Банкеръ Weekly



The bank sector is expecting the evaluation of the national debit and credit cards operator Borika, to be made by Globus Commerce Consulting. In June 2003 the firm won the competition invited by the BNB for appraising the value of Borika, from where the central bank should start negotiations for the sale of the cards operator. According to experts, familiar with the specific character of Borika, its evaluation could be ready within a month or two. Moreover, the managers of BNB, which is the single owner of the Bulgarian cards operator, were more or less aware of its price. In May 2003 when it was officially announced that Borika would be put up for sale, central bank's vice governor Bozhidar Kabakchiev said that according to him the company costs some BGN4.5MN. However, what matters is not the vice governor's estimates, but the evaluation, to be made by Globus Commerce Consulting. But its preparation has been long drawn out. BNB representatives claim that on the insistance of central bank's secretary general Velizar Dimitrov, who resigned in mid-October 2003, Globus Commerce Consulting's experts stopped working on the evaluation until the appointment of a new Governor. Meanwhile,commercial banks tried to consolidate their interestsconnected with the national cards operator. Since May when the BNB announced its intention to sell Borika till mid-September Mr. Kabakchiev's desk was heaped with letters from heads of credit institutions, stating willingness to buy the cards operator. Among the candidates were: United Bulgarian Bank (UBB), First Investment Bank (FIB), ROSEXIMBANK, Central Cooperative Bank (CCB), EUROBANK... Readiness to buy the company was also expressed by Bank Service AD - the firm which maintains the settlement system in Bulgaria and is owned by BNB (30% stake) and all banks, operating in Bulgaria (except Tokuda Bank, the Bulgarian branch of Alfa Bank, and the recently established West-East Bank). Back in May in financial circles there was talk that the best option would be that Bank service buy Borika and keep it as a subsidiary or take it over. In that way operations with debit cards in the country would be under the control of all banks and no conditions for unfair competition would be created. In mid-October 2003 the Board of Directors of Bank Service, chaired by BNB's vice governor Bozhidar Kabakchiev, decided to place at the central bank a proposal for the purchase of Borika. For the purpose the BoD demanded from all shareholders of Bank Sevice (27 of all the 30 banks and branches of foreign credit institutions, operating in Bulgaria) authorization for holding negotiations with the BNB. By October 24 the managers of 25 banks had sent letters in confirmation of that decision.The idea was not approved by ROSEXIMBANK. The reply of its managerial team did not include any specific motives, but financial circles commented that according to the bank's owners and executives it was not proper for a company (Borika in this case) whose single owner is BNB, to be sold to a firm (Bank Service in this case) in which the central bank holds a majority share again. And CCB's managers sent a letter by which they gave their principle consent to the deal, but only if the banks set up a separate company for the purchase of Borika.No matter what scheme for the sale of Borika is approved by BNB's Management Board, it should guarantee that in its operationBorika will attend to the interests of all bankswhich participate in the debit cards market. Such a balance is extremely important because it was the clash of interests between UBB and Borika that forced BNB to offer the national cards operator for sale. In 2002 UBB began to implement an entire info system, costing EUR10MN. Part of that system included its own centre, intended to service settlements with debit and credit cards through the 325 card machines of the credit institution (of all the 1,122 facilities installed in the country). In order to operate the card machines from its centre UBB had to link it with Borika. A scandal between the two institutions broke out in April 2003 as Borika's manager Alexander Matrozov told UBB's executive directors that the integration of its info centre with the national cards operator would cost it EUR200,000 and would take at least ten months. This provoked a sharp reaction on the part of UBB's Executive Director Stiliyan Vutev, who referred the matter to BNB's former governor Svetoslav Gavrijski. Three meetings followed under BNB's patronage between representatives of Borika and of commercial banks. A conclusion was reached that such scandals would be avoided only if the cards operator is controlled by the credit institutions.For a long timeBorika has been a thorn in the banks' sidedue to its monopoly on the market. Practically, the entire debit and credit cards market in Bulgaria depends on it. Its confirmation is required for each card that is issued and the company collects a fee for that. Each bank that installs a new card machine should get a certificate from Borika, costing a one-time fee of BGN10,000. The company's revenues from fees for the introduction of personal cards in the system in 2002 alone totalled BGN427,000, its proceeds from issuance of certificates amounted to BGN224,000, and those from installation of POS-terminals were BGN649,000.Credit institutions pay Borika fees for each money transfer. For the first half of 2003 alone their number exceeded 2,000,000 and their total value was BGN2.24BN. A year earlier, in 2002, banks paid to the company about BGM3.3MN in fees for transactions with debit and credit cards.It is obvious that Borika's business is quite lucrative as its proceeds are constantly rising, while its expenses are very low. According to some financiers, Borika is one of the few limited liability companies in Bulgaria, which profit (in 2002 it exceeds BGN2MN) is equal to 37% of all proceeds from its operation (in 2002 they exceeded BGN5.46MN). But its single shareholder BNB did not get even a penny in dividend from that profit last year. It is not clear for what reasons Borika is accumulating the profit in its capital. From the company's financial reports for 2001 and 2002 it could be seen that it did not make big investments. Last year Borika spent BGN1.7MN for computers and servers, and BGN1.5MN was invested in equipment in 2001. Expenses for software in 2002 (BGN728,000) were BGN50,000 down from the previous year. Borika's liabilities total BGN521,000 and in the same time it keeps BGN3.3MN in its accounts.With these financial indicators the company resembles a saving box.At that, the increase of its proceeds is 100% guaranteed, as the trends on the market of card settlements show that the business has a huge potential for development. E.g. 270,000 cards were issued in 1998, while five years later their number increased 8-fold, totalling 2,200,000 (4,500,000 citizens in working age). At that, banks are presently launching a large scale issuance of credit cards, which would attract new clients and result in higher turnover and profit for Borika. The managers and shareholders of the two companies view differently the accumulation of profit. Bank Service reduced its fees by some 25% within the first nine months of 2003. At the same time, despite its very good financial results Borika has not changed its financial terms regarding the banks. For that reason the credit institutions cannot lower the fees, payable by citizens who use debit cards. Bank managers are afraid that if a limited number of people take over Borika's control, they'd take advantage of its monopoly position and won't change its current policy. According to them, this will be at the expense of all the other participants in the market and their clients. Therefore, most of the managers believe that peace in the bank sector could be maintained only if all credit institutions have control over Borika.

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