Банкеръ Weekly



The dynamics of real business is like that of a sports race. The contest between Bulgarian credit institutions for the local bank market is going on at the same speed. Their managers clearly realize they can expect success only if they manage to attract a larger number of solvent customers. Judging by the ads we'll find that a new financial product appears on the market almost every week. Banks are already quitting the standard distinguishing between big and small clients, between private citizens and companies, and are trying to offer services that would be to everybody's liking. Growing competition will inevitably lead to gradual increase of interest rates on deposits, offered by financial institutions, and to a reduction of the fees and commissions, charged from both citizens and firms. Banks will tend to rely on crediting more and more. Not only the nominal value of credits, but their share in the bank sector's assets is going up.
The total amount of loans, lent by operating Bulgarian banks (excluding the branches of foreign financial institutions) exceeded BGL2.9BN by end-July 2001, accounting for 28.5% of all their assets. A year earlier extended credits totalled BGL2.4BN - about 27.8% of the aggregate balance sheet value of the financial and credit system. In the June 2000 - June 2001 period local banks' assets went up by 20.7%, and released credits - by 23.7 per cent. This shows that (although slowly) credit institutions' managers are increasing the volume of the loans they release. This process is expected to gain speed as a tendency is emerging that the interests on foreign markets will lower the proceeds from deposits kept abroad, and they would not be sufficient to cover the increasing expenses of banks. And banks' costs are not expected to decrease, at least for the time being, because the big credit institutions are currently spending quite a lot in renovation of their information systems. Considerable amounts are also set aside for increasing the remuneration of their personnel. Figures show that in mid-2001 about 68.3% of the banks' operational proceeds were eaten up by maintenance costs. A year ago this amount was 62.1%, while in a well-developed and fairly operating bank system is should not exceed 50 per cent.
The race for expanding market positions reflects directly on the current financial results of credit institutions. Fierce competition between them led to changes in the group of the best Bulgarian banks, which the BANKER weekly has been rating each quarter for three years now.
In end-March, 2001 the elite club was left by United Bulgarian Bank (UBB), which posted a comparatively low profit on the background of its considerable balance sheet value and large equity capital. The State Savings Bank (DSK) also quit the group of the best Bulgarian banks in the end of June. Despite the quick growth of its balance sheet value - by 19% in June 2000 - June 2001 - DSK's profit dropped by more than 8% within the same period. However, it should be noted that DSK's performance was not due to lower net operating profits (including net proceeds from interests, trade in securities and foreign currencies, and from fees and commissions). On the contrary, they doubled as compared to June 2000. Expenses for maintenance of the credit institution rose by 110% in the same period, reaching BGL33.1MN by end-June 2001. Costs for salaries, social insurance, external services, and other expenses, also doubled. It's clear that the credit institution's management should undertake additional measures to optimize its spendings.
In mid-June 2001 GS EXPRESSBANK made its debut in the elite club, after activating crediting as of mid-2000 and paying special attention to loans to citizens. Consumer credits rose almost 2.3 times within a year. However, the bank faces problems regarding the collection of its receivables from private companies. Within a year (June 2000 - June 2001) SG EXPRESSBANK increased its balance sheet value by more than 37% - from BGL377.6MN to BGL518.8MN. The bank's operational profits jumped up from BGL12.2MN to BGL23.3MN, while its maintenance costs remained almost unchanged. The credit institution's after-tax profit reached BGL7.8MN in end-June 2001, way up from BGL1.2MN a year ago. The steep rise resulted also in an increase of the ratio between return on share capital and ruturn on assets. By these two criteria SG EXPRESSBANK was placed among the top 10 Bulgarian credit institutions.
Members of the club of elite banks in mid-2001 are: BULBANK, First Investment Bank (FIB), Biochim commercial bank, HEBROSBANK, and SG EXPRESSBANK.
BULBANK is still the invariable leader in the group of the best Bulgarian credit institutions. It is No 1 according to four of the five indicators by which the BANKER rates the best Bulgarian banks. BULBANK ranks first (and will for a long time retain its leadership) according to the size of its balance sheet value, equity capital, and profit. In addition, it boasts of the best return on assets, and is second according to return on share capital.
BULBANK is persistently increasing its assets, whose total amount is twice as big as those of the next two credit institutions on the list - DSK Bank and UBB.
BULBANK's profit by mid-2001 amounted to BGL134.4MN, or 66.1% of the entire bank system's profit. However, it is important to note that the merit for this performance also goes to BULBANK's former management, headed by Chavdar Kanchev. His managerial team set had aside for provisions on foreign currencies more than BGL136MN in 1997, which in the beginning of 2001 were transferred (reintegrated) into the bank's positive financial result. In mid-June BULBANK's pre-tax profit totalled BGL185.6MN. If the above-mentioned provisions are deducted from the profit it will go down to BGL49.6MN, that is twice less than in June 2000. Next eyar, however, the bank will not have so much provisions to reintegrade into its ptofit. Therefore, it its proceeds from interests and trade in securities and foreign currencies for not increase, the bank's profit might decline considerably and BULBANK might drop out of the top ten.
According to bank circles, the restructuring which is going on at the credit institution since the beginning of 2001, reflects on the efficiency of its operations. The bank's owners - UniCredito Italiano - should be quick to complete the recruiting of both its superior management team and of the medium management personnel.
Biochim remaine in the elite bank club for a second quarter in succession and continues to improve its finnacial indicators. Pre-privatisation expectations obviously have a positive influnce on the efficiency of the state-owned credit institution's management. Within a year (June 2000 - June 2001) Biochim incerased its balance sheet value by more than 32%, and its equity capital went up from BGL37MN yo BGL60MN. Indeed, in the end of 2000 the Bank Consolidation Company increased it by an installment of BGL12MN, but even this financial injection is ignores, the figures show that Biochim's capital rose by BGL11MN within one year. It's a fact that as compared to June 2000, the bnak's profit went up 4.3-fold in mid-2001 - from BGL2.8MN to BGL12.1MN. According to this indicator Biochim rates second in Bulgaria's financial and credit system.

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