Банкеръ Weekly



The Bulgarian banking market is getting increasingly stratified - a few outstanding players and... all the rest. Statistical figures provided by the Bulgarian National Bank (BNB) reveal that 63% of all assets of the financial and crediting system are controlled by seven crediting institutions whose assets exceed BGN2BN. They are DSK Bank, BULBANK, United Bulgarian Bank (UBB), Raiffeisenbank (Bulgaria), HVB Bank Biochim, First Investment Bank and Post Bank. The total amount of their assets is BGN22.6BN, whereas the amount of assets of all banks operating in Bulgaria is BGN35.99BN. The seven largest banks manage 55% of all loans launched as well as 62% of all deposits of individuals and companies.
There are several other institutions that are growing fast - EIBANK, Societe Generale EXPRESSBANK, DZI Bank, HEBROSBANK, Central Cooperative Bank and Allianz Bulgaria Bank. The union of Piraeus Eurobank (Bulgaria) and the Bulgarian branch of its owner, the Greek Piraeus Bank, resulted in the creation of a new big crediting institution whose assets amount to BGN1.4BN as of June 30, 2006. In fact, the merger of the two showed how two insignificant players in the Bulgarian financial sector could establish an institution that is a market factor which everybody should take into account from now on. Nevertheless, Piraeus Eurobank (Bulgaria) will hardly manage to catch up with the seven biggest institutions in the country in the next one or two years.
Figures provided by BNB as of June 30 show one more trend.
Measures for restricting lending
which the central bank took in early April 2005 are already showing lasting effect on the market. The total amount of loans launched in the banking system has only grown by 21.1% - from BGN15.6BN in June 2005 to BGN19.81BN as of June 30, 2006. The growth rate varied between 40 and 50% in previous one-year periods. The indicators achieved prove that BNB's intervention was timely and productive. They also disprove the fears of some analysts that the measures would affect negatively the profit reported by the crediting institutions. Just the opposite - the banks' positive financial result amounted to BGN341.97MN as of June 30, 2006, compared to BGN277.48MN a year earlier. We should also take into account that during this period the banks were forced to allocate bigger minimum required reserves as well as higher provisions on consumer loans which became one of their main sources of revenues in the past few years.
Besides, one of the institutions with the highest profits reported in past periods -
BULBANK, reported much smaller financial results as of June 30
The bank ended the first half of 2006 with a profit amounting to just BGN18.67MN. A year earlier, its profit was BGN53.18MN. However, the reason are not problems in the bank itself but the costs it has to pay for the successful implementation of its pending unification with HVB Bank Biochim and HEBROSBANK. The union will be realized in the middle of 2007, but its actual implementation requires lots of additional resources that are to be invested in the integration of the administrative units, the building of a new single information system and the equalization of the business products of the three banks. It's a fact that BULBANK's maintenance costs amount to BGN96MN as of June 30, 2006, whereas they were BGN38.2MN just one year earlier. That sudden rise that reflects directly on the profit is entirely due to the extra funds BULBANK is paying in order to secure the successful takeover of HVB Bank Biochim and HEBROSBANK.
The restrictive measures of BNB had one more important positive effect on the crediting institutions.
Banks were forced to raise their shareholders' equity
in order to maintain the speed of lending to individuals and companies. Many people might not know that the amount of credits a bank launches is directly dependent on the amount of its shareholders' equity. The larger the equity, the bigger the loans the bank can launch. This is why, because of the measures taken by BNB, almost all banks were forced to give up paying dividends and use their 2005 profits for increasing the shareholders' equities. At the end of June, the total amount of this financial indicator for the banking system is BGN3.81BN, compared to BGN3.03BN a year earlier.
It is an elementary financial truth that the increase of the shareholders' equity automatically results in an increase of the stability of the banking system. So if the measures of BNB are the reason for this to happen, we can conclude that they have had a healthful effect on the Bulgarian financial and crediting system.
In the financial market condition described above, there are six banks that find a place in
the BANKER weekly ranking
of the best crediting institutions in the country. Every quarter since 1998 the newspaper has been reporting the most successful banks on the basis of five indicators - amount of assets, shareholders' equity, profit, return on shareholders' equity, and return on assets. The institutions included among the top ten by all five indicators are placed in the group of the best banks. In June, this group included DSK Bank, UBB, Raiffeisenbank (Bulgaria), HVB Bank Biochim, EIBANK and SG EXPRESSBANK.
Because of the lower profits and the large shareholders' equities, the group does not include some of the biggest crediting institutions in the country such as BULBANK, First Investment Bank and Post Bank. We already explained the reasons why BULBANK fails to find a place among the best - the sharp increase of costs on the coming consolidation with HVB Bank Biochim and HEBROSBANK. As to First Investment Bank and Post Bank, they are very stable crediting institutions but their assets and equities are growing much faster than their profits do, therefore they are not part of the top ten by return on assets and return on shareholders' equity.

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