BIG BANKS DOMINATE
Banking market in Bulgaria has been prosperous. That is at least what the Bulgarian National Bank's data have showed. While Western Europe continues sending worrying signals for large bankruptcies and dangerously large asset write-offs, the results posted by Bulgarian banks are totally different. At the end of September, the assets of the financial crediting sector in Bulgaria came to BGN69.35 billion, which was an increase of BGN17.6 billion as compared to end-September 2007. Banks' own capital has risen by BGN2 billion, reaching BGN7.6 billion, while their total profit reached BGN1.1 billion, up by BGN250 million as compared to the situation a year earlier. Having in mind that there is no problem with the liquidity in Bulgaria, the payments are carried out regularly and with no undue delay, and that the proportion of the overdue payments does not increase, the picture becomes almost rosy. We will have to specify that these figures are for the first nine months of the year, while the peak of the financial crisis began in early October with the bankruptcy of the U.S. investment bank Lehman Brothers. It was not until then that the international markets plummeted, which made the governments of the USA and some EU-member states take urgent measures for saving the financial system. There will be no surprise if the overall picture changes significantly in the last quarter of the year. But this is only a speculation.
It is true that the bank sector is stable, but its situation is not ideal. The difficult access to external financing has left its mark and it is already obvious that banks put a lot of efforts in attracting funds from citizens and companies using interest rates as the main bait. The accent is on the citizens' savings. The companies are not, as it seems, an attractive source of money. The funds on their accounts rose by only BGN50 million over the first nine months of the year and reached BGN20.2 billion. The fact that the demand on the international markets dwindles because of the international financial crisis has a serious effect on the local production sector.
The aggressive advertisement and the constant promotions of higher interest rates attract the attention of the general population. From the beginning of the year to end-September the savings of individuals rose from BGN18.98 billion to BGN22.15 billion and exceeded the savings of businesses in terms of volume. The competition in attracting funds leads to certain distortions and even to some perversions, though. All too often the announced interest rates are only promotional and do not correspond to the real annual yield the depositor will receive. Besides, the ever-increasing price banks pay for attracting these funds has to produce negative effects on their financial results some day.
As far as the credits are concerned, the low proportion of overdue payments may be deceptive since it is not a secret that many banks refinance some of their clients so that they may reschedule their debts. This happens irrespective of the fact that the financial condition of the debtor has not worsened. Bank executives say they devise such refinancing and rescheduling moves in order to facilitate their clients, which is only part of the truth. Of course, nobody wants to destroy its clients, because their business success is profitable also for the banks. The refinancing and rescheduling of credits brings yet another benefit to the banks - they may keep their receivables in the highest classification group of regularly served debts, which allows them not to allocate additional provisions for them. Provisions are additional expenditure for the banks and they only decrease their profit, cause decrease in their own capital and lead to reduced capacity for loan extension. That is how banks have in fact reasons to try to present troubled credits as good ones.
Here comes the supervisory department of the National Bank that is to detect and impose sanctions for such practices. As a matter of fact the inspectors of the department previously headed by Emilia Milanova and by Rumen Simeonov now, have gained much experience in the revising of re-classified credits. The Central Bank issues almost every month instructions to a bank to allocate additional provisions under some of its credits extended to companies. Having in mind the speed credit institution react to such instructions, they obviously have the money to do so, but are always trying to turn a blind eye. All this means, apart from some concerns, that the financial system in Bulgaria is in a healthy state. Of course, as every year, there are top-notch players.
Every year BANKER prepares a list of Bulgaria's top performing banks assessed in accordance with five criteria. These are the volume of assets, the own capital, the profit as well as the yield of the own capital and the assets. The combination of the first three quantitative criteria and the last two, indicating the effectiveness of the banks, gives a relatively realistic picture of the perspectives for further development. Besides, their complex application almost excludes any possibility for distortion of the classification due to one-off moves such as sharp increase in the revenue due to provisions re-integration or other accounting loops of the kind. We should specify that we do not carry out calculation of the data on a monthly average basis. Only the banks that are among the top ten on all of the five criteria go into the top five list. Under this situation, the list for the first nine months of the year is populated by the five largest banks in Bulgaria. These are UniCredit Bulbank, DSK Bank, UBB, Raiffeisenbank Bulgaria and Eurobank EFG Bulgaria. The market share of these five institutions vouches for the stability of the Bulgarian financial sector. The five together control 57.8% of all assets in the sector, 51% of the corporate funds, and 55% of the individual savings. Apart from that they have extended 33% of all loans to commercial entities and 83% of all loans to citizens. These figures should be enough to say that the financial condition of the five is of great importance to the whole stability of the banking sector in Bulgaria. The figures show that the five largest banks are not only stable, but are also aggressively doing new business. The return-on-capital ratio of between 15% and 18% is considered to be a very prosperous one in the western countries even in an increasing economy. It is all the more admirable having in mind that we are in a period of crisis when many financial institutions post negative yields. Let us remind, though that this situation was registered before the largest crashes in the USA and some EU countries and before the unprecedented financial rescue plans of the authorities there. We can only hope that the present picture will stay at least unchanged by the end of the year and maybe even after that.