Банкеръ Weekly



BNB SHOULD NOT RESTRAIN BANKS THAT LEND TO THE INDUSTRYSASHO CHAKALSKY, EXECUTIVE DIRECTOR OF ENCOURAGEMENT BANK, TO THE BANKER WEEKLYMr. Chakalsky, what is the total amount of foreign financing which the Encouragement Bank works with?- Up till now the bank has received long-term credit lines for EUR30MN. This amount covers the credit line of EUR15MN provided by the Council of Europe Development Bank, a credit facility for EUR10MN launched by the European Investment Bank and EUR5MN from the Black Sea Trade Development Bank. These are long-term investment funds, given to the Encouragement Bank for a ten-year term, which the bank will direct to the small and medium-sized companies in form of loans. To the above-mentioned amount should be added a guarantee line for EUR21MN, provided by the European Investment Fund (EIF). It will enable the Encouragement Bank to extend without a big additional risk the credit facilities for small and medium-sized enterprises and at the same time to lighten the requirements for clients pledges on the loans. We can, for example, launch credits with 85% of their size pledged by the borrowers, but not the usual 110-120 per cent. That will to a great extent increase the ability for small and medium-sized firms financing, especially those which are just starting their business and have no enough big assets for guarantees. What kind of advantages does this guarantee line provide?- The European Investment Fund has the engagement to cover 50% of the credit amounts launched to small and medium-sized companies if they stop serving them. Naturally, the fund has formulated some limits. It will pay to the bank 50% of the defaulted loans only in case their total amount is twice the size of credits classified by us as a loss (i. e. 3.7% of the total credit portfolio) at the end of 2003. The main goal of this clause is the Encouragement Bank to keep enough high its requirements to the clients to regularly serve their loans. Are there any credits on which the Encouragement Bank has used guarantees provided by the European Investment Fund?- At present we have launched loans for EUR12MN with 50% of them covered by EIF. But up till now we have no cases to make use of the fund's guarantee.Don't you think that the foreign investment which you mentioned at the beginning is too expensive to the bank?- If you are seeking special funds to finance small and medium-sized firms, but not credit lines in general, financing is not so expensive as in the European Union and all over the world there are specialized financial institutions ready to provide long-term credit facilities at low price if the bank which receives the money used it only for loans to this sector. You know that the Encouragement Bank finances only this branch. All our credits with 83% of them for longer then three-year term, are aiming at developing the small and medium-sized business.The Encouragement Bank works mainly with long-term funds from abroad. At the beginning of July, however, BNB ruled all banks to put aside 4% of this money in form of minimum required reserves. Won't that requirement make these credit lines unprofitable for you? Would you be forced to increase credit interests?- We will try to preserve interests on our loans. BNB requirement for putting aside 4% of the long-term funds received however will cause some difficulties which in any case will not be invincible. The main question here is why these restrictions punish banks that finance the Bulgarian economy reconstruction and new jobs creation. As long-term firm credits which we and other banks provide aims at exactly this result. This money is used for machines, equipment, technology and commodities import, i. e. all things needed for Bulgarian manufacturers to produce goods for the way of living, but not the industry. In this sense, in my view, it will be better for BNB to consider whether it will be possible all these restrictions to be levied only on institutions that extend the size of consumer loans or credits launched to companies for import and trade of foreign everyday goods. Now it happens that in IMF request there are limits which make funds attracted by the banks more expensive. This in turn urges most credit institutions to focus on more profitable transactions for to cover additional costs. As it is well known, the most high-yielded loans are consumer ones as the margin between their interests and the interests on funds attracted from individuals and companies is the highest. It may sound strange but these are the restrictions asked for by the IMF which create circumstances for lowering firms credit growth and increasing consumer loans. I don't see the sense for punishing producers and banks which finance them. In the spring of 2004 the Encouragement Bank became a member of the Club of EU institutions which are specialized in long-term crediting. What is the benefit of such membership?- Until our bank entered this club it was open only for participants - financial institutions from the countries of EU. The club was set up 30 years ago and representatives of its members meet several times annually. Our enter in it allows us access to the best practices for providing long-term loans, as well as to cheaper credit lines with a long repayment term. We can discuss in the club different strategies for long-term financing with representatives of the biggest institutions which launch it, including the European Commission, European Investment Bank, European Investment Fund. Are there other credit institutions - members of this club which like the Encouragement Bank are focused on small and medium-sized business?- In the club participate mainly state banks orientated in small and medium-sized companies financing. Such are for instance the Dutch NIB Capital, Finnvera from Finland, the Luxembourg Societe Nationale de Credit et d'Investment , Nordic Investment Bank from Norway and the French state bank for development of small and medium-sized enterprises. We managed to become a member of this club namely because we are a state bank. Are there in the countries from Central and East Europe which entered the EU in 2004 any state banks for small and medium-sized business financing?- Yes, there are such banks in Hungary, Czech Republic and Slovakia. They are not only providing the small and medium-sized companies with credits, but also offer them guarantees when they apply for credits from private banks. I am asking you because two years ago the World Bank urged for Encouragement Bank to be transformed in an agency. Such question is not the topic of the day now, I hope?- Yes. As far as I know the existence of the Encouragement Bank is not questioned at the moment. Moreover the practice has shown that in the EU banks like ours play important role in developing the small and medium-sized business. Is it true that the European Investment Fund is interested in buying 25% of the Encouragement Bank shares?- I must firstly say that our cooperation with the fund is very fast extending. It is a huge financial institution which manages assets of EUR7BN and has the highest possible credit rating - AAA. The EIF aims for supporting small and medium sized enterprises fully match the Encouragement Bank ones.From all credit institutions in the countries applying for EU membership our bank was the first to receive the right to use the special products of the fund like the guarantee credit line. It is normal our plans for cooperation to advance and in a certain moment to pass to a higher level. Does it mean that the EIF could buy Encouragement Bank shares?- Why not?

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