THE VIRUS OF CREDIT EXPANSION INFECTS SMALL BANKS, TOO
The virus of credit expansion infected almost all Bulgarian banks. Even the smaller ones that have been leading a relatively conservative crediting policy by mid-2003 made this activity their priority in the past year. Notably, banks with assets worth up to BGN500MN enlarge their credit portfolios much faster than large institutions did two or three years ago. For example, from June 2003 to mid-2004 INVESTBANK has increased the amount of credits launched by 278.2 per cent. The growth reported by ProCredit Bank is 148.7%, by Corporate Bank - 113%, by Demirbank (Bulgaria) - 105.9%, by UNIONBANK - 72 per cent. What all these banks have in common is the fact that unlike their larger competitors they have directed their efforts to crediting companies and individuals. Within a year INVESTBANK's corporate credits increased by BGN61MN and credits to individuals - by BGN5MN. For the same period of time Corporate Bank has raised its credits to commercial companies to BGN162MN, up from BGN79MN, while lending to individuals and companies amounted to just BGN1.9MN in end-June.In my opinion, a bank should know each of its borrowers and should permanently watch his financial status in order to be able to react in time in case that it gets worse. You know that loans to individuals cannot be put under such type of control. The criteria for launching consumer credits are quite formal. It is true that in this case the risk is shared by many borrowers. But there is no way to control them. That's why Corporate Bank prefers to lend to private companies which activity we can watch closely, Tsvetan Vassilev, Chairman of Corporate Bank's Supervisory Board, commented for the BANKER weekly.This philosophy is apparently shared by the managers of other banks - INVESTBANK, UNIONBANK, and Demirbank (Bulgaria). They prefer to credit companies. The same policy is also led by some larger institutions such as EIBANK and ROSEXIMBANK. For one year both banks have increased the amount of credits launched significantly. From June 2003 to the middle of 2004 loans launched by EIBANK went up by over 135%, and those launched by ROSEXIMBANK - by 97.5 per cent. Moreover, these banks only became active last March. Still, there is an explanation to that change of orientation. In June 2003 loans accounted for about 29% of the assets of the two banks. Even experts from the Bulgarian National Bank (BNB) Supervision Department admit that it is normal for EIBANK and ROSEXIMBANK to expand the crediting in order to raise their revenues. In the end of 2003 the total amount of the loans they had launched already accounted for 35% of their assets. The percentage rose to 44 in June 2004.Large credit institutions - with assets exceeding BGN600MN, keep following their policy for regular increase of the amount of loans. Of course, increase is rather temperate there (between 30% and 35%) compared to the growth in small banks. That's why in the middle of 2004 there is no institution meeting the requirements of the BANKER weekly for the most actively crediting bank. And the requirements are: amount of loans launched, increase of lending in one-year term, share of the loans in the total amount of assets. Most active in crediting are the institutions that rank among the top ten in terms of all the three indicators. But in the middle of the year banks that have launched most credits are not involved in the top ten in terms of credits launched.Unlike smaller banks, large institutions do not change their preference for consumer and home credits. These credits keep growing much faster than corporate loans do. In United Bulgarian Bank (UBB), corporate credits went up by 16% (BGN101MN), while loans to individuals rose up by nearly 100% (BGN154MN). The same trend is also noticed in HVB Bank Biochim, SG EXPRESSBANK and even BULBANK which had been known for its preference for traditions and corporate crediting until 2004. The policy of the large banks can be explained, too. Loans to citizens are usually launched at higher interests and provide higher yield to the banks. Besides, these institutions have developed networks of branches and the necessary software without which effective lending is impossible.According to experts, because of their large number and small size (up to BGN15,000) consumer credits burden the banks with smaller risks. It's true that according to BNB reports 96% of them are being served without delay in mid-2004. A total 94% of the loans are properly paid off, which means that corporate loans are more delayed than consumer ones. Of course, it should also be considered that lots of businessmen persuade their workers to sign loans and then cede them to credit the business. This type of financing is illegal, but it can only be caught if a worker either files a complaint or stops serving the credit. Then the swindle is found out, but it often turns out that the bank can no longer take effective measures to collect its receivable. Several cases of this type have been discovered in the past three or four years. According to information from the investigation office, consumer credit frauds totalling more than BGN50MN have been committed on the territory of the country. However, most bankers are not startled by this figure and find it within the limits of the rational risk that a bank should take if it wants to launch a product on the market. Some bank managers have even told experts from the BNB Supervision Department that shareholders had ordered them to launch consumer credits until they conquer a certain market share (which is usually about 10% to 15%). This is the explanation for the frenzied advertising invasion of various types of credits that has been going on across the country. Even the national bank was forced to take measures against the improper promotions of various loan services and threatened it would check every bank that advertises credit products with suspiciously lucrative conditions. However, the preventive measure is not going to stop the distribution of the crediting virus that appeared resistant to the other measures taken by the central bank.