Банкеръ Weekly

Briefs

DSK BANK'S FINANCIAL TENTACLES EMBRACE THE MARKET

The Hungarian OTP Bank has obliged the managers of DSK Bank which it acquired in 2003 to get rid of its minority stakes in all subsidiaries and to start establishing new subsidiaries instead.Since the end of last year, representatives of OTP and DSK Bank have been negotiating with the Bulstrad insurance company for the sale of their 36.36% stake in the capital of Bulstrad DSK Life. At the end of March the talks stumbled because the two sides had quite different visions about the price of the deal. In early April, the savings bank and Bulstrad exchanged offers again and this time, Bulstrad CEO Roumen Yanchev said, they were extremely close.Right now I cannot tell you what price DSK Bank and we have settled, but within a month (by mid-May) we should have clarified all details of the deal with the bank and should be buying its 36.36% stake of the capital of Bulstrad DSK Life, Roumen Yanchev told the BANKER.Comments are afloat in the financial circles that Bulstrad has initially been offered BGN1.45 per each share of Bulstrad DSK Life which has BGN1 face value. However, in the course of negotiations the offer has been reduced to BGN1.35 per share. But both Roumen Yanchev and Nikolay Marev who is negotiating on behalf of DSK Bank refuse to comment on any concrete figures of the deal.Meanwhile, DSK Bank and its owner OTP opened a procedure to establish their own life insurance subsidiarywith capital amounting to BGN2MN. On April 13, the Bulgarian National Bank (BNB) issued permission to the savings bank for possession of 26% of the capital of DSK Guarantee AD. The remaining 74% will be owned by the Hungarian insurer OTP Guarantee which is solely owned by the OTP Bank. The main activity of the company will be to sign Life insurance policies on all mortgage and consumer loans that the bank launches to its customers. It should be noted here that borrowers will not be paying a separate fee for this insurance policy.Still, the service is not going to be free. It is clear for every expert that the savings bank compensates these expenses by the fees, commissions, and interests that it collects from citizens on consumer and mortgage credits. This is quite a considerable business, as the total number of loans launched by the savings institution to citizens as of the end of 2003 exceeds 450,000 and their amount goes to BGN999.8MN. As soon as the new life insurance company starts operating, it will collect the revenues from all Life insurances signed with borrowers.The BANKER weekly learned that by year-end a general insurance company will also be established in Bulgaria and DSK Bank will hold part of its shares. Still, a subsidiary of the Hungarian OTP will be majority owner again.However, the ambitions of the savings bank's owners are not limited to the insurance and banking market. By the middle of the current yearan asset management companywill have been established. Its capital will amount to BGN500,000 and according to information the BANKER weekly has learned it will be owned by OTP Assets Management, a subsidiary of OTP Bank. According to the bank's curator Nikolay Marev, the new company will manage the assets of DSK Guarantee and Rodina Savings Pension Insurance Cooperation in which DSK Bank owns 98% of the shares.Besides, the future investment company will create a few stakes of securities that will be offered to individuals and companies. The company will also occupy with the sale of shares of mutual funds run by OTP Assets Management and will offer intermediation in Bulgarian securities transactions. This market is expected to grow very fast mainly for two reasons.The first one is that according to the forecasts of many financiers, interests on deposits will remain at their current low levels (between 1.3% and 5% on euro and dollar deposits and from 2.5% to 6% on lev deposits) in the next three or four years. This is why it is suggested that there will be more wealthy people who will direct part of their free resources to the mutual funds which allow for higher yield, yet investments in them are riskier. According to some bank dealers, every year Bulgarian people put more than EUR40MN in funds managed by subsidiaries of UniCredito (owner of BULBANK), BNP-Paribas (owner of 100% of BNP-Paribas Bulgaria), Bank Austria (owner of 99.8% of the shares of BIOCHIM), etc.Second, the stock exchange itself will be growing very fast as a growing number of companies and banks will collect financing through mortgage and unsecured bond issues. The total face value of corporate debt bonds issued in Bulgaria so far exceeds EUR50MN and demand for bonds on the local market remains very high. That is why intermediation services in the sector will gather speed and OTP intends to take its piece of the market.The project for establishment ofa lease companyto sell automobiles was postponed to the end of 2004. However, Nikolay Marev explained that this is an idea difficult to implement, as the new cars market in Bulgaria is quite small - no more than 15,000 new cars are being imported and sold in the country every year.Considering this amount of sales, the growth of auto leasing has not very good perspectives right now. However, we are working on the establishment of a lease company of DSK Bank which will take care of any type of investment commodities, Mr. Marev said. He said it is not yet clear whether DSK Bank or some of the OTP subsidiaries will be the majority owner of the lease company. The latter alternative is more probable and in this case DSK Bank will control a minority stake of shares.In the already existing subsidiariesDSK Bank is going to keep its majority stakesThese are Rodina savings cooperative pension insurance company (in which DSK Bank holds a 98% stake), DSK Transsecurity and DSK Tours (of which the savings bank is sole owner). However, the Hungarians insist that the business of all the three companies break its ties with the Bulgarian bank. That will be slightly difficult for Rodina, since most of its business is related to the offering of insurance to customers of the bank. But the Hungarians expect that DSK Transsecurity, for example, which is specialised in collecting services, will manage to sign agreements for transportation of cash and precious consignments with some other banks, as well as with big companies.DSK Tours which owns and runs DSK Bank's holiday stations is expected to succeed in establishing its positions in the tourist branch. However, the owners of the savings bank are aware that they need to make investments in order to renovate the stations and to make them attractive to both Bulgarian and foreign tourists.However, this question has been postponed to 2005 when the decisions for the investment amounts and their sources will be made. Anyway, it is already clear that DSK Bank will not make any extra investments in DSK Tours. The task may also be undertaken by some of OTP Bank's subsidiaries as the institution has operations in the field of tourist services, too.The Hungarians do not hide their intention to build up DSK Bank group by the end of 2004. With the establishment of a general insurance company, an assets management company, and a lease firm, the savings institution will step on all segments of the Bulgarian financial market and will be able to offer complex service packages.Due to the establishment of this bank groupthe Hungarians will also achieve another goal - to direct to themselves the revenues from all possible bank and non-bank services. This will provide OTP with higher revenues from the Bulgarian financial market. And the goal is quite reasonable, considering that last October the Hungarians invested EUR311MN in the acquisition of 100% of the shares of DSK Bank which they expect will return. The profit of the savings institution is not big to provide fast return on this investment. Which proves the ideas of the OTP managers to squeeze out the highest possible profit from the Bulgarian market are logical.

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