BATTLE FOR MARKET SHARE DRAINS BANKS' POWER
Eight years and a half after the introduction of the currency board arrangement in Bulgaria credit institutions seem to be on the crossroads again. The data for their development in 2005 show that albeit slowly, the fierce battle for expanding their market share over the last three years has begun to drain their power. Attracted money from citizens and firms go up much slower than the aggregate amount of their loans and assets. For the entire 2005 the balance sheet value of the finance and credit system rose by 31.86%, from BGN24.92BN in the beginning of the year to BGN32.85BN in its end. The total volume of extended credits increased somewhat quicker, by 33.89%, despite the restrictions imposed by the Bulgarian National Bank (BNB). In the beginning of 2005 they totalled BGN13.81BN, while 12 months later their amount was BGN18.38BN. In the same time the growth of citizens' and companies' deposits, which are by rule the main source of funds for credit expansion, is much lower than that of credits and assets - 22.23 per cent. In the beginning of last year they totalled BGN16.73BN, while in the year-end they reached BGN20.45BN. As the BANKER has already written, each lev of that increase in deposits has been invested in crediting. There went also all funds Bulgarian banks had succeeded to attract throughout the year from foreign financial institutions. And that amount is not negligible. In the beginning of 2005 domestic banks' liabilities under credit lines and loans from aboard amounted to BGN1.52BN, while in the year-end they reached BGN2.34BN.
All these numbers and dependencies would not be alarming at all if the efficiency of credit institutions was improving. That should be the normal result of the fast growth of credits and their increasing share in the aggregate size of banks' assets. It's true that the bank system's profit registered a growth and totalled BGN584.24MN in end-2005, marking a 34% increase year-on-year. Nevertheless, the return on assets which is the main indicator about the efficiency of the finance and credit institutions, is going down. In end-2005 it was 1.54%, down from 1.7% a year earlier.
The results of the policy conducted by each bank are considered according to several criteria according which the BANKER weekly has been rating the best Bulgarian banks each quarter since 1999. These indicators are: balance sheet value, equity capital, profit, return on assets, and return on share capital.
The group of the best
includes the institutions which are among the top 10 performers according to all these indicators. Impartial figures showed that in end-2005 only DSK Bank, United Bulgarian Bank (UBB), Societe Generale EXPRESSBANK and EIBANK satisfied the criteria for listing them in the BANKER's ranking. The other credit institutions either have quite small balance sheet values, or their profit is not big enough to ensure them high return on assets and share capital.
not only succeeded to occupy a leading position in the finance and credit sector, but managed to affirm in it as well. Still in the beginning of 2005 the credit institution whose sole owner is Hungary's OTP became the top bank in terms of assets, getting ahead of BULBANK according to this indicator. Throughout the year the difference continued to increase and in end-2005 the balance sheet value of DSK Bank reached BGN4.5BN, up BGN1.2BN from the beginning of the year. Moreover, the difference between its balance sheet value and that of the second biggest credit institution in this country - BULBANK - continued to go up and reached BGN1.1BN in end-September 2005, up from BGN300MN in the beginning of the year.
The expansion of DSK Bank's market share allowed it to steeply raise its profit and it reached BGN122.5MN in the end of 2005, up BGN51.57MN from the same period of 2004.
is also successfully combining fast growth of assets and high profit. In 2005 its balance sheet value rose from BGN2.2BN to BGN3.18BN. According to that indicator UBB is already catching up with BULBANK, which balance sheet value was BGN3.41BN in end-September. UBB's profit still goes up at the same rate at which its assets increase, reaching BGN93.86MN in end-2005, almost BGN25MN up from the same period of 2004. The return on share capital in UBB was 22.24%, and the return on assets - 2.96 per cent.
SG EXPRESSBANK, renamed to
Societe Generale EXPRESSBANK
in the beginning of 2006, surpassed the BGN1BN balance sheet value barrier last year. In the end of 2005 its assets amounted to BGN1.08BN, up 41.3% from the beginning of the year. This makes it one of the most dynamically developing credit institutions in our country. In 2005 deposits of non-financial institutions and natural persons rose by 54.6%, from BGN592.97MN to 916.77MN, and extended credits increased by 25.9%, from BGN556.36MN to BGN697.64MN. The bank reported a pretty good profit of BGN26.06MN, which ensured it 2.4% return on assets and 17.75% return on share capital. As a result of the policy followed by its managers Societe Generale EXPRESSBANK is presently one of the most stable credit institutions in this country.
also found its way to the group of the best performers among credit institutions in 2005 and the main reason for that is its high profit, standing at BGN33.76MN in the year-end, three-fold higher than the BGN10.37MN a year earlier. In contrast to other banks, however, proceeds from crediting are not the main source of EIBANK's profit. Revenues from crediting (after deducting expenses) amounted to BGN15.77MN in end-2005, only BGN1.7MN up from end-2004. However, the bank managed to cut down almost twice its expenses for provisions and to report BGN35MN profit from additional operations.
The present configuration of the Bulgarian financial market, which is dominated by about a dozen of big players, is not likely to change over the next few years. On the contrary, after the merger between BULBANK, HVB Bank Biochim, and HEBROSBANK, the institutions that set the trends on the domestic financial market will decrease from ten to eight. This, of course, does not mean that the smaller banks do not stand a change to develop on the market. But their affirmation will require much more efforts on the part of their managers and shareholders.