Банкеръ Weekly



Last year was the most successful one for the bank sector. In 2003 credit institutions reported aggregate profits of BGN379.8MN after paying BGN109.4MN in taxes. In statistics language profits rose by 42% from end-2002. In fact, the year 2003 has been the most lucrative for the bank sector since the establishment of the currency board arrangement in June 1997, and perhaps even since 1990. But there is no way to ascertain that as there is no summarized statistics of credit institutions' performance till 1996.The bank system reported growth according to all indicators. The total amount of its assets went up 18% - from BGN14.6BN in the end of 2002 to BGN17.3BN in end-2003. Within the same period deposits of citizens and firms rose by 21% - from BGN10BN to BGN12.1BN, and the growth of credits is 57% - up from BGN6BN to BGN9.4BN. For the first time since the currency board was introduced in Bulgaria allocated credits account for more than half (more accurately 54%) of the bank assets. What difference does it make?, some readers would ask, considering the fact that interest rates on credits remain high and the collateral security demanded by banks is unaffordable. And they will be right to ask such a question. But with such results it may be expected that in 2004 the battle for attraction of clients will get more fierce and that will make banks reduce the interest on credits, extend the term for their repayment and soften the requirements for collateral security. And the simplest explanation for that is that as of 2003 credits became the main source of proceeds to the banks. According to the statistics of the Bulgarian National Bank (BNB), the aggregate amount of proceeds from interest on credits was BGN799.3MN in 2003. Proceeds from interest on deposits in other financial institutions and securities totalled BGN213MN, trade in bonds and shares yielded BGN63.5MN, forex deals, taxes and fees accounted for BGN339.5MN. Thus, the more new creditworthy clients a bank could attract, the more revenues it will get. Therefore, its profit will be greater. Not by accident the 2003 BANKER weekly's ranking of the best Bulgarian banks includes institutions which develop crediting of private persons at a very quick speed. These are BULBANK, United Bulgarian Bank (UBB), and DSK Bank, which satisfy all the criteria for the rating which the newspaper has been making and publishing since 1998. All credit institutions are ranked according to five indicators: balance sheet value, equity capital, profit, return on assets, and return on equity capital (by which the return on share capital criterion was replaced in September 2003). The group of the best banks includes only the financial institutions, which are ranked at the top ten positions according to the above-mentioned indicators.Strange as it may seen, BNB's data show that BULBANK has made considerable efforts to expand its positions on the credit market. In 2003 it raised the total amount of loans to citizens and companies by 71% - from BGN506.7MN to BGN867.9MN. Regarding the volume of extended credits the biggest Bulgarian bank rates third on the domestic market. In addition to improving crediting of firms (traditional for BULBANK), the bank's managerial team stakes on the improvement of crediting to citizens. Consumer and mortgage loans and credit cards were launched on the market and they attracted the interest of many new customers. Within a year their aggregate amount doubled and exceeded BGN65.5MN in the end of 2003, up from BGN32.9MN a year earlier.BULBANK rates first according to three indicators: balance sheet value - BGN2.82BN, equity capital - BGN 548.14MN, and profit - BGN120.66MN. It is fourth in the bank system according to the return on equity capital - 22%, and is second as per return on assets - 4.27 per cent. BULBANK has a considerable potential to develop crediting, as despite the big par value of extended loans - BGN867.9MN - they still account for just 30.74% of its balance sheet figure. In the same time at other big credit institutions this ratio is already more than 50 per cent. If BULBANK's managers intend to allocate loans exceeding half of its assets, they will have to extend loans of another BGN0.5BN in 2004. The successful credit policy is also the basis for the fair financial performance of UBBOnly two weeks ago the bank's executive directors Stiliyan Vatev, Radka Toncheva and Christos Katzanis reported the best results since 2000. According to BNB's statistics, UBB's unaudited profit is BGN53.8MN and according to that indicator it rates second after BULBANK. UBB rates third after BULBANK and DSK Bank according to its balance sheet value of BGN1.8BN, and equity capital of BGN283.8MN. UBB's return on its equity capital is 18.97% and the return on its assets is 2.98 per cent. According to these two indicators the bank rates fifth. In 2003 the managers of the credit institution continued the expansion both regarding loans to firms and to