Банкеръ Weekly



Impetuous growth and fierce competition - these are the two most important characteristics of the development of Bulgaria's bank system over the last year. There is hardly a sector in the country (except probably construction) which could boast that its assets rose by almost 38 per cent. In September 2004 the total balance sheet value of banks amounted to BGN21.55BN, while 12 months later it rose to BGN29.71BN.
The fact that concurrently with that growth the gap between the ten banks with the highest assets and the remaining credit institutions becomes wider is hardly a surprise. In end-September 2004 the ten banks in question - DSK Bank, BULBANK, United Bulgarian Bank (UBB), Raiffeisenbank (Bulgaria), HVB Bank Biochim, First Investment Bank (FIB), Post Bank, EIBANK, SG EXPRESSBANK, and DSK Bank - had aggregate assets of BGN15.6BN, or 72% of the total balance sheet volume of the finance and credit system. Twelve months later, in end-September 2005, the assets of the top ten banks amounted to BGN22.25BN, or 74.9% of the aggregate balance sheet value of the sector.
The gap between the ten largest banks and the other credit institutions will continue to widen. There are several reasons for that. The first one is the consolidation process that is going on in Bulgaria. The merger between HVB Bank Biochim and HEBROSBANK (both owned by Bank Austria) will be finalized in 2006. As a result a structure with assets of BGN3.2BN - the third biggest in the country - will be set up.
The consolidation processes
which started in 2005 will continue next year with the merger between BULBANK and the structure established after the unification of HVB Bank Biochim and HEBROSBANK. It will be a result of the deal which ended in October - the acquisition of HVB by Italy's UniCredito, which is the owner of BULBANK. After their subsidiaries in Bulgaria merge an institution with assets of BGN6.5BN and equity capital of BGN878MN will be set up. Its credit portfolio will amount to BGN3.3BN, and the deposits attracted from citizens and firms will total BGN4.9BN. That will be the fifth largest credit institution in the countries of Southeast Europe, ranking after Croatia's Zagrebacka banka, Privedna banka, Erste Bank, and Romania's Banca Comerciala Romana.
The second reason for the broadening gap between the biggest banks and the remaining credit institutions in this country is the difference in their potential for growth. The large structures have opportunities to attract sizable credit lines from abroad with which they quickly increase the volume of credits, extended to citizens and companies and in that way attract new clients. Unlike them, the other banks in Bulgaria get financing from abroad that is much smaller in size and at not so advantageous terms.
The measures for restriction of credit growth
introduced by the BNB in March 2005 will additionally reduce the possibilities of small and medium-sized banks to compete with the top credit institutions. During the six months within which the BNB-imposed restrictions have been in force, some of the big banks (UBB for instance) have ventured not to observe them. They prefer to exceed the BNB-set limits for loans' growth in order to expand their market positions faster, paying for that additional amounts of money as minimum mandatory reserves. Small and medium-sized banks, however, cannot afford such a luxury and are forced to get into the set limits. Their situation will be complicated additionally after the introduction of BNB's new restrictive measures, which influence directly the growth of the most lucrative assets - consumer credits.
It's a fact that only big banks can presently afford to use aggressive schemes for expanding their market positions by steeply reducing the interest rates on loans (promotional interest of 0% to 3.6% for the first year of the credits' repayment) and maintain high return from long-term deposits (up to 8.8% p.a.). Due to all these factors the top ten credit institutions in Bulgaria report a higher growth of assets than the other banks in the country.
Since 1999 the BANKER weekly has been assessing the results of the policy followed by each bank according several criteria. Each quarter the BANKER rates the best credit institutions in this country according to the following indicators: balance sheet value, equity capital, profits, return on capital, and return on assets.
The group of the best banks
includes the institutions which are among the first ten according to all these criteria. Impartial figures showed that in end-September 2005 only DSK Bank and UBB satisfied that condition. The other banks are either too small in terms of balance sheet value, or their profit was not big enough to ensure them high return on assets and equity capital.

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