swindlersIn the beginning of 2004 the businessman Ahmed Mehmed was caught in Gorna Oryahovitsa. He used to employ in his firms dozens of citizens with fictitious labour contracts, making them draw consumer credits from Biochim's local branch. The gullible employees used to give the borrowed money to Mr. Mehmed who financed with it his own business. The bank's executives suspected the fraud when servicing of about BGN150,000 of the consumer credits stopped. The swindle was revealed with the help of the economic police in Veliko Tirnovo. Driven into a corner Ahmed Mehmed signed an agreement with the bank, undertaking to pay off the loans, borrowed by his employees. But he could not escape the authorities. Mr. Mehmed has been accused of fraud and investigation is going on. However, this unpleasant episode did not startle Biochim's managers. According to the bank's Executive Director Diana Miteva, losses from frauds or problems regarding repayment of loans are calculated when launching credit products for citizens. The Chairman of Biochim's Management Board Roumen Beremski explained that the bank had not suffered losses from that case because Ahmed Mehmed had begun to pay off the loans. Biochim had some mishaps in corporate crediting, too. Together with SG EXPRESSBANK is suffered losses from the bankruptcy of the Sofia-based company Energokabel, which has liabilities of USD6MN to each of the banks. Nevertheless, Biochim suceeded to firmly step onto the credit market and proceeds from interest on extended loans - BGN89.3MN became its main source of profits. In 2004 in factcredits will be the main source of proceedsto all other banks. Despite the stricter requirements, imposed by the BNB, for reporting overdue loans and provisions for the consequent losses, the banks will not give up credit expansion in 2004. According to financial experts, financial institutions which will be able to offer long-term credits at 10% annual interest to citizens and at about 8-9% to companies, will have the greatest chance to expand their positions on that market. Such loans could be released only by institutions with a huge equity capital, such as BULBANK, UBB, DSK Bank, Biochim, Bulgarian Post Bank and SG EXPRESSBANK, or those using long-term credit lines from abroad, such as Raiffeisenbank (Bulgaria), ProCredit Bank, Incentive Bank and UNIONBANK. They are expected to focus this year on the still underdeveloped market of loans to SMEs. However, the battle for that segment will be severe because the banks will be seeking the most solvent clients among those firms. Competition for large-scale companies and winning the attention of citizens will continue as well. All in all, the battle in crediting will expand on all fronts and the weapons in it will include not only advantageous fees, commissions and interest rates, but prompt and good quality services.