Банкеръ Weekly



It seems a difficult task now to stop the tearing credit expansion of the banks in Bulgaria. Regardless of all warnings the International Monetary Fund (IMF) has been making and the series of measures the Bulgarian National Bank (BNB) has been taking to restrict the growing number of loans, individuals and companies keep applying for credits as if the world is going to end tomorrow. Curiously, a great part of the applicants get approval. The total amount of extended credits increased by almost BGN900MN in the first quarter of 2004 - from BGN9BN to BGN9.9BN. In April alone loans rose by another BGN400MN, central bank's figures show. According to the managers of some of the big banks, the growth was not a result of large-scale advertising campaigns, but was rather due to the citizens' fears that access to credits would become more difficult after the introduction of restrictive measures on the part of BNB.I guess that many people who have planned to borrow money next summer or autumn rushed to do that in the end of winter, because they feared they would not get it later in the year, Levon Hampartsumyan, Chairman of BULBANK Management Board, commented for the BANKER weekly. The CEO of United Bulgarian Bank (UBB), Stiliyan Vutev, also shares the opinion that the increased amount of launched credits was not a result of any special measures undertaken by the banks.UBB has not changed its methodology of making decisions for the extension of loans. If a client meets the requirements, he gets financing. The total amount of credits we launch grows by BGN30-40MN every month and we consider it a natural process, Mr. Vutev said.Of course, it is a bank's natural function to lend money since loans have remained the almost only financial instrument that could bring good profit. According to BNB data for the first quarter of 2004, the aggregate amount of revenues in the bank sector approximated BGN424MN, including BGN270MN in revenues from extended credits. Moreover, at present loans are still 53% of all bank assets which exceed BGN18.8BN. But this half of the assets is the main reason for the profit reported by the domestic finance and credit system, which amounted to BGN114.2MN in the first quarter of 2004.The three-month results describe a rosy picture of the bank sector. But this is just the first impression.Analysts in BNB are seriously worried by the fact that the competition for taking a bigger stake of the crediting endangers the health of the Bulgarian financial system. Central bank experts comment that if problems appear in the serving of 10% of the loans which are currently being paid off properly, a lot of banks will find themselves in a difficult position.We only hope that the economy will not collapse and influence negatively the solvency of citizens and companies. If that happens and servicing of part of the loans stops, the capital-to-assets ratio of some banks will fall below the lowest 12%, a BNB expert told the BANKER weekly. He added that the central bank was not allowed to make public data about individual banks' capital-to-assets ratio, but nevertheless the indicator was very close to the minimum for about a dozen of local banks, according to him. In order to make credit institutions control more strictly the prompt repayment of loans and to analyse the solvency of their clients, earlier this year BNB introduced a number of restrictions. The 120-day term during which a non-redeemed loan must be classified as a loss and entirely covered by provisions from the banks' positive financial results was reduced to 90 days. The banks were forbidden to raise their equity capital by the current profit.However, these measures did not scare the banks. Most of them kept launching credits even more furiously. In fact, considering the ranking that the BANKER weekly has been preparing every quarter since 1999, the best banks group for the first quarter of 2004 is headed by financial institutions that are following an aggressive credit policy. They are DSK Bank, UBB, SG EXPRESSBANK, and Raiffeisenbank (Bulgaria). We should recall here that all banks are ranked according to five indicators: balance sheet value, equity capital, profit, return on assets, and return on equity capital. The elite group includes only credit institutions which are ranked at the top ten positions according to the above-mentioned indicators.

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