WHY CREDITING BY BULGARIAN BANKS IS INSUFFICIENT
Frank Bauer, Bulgarian American Credit Bank Executive Director
to the Banker weekly
Just like in political talks it seems that everybody has a special opinion on the matter why banks are not launching credits. First of all I'd like to mention the numerous precise opinions on the existing legal contradictions, supporting this statement. But till that moment in the ceremonial witch hunt nobody has reached the core of the problem.
Two other explanations were widely spread, but they have to be rejected immediately. The first of them, sounding like an excuse, said that relaiable clents were too scarce. A famous member of the banking community even said that there hardly were even twenty companies, for which you could be sure they will not turn insolvent in the near future.
I do not take this statement literally and I think that their number is much bigger, but is this that important? Actually the major thing here is that banking in essence should sift out the valuable opportunities and to undertake risks in risky situations. Why risky? Because crediting of the so called stable clients is not that attractive, and profit is thin. And one should remember that even the best students in the class may fail sometimes.
The second explanation is in the context of the banking system structure and it sees insufficient crediting as a result of the big number of banks, insisting that the minimum capital requirements of BGL10MN (approximately equal to the EU minimum capital requirements of EUR5MN) were too low. That is not correct at all. The banking system as a whole is suffering from an extremely high capitalisation. Naturally, there are banks, which do not have enough capital for launching big credits, but big credits are not the problem. The crediting of SMEs is missing. In the financial sphere size is important, but knowledge and skills prevail.
Are there too many banks in Bulgaria? In successful countries like Hungary and the Czech Republic, which are not bigger than Bulgaria, banks are not less. In other countries the so called banking operations, which in Bulgaria are confined to banks only, can be carried out by other institutions as well. Unfortunately, today in Bulgaria there is a kind of secret oligopolistic conspiracy in the manner of the big Bulgarian banks, who have the big money and invest them outside the country.
To counterbalance that I would say that in any economic sphere small and flexible private enterprises are innovative and change the rules of the game. The higher number of banks and the new banks will undertake those small revolutions, which will change the existing status and will bring the resurgence of the banking system.
Let us go back to the major question. Why is crediting insufficient, especially in a moment when, as a high ranking BNB official said, Bulgaria has the most stable economy and has reached the highest growth in the region? Shall we consider this as an appeal to the banking sector to enter into a more active crediting? If that is the case, I support it.
Yet, why banks are not crediting? The answer is simple: banks make good profit and there is no sense and need to change. Just think about it: the average long-term return on capital for the NYSE companies is about 12%. To make a comparison the 2000 profit reported by the Bulgarian banking system is about BGL282MN, or about 19% return on a capital of about BGL1.5BN. Rather impressive! On this background keeping the existing status is a matter of intelligent decision.