citizens. The year 2003 passed under the sign of privatisation forDSK BankAfter long negotiations and much vicissitude Hungary's OTP bank purchased from the Bulgarian Consolidation Company 100% of DSK Bank's shares against EUR311MN. Immediately after the deal was closed the Hungarians began restructuring the financial institution. They made some changes to DSK's Management Board, relieving from their duties Raiko Karagyozov and Ognyan Yordanov, who remained in the bank as head of the Finance and International Markets Department. The two were replaced by Diana Miteva and Georgi Zhelev. Both DSK Bank's administrative structure and the exterior of its branches were changed. The facades were painted in the new corporate colour - green, and the new emblem - two entwined squares can be seen now. But this is not so important. The good thing is that despite the tension around the privatisation procedure the bank's former management board, chaired by Krassimir Angarski, succeeded to maintain its positions on the financial market. That is why DSK Bank ended 2003 with very good financial indicators. Its balance sheet value increased by 18.7% throughout the year, going up from BGN2.02BN to BGN2.39BN. According to that indicator the bank affirmed itself as second in the Bulgarian finance and credit system, replacing from that position UBB in the end of 2002. DSK Bank ranks second as well according to its equity capital of BGN305MN, and the profit of BGN48.52 rates it third after BULBANK and UBB. DSK Bank reports 16.25% return on its equity capital, occupying the eighth position as per that indicator, and the 2.03% return on its assets places it ninth in the ranking. The bank's managerial team is still to face the big challenge. As of 2004 the executives should strictly follow the targets, set by Sandor Csanyi, the Chairman of the Management Board from OTP. In November 2003 he announced that each year till 2008 included, the credits extended to citizens should go up 17 per cent. In the end of 2003 they amounted to BGN998.8MN. Moreover, the bank should sell about 2,000,000 debit and credit cards within four years. Currently their number is a little more than 350,000. The next task to the bank's present managerial team is to gain control on at least 8% of the corporate credit market. SG EXPRESSBANKhas long ago left behind the problems facing DSK Bank. The Bulgarian credit institution which was acquired by Societe Generale in 1999 managed to keep its position on the corporate market and also developed very strong positions on the market of individual services. That allowed the bank to constantly improve its financial performance over the past three years. According to information from BNB, the bank's 2003 unaudited profit amounts to BGN15.4MN and places the institution sixth in the national financial and crediting system. That profit would have been much higher, if SG EXPRESSBANK wasn't forced to provision the whole USD6MN loan to Energocable which the company stopped serving last June. The bank is also sixth in terms of net worth which amounts to BGN94.76MN. The total amount of its assets - BGN664MN, places it at the eighth position. With a 2.32% return on assets, SG EXPRESSBANK ranks sixth in the leaders' group. And in terms of return on the net worth it is seventh with 16.25 percent. Since the bank ranks in the top ten list of the BANKER weekly in terms of all the five indicators, it is among the best crediting institutions for 2003.Good profitsfor the past year were also reported by Biochim Commercial Bank (BGN16.58MN), First Investment Bank (BGN15.86MN), Raiffeisenbank - Bulgaria (BGN14.5MN), and Bulgarian Post Bank (BGN11.69MN). All of these banks are developing very aggressively. Their assets are increasing quickly both regarding the inflow of individual and corporate deposits and the increased size of credits launched. However, for various reasons the profits of these banks are not going up as quickly as their assets are.In the case of Bulgarian Post Bank and Raiffeisenbank - Bulgaria, the major factor for their profits' slow growth are the big expenses for foreign services (which usually include money paid for consultations and introduction of new info systems). In 2003, the Bulgarian Post Bank spent BGN13.1MN on this item - that's the second biggest expense of its kind in the financial and credit system. As to Raiffeisenbank - Bulgaria, it spent BGN10.6MN on foreign services.The relatively low profits reported by Biochim and First Investment Bank (lower than those reported in 2002) are caused by the greater number of provisions that the two banks had to allocate. Actually, this is the tax which these two banks paid for having increased their credit portfolios - Biochim by 78%, and First Investment Bank by 53 per cent. In fact, in 2004 this expense will probably be one of the most significant for all banks willing to develop aggressively and to conquer new market positions.

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