DSK BANK IS THE ONLY FINANCIAL INSTITUTION THAT CAN ADD GROUP TO ITS NAME
The fashion in the financial world to establish groups in the centre of which is a bank, around which a dozen of financial companies gravitate, is making its way in Bulgaria, although with a certain delay. The big banks in the former socialist countries have long ago adorned themselves with necklaces of subsidiaries - specialized financial institutions such as mortgage banks, leasing and insurance companies, pension and healthcare insurance funds, investment and mutual funds, venture capital funds, etc. In Bulgaria these adornments are still exotic. But things in our country are always different.For the time being we can only dream about bank groupsof the type of those in the East European countries. Nevertheless, we have legislative regulations about their operation. In July 2000 the BNB issued Ordinance No 12, regulating the order for presenting annual reports and balance sheets by banks, in compliance with the performance of their subsidiaries. According to the document, a bank group exists when a certain bank holds more than 20% of the capital in financial and non-financial institutions. Some bankers believe that the required percentage is too low for the Bulgarian reality. According to them, unlike in developed markets, a juristic person in Bulgaria can hardly influence the policy of a certain company if it does not hold at least 51% of its assets.The participation of banks in the capital of another type of commercial companies is possible only by a permission from the BNB. Not a single credit institution is allowed to buy 10% or more of the shares in another firm or even bank without an explicit permission from the central bank (article 19, item 1 of the Banks Act). An exception is made only for shares traded on the stock exchange. But even in such cases the banks are obliged to get rid of them within six months. Otherwise, they should again ask BNB's permission.The requirementsto the bank group are strictly set. For example, the total amount of the credits released by it to one firm or several related companies may not exceed 25% of its own equity capital. In other words, if the bank owns an investment company, a pension insurance fund, and a leasing or insurance company, with an aggregate capital of BGN200MN, the total amount of the loans, which the whole group is allowed to extend to a single firm is BGN50MN. For example, the bank may allocate a loan of BGN10MN for turnover capital, the investment company may release a long-term loan of BGN13MN, the leasing company may deliver machines and equipment worth BGN7MN, the pension insurance fund and the insurance company may buy shares worth BGN20MN in the same firm. This is allowed by law. The banks which are the heart of such groups submit each month a special report to the BNBabout the financial performance of all participants in the respective structure. On the grounds of that information the central bank supervises the overall state of the group. If any of its members shows worsened financial indicators the BNB may impose restrictions only to the credit institution which is the group's main engine.The above-mentioned requirements are not a whim of the BNB. They are included in the directives of the EU and the Basel-based bank of International Standards, which not a single state, pretending to have a modern and stable financial and credit system, takes the liberty to disregard.This type of supervision on bank groups is aimed at safeguarding the depositors in credit institutions from an ailment which the group's satellites could inflict by their losses. Whenever such a danger is in view, the BNB is entitled to restrict all operations of the bank, aimed to pour funds in its sick subsidiary.For almost two years and a half now (since the publication of Ordinance No 12), the central bank has not been given grounds for anxiety regarding the consolidated financial results of the bank groups. Perhaps, this is due to the fact that they are still not common in Bulgaria.Strange as it may sound, the only bank group in Bulgaria at present is that of DSK BankSince 1999 the credit institution has become a majority shareholder in three commercial companies - Savings-Cooperative Pension Insurance Company (SCPIC) Rodina AD, DSK-Tours EOOD, and DSK-TransSecurity EOOD, as well as of 37% the capital of Bulstrad Life. Two years ago DSK Bank decided to join the pension insurance business and became a partner of Bulgarian-American Credit Bank (BACB) in the establishment of SCPIC Rodina. DSK Bank then acquired 59% of Rodina's capital, BACB became the owner of 37% of the assets, and the Central Cooperative Union got the balance of 4 per cent. Following long negotiations, last week DSK Bank signed a contract with BACB for the purchase of its 37% stake in Rodina. The deal was approved by the BNB on february 26 and DSK Bank already holds 96% of SCPIC Rodina. In 2002 DSK Bank set up two new companies, wholly owned by it. These are DSK-Tours (with equity capital of BGN8.41MN) and DSK-TransSecurity (with equity capital of BGN2MN). DSK-Tours was established in order to manage the tourist establishments and sports complexes, owned by the credit institution. DSK Bank has 16 such facilities, which were part of the financial institution's assets before DSK-Tours was set up. Bank insiders claim that they did not bring it any profit and had a negative impact on its financial performance. By separating them in another company these problems have been eliminated. DSK-TransSecurity is the company which services the bank's encashment activities. Every day almost 200 vehicles of that company deliver banknotes and coins to the branches of DSK Bank and other credit institutions. DSK Bank decided to set up that company in the beginning of last year when the BNB announced it would shut down its regional offices in the towns of Bourgas, Rousse and Vratsa, and left the credit institutions to organize the transportation of banknotes and coins. Then the BANKER weekly wrote that in that way the central bank was opening a new market niche that would bring good profits to those who develop it. United Bulgarian Bank (UBB), BULBANK, and DSK Bank have already orientated to it, but DSK Bank was the only one that suceeded to set up its own encashment company.It becomes clear that the menu of bank groups in this country is guite meagre. But financiers believe that these structures are yet to develop in Bulgaria.