Банкеръ Weekly


Bulgarian Capital Raises Share to 30% of Banking Sector

In a study of Standard & Poor's from the beginning of 2014 it is mentioned that the Bulgarian banking sector may have a potential problem because of the Greek and Italian capitals in it.

"Problematic Greek and Italian banks own part of the banking system, which limits the financial support for them by their mother banks," the experts of the rating agency wrote. The truth is that no Bulgarian bank would need capital injections from their parent structures.

The more important question is: is the local financial and credit system hostage to foreign investors? The short answer is - at a much lower level than it was before the crisis.

The statistical data of the National Bank (BNB) show that in 2009, 13.37% of all banking assets were controlled by Bulgarian owners - private companies and individuals. If we add to the bill the state participation in the Bulgarian Development Bank and Municipal Bank, the Bulgarian share in the assets of the banking system increased to 15.96%. Thus, the impact of public and private capital to our financial system was really negligible.

That was evident in the policy of the banks in the period of economic growth by 2009, when under the pressure of their foreign parent banks they financed the consumption and the construction boom. This policy led to a sharp increase in imports and a trade deficit, which in 2008 reached the alarming 20% of the gross domestic product.

The fact is that the Central Bank then took a series of measures to limit credit growth, but banks found a way to circumvent it. Then came the crisis, the withdrawal of external funding and the deteriorating loan portfolios, but not to the extent that it could be seen overseas and in most EU countries where it was leading to bankruptcy of banks. Among them were some giants who have received the highest marks for safety by international rating agencies.

What happened, however, was something different:

banks with Bulgarian capital

significantly expanded their influence and market positions.

On this occasion, the analysis of Standard & Poor's writes: funds from foreign parent banks significantly decreased, and they own 85 % of the sector. That funds from foreign banks in the country have decreased is true. But there is no credit institution that has suffered because of this. On the contrary, the problem of the banking sector is called

excess liquidity

which leads to low yields.

Is not it true that foreign banks hold 85% of our sector any more, At least with regard to the amount of assets. A quick analysis of the data of the Central Bank for the nine months of 2013, which incidentally are public, shows that banks with Bulgarian private capital controlled 26.65% of total assets in the sector, and combining this figure with the state and municipal banks the share rose to 29.86%.

Moreover, they are among the few that in the last four years of economic crisis grew in assets. In Corporate Bank this increase is a three-fold, for the First Investment Bank - 2.5-fold and for the Central Cooperative Bank - almost two-fold. The rise for INVESTBANK has been of about 70% and in International Asset Bank - 60%.

The increase in assets of the Bulgarian Development bank since the beginning of the crisis till the end of September 2013 was almost double and the Municipal Bank rose by about 30%. Most of these banks were able to grow in a very hostile environment and amidst growing resentment of the debtors. The fact is that due only to the growth of their own business that these credit institutions increased their market shares.

Furthermore, part of the Bulgarian capital began to expand its positions by

purchasing other credit institutions

some of which their foreign owners had brought to a deplorable state. Thus local investors contributed to the strengthening of the banking sector.

The first sign of this process was a group of Bulgarian investors associated with the owners of the Central Cooperative Bank, who in 2012 acquired a majority stake in Bulgarian Teximbank. The investment fund owned by Tsvetelina Borislavova, CSIF, bought Bulgarian-American Credit Bank from Allied Irish Bank. And regardless of the problems that initially were created by the other shareholder - the U.S. offshore Gramercy, it was able to increase the capital of the credit institution. This was an extremely important step for maintaining the stability of the Bank, because the Irish left such a bad credit situation that Mrs. Borislavova can still not cope with it.

In 2013 the First Investment Bank bought MKB Unionbank, which was then owned by the Hungarian Magyar Kereskedelmi Bank. Actually on the selling insisted the then owner of the Hungarian bank - the German Bayern LB. Because of the state aid received from Berlin the Germany's Bayern LB had to part with their subsidiaries abroad, including foreign subsidiaries of Hungarian banks. One of them was MKB Unionbank. After a year of negotiations the Germans accepted the offer of the First Investment Bank, which was supported by the Central Bank. The sale was completed in the fall of 2013, and then the process of absorption of Unionbank by the First Investment Bank began. It should be completed by the end of March 2014. After it, FIB is expected to become the second largest credit institution with assets of nearly 9 billion levs and pull down DSK from this position.

The last transaction in which a bank with Bulgarian capital acquired foreign credit bank's subsidiary, was settled in mid-January 2014. Corporate Bank agreed with the French Credit Agricole to buy its subsidiary Credit Agricole Bulgaria.

After completion of the transaction the total balance sheet value of Corporate Bank and its newly acquired Credit Agricole Bulgaria, which will surely change its name, will exceed 7.2 billion levs, and by the end of the year it may reach 8 billion levs.


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