Банкеръ Weekly



Bank crediting has gained such speed that some analysts are already worried that problems might arise. According to BNB's data from June 2002 the amount of allocated loans totalled BGN4.8BN, while in mid-2003 it rose 60%, reaching BGN7.6BN. Within that one-year period the credits released to firms went up almost 78% - from BGN3.6BN to BGN6.4BN, and those launched to citizens increased by some 60% (from BGN968MN to BGN1.5BN).Credits account foralmost 50% of all bank assets. In some financial institutions, such as Bulgarian-American Credit Bank, Commercial Bank of Greece (Bulgaria), ProCredit Bank, and Raiffeisenbank (Bulgaria), loans account for over two thirds of their balance sheet value. At that, these banks extend credits mostly to firms and the share of allocated consumer and housing credits is insignificant. These institutions face a greater risk in case of a worsening business climate or if problems connected with the firms' solvency arise. Practically, they do not dispose of enough other resources of proceeds that could compensate their possible losses from the increase of problematic loans, extended to commercial companiess. The managers of these banks have tried to reduce the risk by allocating credits chiefly to a great number of small and medium-sized enterprises, presuming that it's not very likely for all their clients to fall into a difficult financial situation at one and the same time. Most of the big credit institutions (with a balance sheet value of more than BGN500MN) have chosen othermeans to reduce the credit riskA large part of their assets (from 40% to 60%) are still invested in deposits or in government securities that guarantee their solvency even in case the economic situation in the country worsens steeply. Moreover, most of the big banks actively develop consumer crediting. The loans, extended to citizens are not bigger in size, they are allocated to a large number of clients, and their servicing is to a lesser extent influenced by the economic situation in the country. Credits to citizens marked a significant growth from June 2002 till June 2003. They rose by 59% - from BGN968MN to BGN1.5BN.Banks with big credit portfolios, such as DSK Bank (which extended loans of BGN1.04BN) and United Bulgarian Bank (which allocated credits of BGN867.6MN) limited the rate of releasing credits. The smaller financial institutions and the banks which for one reason or another had refrained from large-scale crediting until 2003, are now much more agressive in that respect. Credits, launched by First East International Bank from June 2002 till June 2003, increased by 1,317%, the growth for the same period was 283% in the case of Biochim, and 172% in the case of ProCredit Bank. For two years now the BANKER weekly has been rating the most actively crediting banks on a quarterly basis according to three criteria - volume of extended loans, the share they occupy in the respective financial institution's asset, and the growth registered within a year. IN end-June 2003only Biochim covered all the three criteria The bank's managerial team was refraining from active crediting until the deal for Biochim's privatisation was finalized. After it was sold to Bank Austria in October 2002, Biochim's managers had to cope with two hard challenges - to successfully effect the merger with HVB Bulgaria (also owned by Bank Austria) and restructure Biochim's operation in the sphere of crediting. The managers began to actively offer consumer and housing credits. From the beginning of May 2003 when they were launched on the market till end-June their total amount increased more than twice - from BGN45MN to BGN108MN. The volume of credits extended to firms went up considerably, too. In end-June 2003 the amount of loans released by Biochim exceeded BGN616MN, regsistering a 2.8-fold growth from June 2002. In mid-2003 they accounted for almost 50% of the bank's entire assets, and the proceeds which they brought for the first six months of the year (BGN28MN) accounted for 60% of all its revenues. The bank's managerial team will continue to focus on the development of consumer credits, with which it quickly makes its way onto the market. Biochim's managers, however, will have to cope with the traditional risks, accompanying the quick development of the credit market and restrict the danger of an increase in the number of overdue receivable. In fact, this is the task, to be settled by all other banks, whose credit protfolios are growing up quickly. This won't be easy, having in mind that the agressive crediting policy seems to have remained the only way for increasing the profits. At the same time, in order to endure the pressure from competitors, the banks are forced to gradually relieve the conditions for the guarantees they demand, extend the terms for repayment, and reduce (although reluctantly) the interest rates, charged on credits. This will also limit their sources of profits.At the present international interest rates(in the beginning of September the six-month London interbank offered rate (LIBOR) was 1.4% for the US dollar and 2.14% for the euro) it would be unprofitable for banks to invest in deposits or in government securities. Their only choice will be to increase the volume of loans and attract new clients with big turnover (they are not many in Bulgaria), that could bring them profits from fees and taxes.According to some bankers, the fomula for an increase of profits over the next two or three years will be the rapid growth of consumer and housing credits and complex financial service, provided to solvent clients.

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