LAW ON BANK INTEREST IS NECESSARY
Susane Decker, Executive Director of ProCredit Bank, to the BANKER weeklyMs. Decker, the bank you head has been specialized in crediting micro-, small-, and medium-sized enterprises. Do Bulgarian entrepreneurs succeed to defend the projects for which they want loans? - The bank does not demand from its clients business plans in advance. Entrepreneurs come to us with the intention to start a business or expand an existing one. They tell us what exactly they need the credit for. We believe it would make things more difficult for them if we require a business plan. In such a case they would either pay to a consulting firm to prepare it as per the requirements, or will have to fill in from a to z the bank's forms. In both cases the information they will present us will not have much in common with the actual state. Therefore, after talking with the client, the bank's credit experts go to the spot to get acquainted with the work in the respective firm. Often it turns out that the business is combined, e.g. the person has been selling a commodity, but has decided to begin producing it as well. For the purpose he needs money in order to buy equipment or land on which to build his workshop or factory. He knows very well what he wants and he has thought over the details. After we see the preliminary contract for the purchase of the machines or the land, together we specify the implementation of the business idea, we make calculations, forecasts and conclusions. Are there any sectors and niches in the economy where ProCredit Bank refuses to invest as they are riskier? - We do not turn anybody away. The least we can do is listen to the client. If his business project is lawful and the idea in it is rational, we make what we can to assist it. The bank works with more than 40,000 clients, 30,000 of which are entrepreneurs and firms. All of them run either a small- or a medium-sized business. We do not have any restrictions regarding the economic sectors where our clients want to operate - from trade, production. services and leisure industry, to agriculture and construction. Sometimes it happens that a trader in shoes who has been buying them from an Italian producer for years and is acquainted with the details in the branch, decides to start producing shoes himself. He has made some money from the trade, but he needs an additional resource. He comes to us, we give him a hand, and in a while he organizes a production process. His shoes are not of an inferior quality than the Italian and he even exports some to that country. ProCredit Bank is still quite young. But although it's just three year old, it is already well-known to entrepreneurs. We are trying to expand our presence both through advertising and increasing out network of branches. We have 33 branches now, but their number will be 40 by the year-end. And we plan to make them 48 in 2005. It is very important for the client's convenience that the branch is near his home or office.You were recently in Frankfurt to coordinate with the shareholders the bank's plans for next year. What is the news from there?- The headquarters of the IMI fund, which manages the bank, is in Frankfurt. We do not have a parent bank as some other credit institutions with foreign capital have. ProCredit Bank has six shareholders: the International Finance Corporation within the World Bank; the European Bank for Reconstruction and Development; the German Agency for Investment and Development which is 100% owned by the German state bank KfW; the International Microinvestment Fund in Frankfurt on Mein; Kommertzbank, and Internationale Projekt Consult - a company for project management and establishment of microfinancing institutions. - Do you have problems with the repayment of extended credits? What is the share of bad loans?- Yes, we have bad credits, but they are insignificant. Nearly each 200th client of ours has temporary difficulties in servicing his credit. Bulgarian small-size entrepreneurs are prompt payers and are loyal to the bank, which in turn respects them. We not only finance their business, but we watch their development and help them as far as we can. The credit competition between domestic banks worries not only the Bulgarian National Bank (BNB), but the International Monetary Fund (IMF) as well. How do you estimate the restrictions, imposed by the central bank on crediting?- I've just received BNB's notice about the new credit restrictions. They were known in advance, so they were not a surprise. I believe the decrease of credits is economically sound because the huge credit expansion hinders sustainable development. The concentration of more money in the private sector and the population results in an increase of imports. The more loans are extended, the higher become the purchase power, demand and consumption. And when imports exceed exports, the scissors spread out and we have a trade unbalance. It is too big in Bulgaria - minus 8% of GDP - which is not good for the country. High pressure on inflation is observed in such a moment as well. When demand rises steeply and supply stays unchanged, then prices usually go up. The price hike is already a fact. Until recently I used to buy a cup of cappucino for BGN0.50 and it costs twice as much now. Inflation for 2004 has been forecast at 6%-plus, but some colleagues share the opinion that it would be much higher. As Bulgaria is in a currency board, the IMF insists on lowering the rate of crediting and the BNB undertakes the necessary measures.Do you believe they will yield good results?- I suppose the new restrictions will influence the credit expansion. The central bank made yet another very important step for the banking business - the central credit register was activated. It protects us from extending loans to unscrupulous clients. We are already able to check each client - if he is a prompt payer, if he has drawn loans from other banks and is not servicing them. What the financial market in Bulgaria still lacks is the establishment of mechanisms for greater transparency when advertising interest rates for credits. There is not a single law, nor ordinance, to formulate the credit price. In Germany and Great Britain, for instance, there are laws, fixing the efficient interest rate and all are obliged to observe the legal provisions. Transparency is thus achieved, which is necessary for the trust in banks. Low interest rates are currently advertised at large on the financial market in Bulgaria. Clients in fact pay a much higher price than announced, because nobody mentions the bank fees and commissions accompanying the loan, or the increase of interest rate after the first year of the repayment plan. The impression is that interest rates are low, but the tendency is just the reverse - they tend to go up. I hope the central bank will soon draft regulations for the interest rates on credits and for credit efficiency. How will the new restrictions influence the business of ProCredit Bank?- As I said, the restrictions were known in advance and each of the banks undertook respective measures in due time. It is certain that credits will be hiked, to enable banks cover their expenses. Thus, they will become less attractive to clients and their number will decrease. That's the idea of credit restrictions. Banks' profits will correspondingly go down and for avoiding liquidity problems they will be replenishing their minimum mandatory reserves by money attracted from citizens and firms or by purchasing government securities, or in the last resort - by fresh financing from the parent banks. BNB's measures mean more expenses and less profits for ProCredit Bank, too. But as crediting small- and medium-sized Bulgarian business is our shareholders' priority (and not the profits) we'll continue to give entrepreneurs loans at advantageous terms, because they will invest in the development of the economy in that way.