Банкеръ Weekly



WAR FOR THE CREDIT MARKET EXPECTEDThe BANKER weekly's rating for 2001 shows that BULBANK, Biochim Commercial Bank, DSK Bank, HEBROSBANK, SG EXPRESSBANK, and First Investment Bank are in the group of the best operating local financial institutions. They are the only six banks on the list of the top 10 local credit institutions with the best perfomance according to several criteria: balance sheet value, equity capital, profit, return on assets, and return on shareholders capital. These indicators provide a complex and reliable information both on the importance and the financial ranking of the respective banks on the banking market.BULBANK is still the indisputable leader in the elite club (more than an year after its privatisation). It is the Bulgarian financial system's mastodon with a balance sheet of BGN2.6BN - more than 23% of all Bulgarian bank assets. BULBANK's equity capital is BGN415.6 MN. The financial institution has attracted BGN2BN in individuals and companies deposits. However, BULBANK's profit of BGN186.5MN (after tax) at the end of December, 2001, is its most impressive financial indicator. If this amount remains unchanged after the audit, it will ensure 112% return on the share capital, and 7,8% return on assets. Such results are praiseworthy for any international investor and are probably to a great satisfaction of UniCredito Intaliano, as the Italian bank holds 85.19% of the bank's capital.For a second successive year the Italians will get a high dividend. In 2001 they received BGN170.2MN in benefice (after buying BULBANK in November 2000), while now BGN158.9MN will be credited on their accounts. Thus, UniCredito will get BGN329.1MN (EUR168.3MN) from BULBANK for two years and will report 53% return on its investment.However, nobody can ignore the fact that BULBANK's former managers team, headed by Chavdar Kanchev, contributed considerably for a large part of the bank's profit. During Mr. Kanchev's management a huge foreign currency provisions had been covered and had been transferred (reintegrated) into the bank's positive financial result at the beginning of 2001. Through that operation BGN140MN went into 2001 BULBANK incomes. If the above-mentioned provisions were deducted, the bank's after-tax profit in end-2001 had to go down to BGN85.8MN.In 2001 managers of the privatized credit institution succeeded to press some of its big debtors. After long negotiations, AKB Corporation and the private shareholder company Zografski (the owner of Kempinski Hotel Zografski) began paying back their liabilities to BULBANK.Biochim Commercial Bankentered the elite club in March 2001, but retained its position till the year-end. The bank became notorious for the scandals between its managers, which grew into a severe battle accompanied with parliamentary lobbies.Strange as it may seem, the tension within Biochim's managerial team did not impede it from achieving very good financial results. The bank (which was permanently in need of the State's assitance) succeeded to increase its assets by 24% in 2001 - from BGN509.1MN to BGN635.2MN, while credits increased more than 25% - from BGN152.4MN to BGN191.2MN. The bank reported a profit of BGN19.5MN, the return on its share capital reached 67.9%, and the return on its assets exceeded 3 per cent.These indicators could be much higher if Biochim had set aside additional provisions for some overdue credits. Those provisions caused the most recent scandal in the bank's managemenet. Some of its members were vindicating the thesis that additional provisions were not necessary and the profit would go down if such were set aside and would thus decrease the price of the bank to be pivatized. Their opponents' stance was that the candidate-buyers would anyway notice the lack of sufficient provisions and would therefore require a reduction of the price. Deloitte Touche, which carried the bank's international audit, had the final word, recommending Biochim to set aside additional provisions of almost BGN5.7MN.The conflict between the two antagonistic groups in Biochim's management, however, did not remain without consequences and Ventsislav Lyubomirov left the Board. The Banking Consolidation Company (BCC) and the Finance Ministry have been for a long time discussing various candidates to succeed Mr. Lyubomirov, and again pressure was exercised from certain lobbies. In mid-January, 2002, Emiliya Palibachiyska was appointed to the vacated position in the Management Board. She is responsible for Biochim's internal control and credit activities.DSK Bankkept its leadership in retail banking. The total amount of credits, allocated to citizens, exceeded BGN600MN in the end of 2001 and interests are presently the main source of revenues to the bank. Thanks to the credits, extended to private clients, DSK Bank achieved fair financial results last year. Its balance sheet value went up about 25% - from BGN1.18BN to BGN1.47BN, and its equity capital rose almost 19% - from BGN125MN to BGN148.1MN. The credit institution profit exceeded BGN23.5MN in the year-end, ensuring 33.6% return on the share capital and 1.6% return on assets.Despite the above-described fair financial performance, Bulgarian National Bank's Governor Svetoslav Gavrijsky said that DSK Bank should walk a long way before it becomes an universal credit institution in the proper sense of the word. By the end of 2001 the bank's maintenance expenditures were gradually reduced by cutting down its staff from 8,000 to 5,000 and through optimization of its branch network. Although slowly, DSK Bank is entering the corporate credit market and the companies'loans exceeds BGN101MN at present. Debit cards and foreign currency operations have been included in its costumer services.DSK Bank's managerial team headed by Krassimir Angarski since November 2001 should complete its restructuring. He is already preparing a strategy for the bank's developmenet to be approved by DSK Bank's Supervisory Board. Mr. Angarski's next step will be darfting a strategy for the credit institution privatisation. He will also have to convince the BCC to reject some groundless ideas as