STABLE COMPANIES WILL BE OFFERED BETTER BORROWING CONDITIONS
Hristo Mihaylovski, Executive Director of the Bulgarian Credit Rating Agency, to the BANKER weeklyWhat will be the effect of the new capital-to-assets ratio requirements, known as the Basel Capital Accord II, that will be introduced in Bulgaria after the end of 2007 on the price of credits in Bulgaria?- When Basel II is introduced, solvent and stable companies will be able to get credits under more favourable conditions. It is a world practice now that the good borrowers subsidize the bad ones. The reason is that, according to the present criteria, all credits - regardless of who borrows them - are assessed with a 100% risk. When Basel II is introduced, the launching of credits to companies with a high credit rating and respectively a low risk will provide the banks with a better profit. In percentage, that profit may fluctuate between 4 and 6% of the launched resource. Therefore, good companies will be able to negotiate and pay lower interests for the credits they get.Will the credit rating become an obligatory condition for getting a loan once the Basel II requirements are introduced?- Anyway, companies will be given a credit rating. Whether it will be determined by Bulgarian agencies, by the banks themselves or by foreign rating companies will depend on the creditor himself. Basel II provides two approaches for assessing the companies' credit ratings. In the first case the company may be assessed by a specialized agency, and in the other - it may get an internal credit rating - i.e. the rating may be given according to the criteria of the bank's internal systems. All these credit rating assessments depend on the approval of the Supervision Department of the Bulgarian National Bank (BNB).To what extent will the internal credit rating be comparable to the criteria which banks use now to assess the risk for customers applying for a credit?- I do not know the systems that banks use very well, but the Basel II standard introduces new quantitative and qualitative indicators for risk analysis. So far, banks have been using mainly quantitative indicators - analysis of financial and accounting papers and respectively analysis of coefficients related to profitability, liquidity, efficiency, indebtedness, etc. On the other hand, we'll have qualitative indicators, too - related to market position, market share, technology used by the company, quality of management, planning and structure of the company. The other innovation is that a very serious analysis is required of the branch in which the applying company operates. This type of analysis is qualitative and quantitative, too. The qualitative part of the branch is, for example - development, stability of development, barriers in front of foreign investors, power of suppliers, power of customers, type of competition - monopolistic or price one. Moreover, methods will be used that reflect the probability of insolvency of the borrower, as well as the risks for declaring him bankrupt.We've been talking about corporate clients so far, including small and mid-sized enterprises. How will Basel II affect the individuals applying for a mortgage or consumer credit?- The analysis we've been discussing so far will not be valid in their case. Particularly the credits launched to small companies will bear a risk equal to 75% of the amount of the credit. According to the European standards, these small companies are eligible for credits of up to EUR1MN. In Bulgaria, the bank supervision is going to decide what that amount will be, because the supervision is the structure that eventually regulates the parametres of the various borrowers' groups.After the introduction of Basel II, will there be reassessment of the risk of credits already launched to individuals, small companies and corporate customers?- Yes, there will be renegotiation of the credits and it will take place starting from the end of 2007. Incorrect and unstable borrowers will be provided worse conditions and the reliable ones - more favourable ones.What is your forecast for the crediting policy in Bulgaria after 2007?- I think that crediting will keep growing actively simply because I expect lots of foreign investments to come to Bulgaria. That will stimulate the economy, its growth will keep its present rate, and insolvency will grow resulting in crediting expansion. Of course, the restrictions that BNB proposes will not allow a credit explosion, but even if restrictions are observed, credits will grow.