launching and trading a part of DSK Bank's shares on the stock exchange against compensatory instruments.Mr. Angarski will also have to cope with the impossible immediate settlement of payments between its branches due to lack of a unified information system. DSK Bank's clients often have to wait in queues at several desks in order to get a simple service. Additional measures should be taken as well in order to optimize the number of its employees and branch network, to sell the bank's unuseful real estates and financial assets - receivables, policies, shares, promisory notes, etc., which DSK Bank has inherited from its failed debtors.Mr. Ankarski's team will have to pay more attention to the corporate banking - the companies'assets management, immediate payments, crediting, and issuance of guarantees and warrants (both in Bulgarian Levs and in foreign currency).SG EXPRESSBANK staked on the aggressive entrance onto the market of individual credits in 2001. This policy, imposed by the financial institution's owner - the French banking giant Societe Generale - brought it success. The bank increased its assets by some 33% - from BGN439.1MN to BGN582.4MN, and its credit portfolio rose more than 53% - from BGN154.7MN to BGN237.2MN. Currently, about 20% of the credits are releesed to citizens, while a year earlier loans to individuals were less than 0.2% of all bank credits.SG EXPRESSBANK French managers succeeded to overcome some problems in corporate crediting. The controversies with the debtors Kambana 1899, Dobrich 99 AD and Credit Bank, have not been settled yet, but they did not influence the financial results of the Varna-based bank. Its preliminary profit as of December 31, 2001, was estimated at BGN11.1MN, the return on share capital was about 39 per cent, and the return on assets exceeded 1.9 per cent. SG EXPRESBANK's equity capital went up almost 19 per cent, totaling BGN77.1MN in the year-end, which increases the financial institution's potential for extending big credits to corporate clients.The French owners' ambition is to extend their presence on the Bulgarian bank market. They have writtenly declared their interest towards the privatization of Biochim. But even if they fail to win, Societe Generale is projecting to expand the business in Bulgaria and move the bank's headquarters to Sofia in 2003.HEBROSBANKalso see the purchase of Biochim as its chance for expansion. The Plovdiv-based credit institution was acquired by iRegent Group in the end of 1999 for USD23.5MN. Due to its fair financial performance in 2001, the bank retained its position in the group of the best local credit institutions. HEBROSBANK's assets went up 28% - from BGN330.4MN to BGN421.5MN, its equity capital totaled BGN95.7MN in end-2001, its profit amounted to BGM15.7MN, the return on share capital was 57.2 per cent, and the return on assets exceeded 3.7 per cent.HEBROSBANK was not following an active crediting policy through the year. The loans, extended by it increased just 9% - from BGN105.8MN to BGN115.3MN. Last year's fruitless attempts of the bank to buy Biochim explain this kind of behaviour. HEBROSBANK held continuous negotiations with the BCC and all the time had t® keep a large amount of high-liquid assets, which would allow it to pay the negotiated purchase price for Biochim without delay.The situation on the foreign markets allowed HEBROSBANK to follow such a policy, as its deposits abroad and investments in foreign securities were bringing it profits. Presently, however, the situation is quite different. If HEBROSBANK will fail to win the consecutive bidding for Biochim, its managers should think seriously to increase the credit portfolio. This is one of the few opportunities for HEBROSBANK to remain in the best loacl financial institutions club.First Investment Bank (FIB)retained in 2001 its leadership in terms of attracted foreign credit lines through which it finance Bulgarian companies projects.As of the end of December 2001, the bank's assets was 59% up - from BGN319.3MN to BGN507MN, while credits increased 132.4% - from BGN151.3MN to BGN285MN. FIB's equity capital exceeded BGN46.9MN in end-December, and its profit amounted to BGN10.8MN. The retrun on FIB's share capital was 107.7 per cent, and the return on its assets exceeded 2.1 per cent. These indicators make the bank a temptation for every serious investor, willing to gain a considerable portion of the Bulgarian financial market. Despite of circulating rumours in bank circles that FIB will be put up for sale, the credit institution's owners - Austria's investment fund EPIK, the European Bank for Reconstruction and Development, First Finance and Brokerage House, Tseko Minev, and Ivailo Mutafchiev are not currently planning to sell the bank.The FIB's managers intend in 2002 to focuse their efforts on retail banking. In addition to debit cards (the bank holds about 10% of that market) and payment of public services, FIB is more actively entering the consumer and housing credits market. This is an undeveloped niche which the bank projects to penetrate in order to reduce the risk of its operations and to increase its profitability.According to managersof the top Bulgarian credit institutions, their future is in retail banking. There are not so many good companies in this country and they have already been distributed among the banks. The future of the financial business in Bulgaria is in the expansion of services (including crediting), offered to individuals, to small and medium-sized business, Stilyan Vutev, CEO of United Bulgarian Bank, believes.According to BULBANK's Executive Director Levon Hampartsumyan, special attention to the so-called retail banking will be paid in 2002. Bulgarian Post Bank and SG EXPRESSBANK have already advanced in this direction. Within just one year they won about 6.5% of the credit market to citizens and are already gathering the first fruits of their aggressive performance. The most serious competition between the banks this year will be for the retail market and the winners will dominate the bank sector over the next few years.

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