Банкеръ Weekly



Credit millionaire became a synonym for bandit in the period between 1996 and 1998. It couldn't have been otherwise, especially after loans for billions of U.S. dollars disappeared in the pockets of people who, as it turned out, never had any intention of repaying them. Heads of big Bulgarian banks remember how bosses from the ruling circles told them they would not repay them this USD4MN loan, because the money is for the party. However, this is no surprise because back then many banks were set up and were functioning because of political protections. It is not that such cases are totally impossible now, but the situation is different. The banking sector is dominated by credit institutions owned by large foreign financial institutions where the rule that a loan must be repaid is kept very strictly. This is why the concept of credit millionaires now has different implications. As far as preciseness is concerned, a total of 98 Bulgarians fall in this category (data to June-2008). Together they owe BGN153.1MN to local banks, or BGN1.56MN on average. Their names are known only to bankers and to people who can poke into the credit register of the Bulgarian National Bank (BNB). These millionaires are businessmen, top managers, lawyers, doctors and financial consultants with broad and solvent clientele. Their monthly income is measured in five-digit sums because only these monthly wages may service a debt of above BGN1MN.
It is a totally different matter
which banks and under what conditions provide this financing
because the BANKER weekly couldn't find individual products exceeding BGN500,000 for citizens on any of the large credit institutions' websites. Of course, the general rules apply only for average clients. When a person with a monthly income of above BGN10,000 or BGN20,000, owner of large estates and hundreds of thousands in bank accounts, goes to a bank, the attitude of bankers changes significantly. What is certain is that these large credits are covered by mortgages on property. Nowadays, there are several banks that grant loans covered at 100% by immovable property, although in most cases the coverage for mortgage loans is up to 90% or even 70% of the real estate's value as assessed by experts of the creditor. In other words, in order to draw a credit of BGN1MN one should secure it by property of at least BGN1.2MN or even BGN1.5MN. We can imagine how wealthy a person should be for taking such a loan. Besides, the group of credit millionaires is rapidly increasing each year. At the end of 2005, their number was only 25, while six months later there were already 34 of them. This figure sharply rose to 53 at the end of 2007, and to 76 at the end of the same year, only to reach 98 at mid-2008. The credit services to these hundred people are now a real market segment for the bank institutions and represent around 1% of the total volume of financing provided to all citizens.
What is the situation with average people? The statistical data provided by the BNB show that
the indebtedness of the population increases,
which is hardly a surprise for anybody. At end-June 2008 the total number of credits extended to citizens came to 2.79MN for a total of BGN16.28BN, or BGN5,841.42 on average for a credit. A year earlier, the number of credits extended to individuals was 2.32MN for a total sum of BGN10.93MN, or BGN4,704.32 for an average credit. The increase of the average amount of credits in Bulgaria by BGN1,139 within a year is quite significant, but a detailed analysis would show that the increase is not equal for all the credit groups. The most frequent loans are those for a total sum of
up to BGN10,000
Their number comes to 2.46MN and their total amount reaches BGN4.71BN. What is interesting here is that this group of small credits forms 88.4% of all loans granted, but only 29% of their total volume in Bulgarian levs. As it turns out, there is some concentration and it is in the group of credits from BGN10,000 to BGN250,000. In this range, some 320,000 credits have been extended for a total volume of BGN10.42BN which comprises 64.1% of the total financing to individuals. This group encompasses large consumer credits of above BGN20,000, and credits for purchases of automobiles, housing and land lots. This group almost doubled in both numbers and credit volume for a year, which means that people with monthly incomes of between BGN3,000 and BGN4,000 are increasingly oriented to living on credit. These figures show that a relatively wealthy social stratum is being formed in Bulgaria and it becomes the spine of the consumer society. It is composed predominantly of businessmen and well-paid managers of large companies. According to some bank executives, these individuals are young people of between 30 and 40 years, well educated and at prestige positions who are in a hurry to secure their lifestyle through buying apartments, cars and furniture.
Credit inspectors are of the opinion that a person with a monthly wage of between BGN1,500 and BGN2,000 may safely take a consumer credit of up to BGN20,000 or a credit for purchase of new home of up to BGN100,000 and many people have already made use of this opportunity.
The question is that this inevitably leads to
overindebtedness of the population
Some bankers, such as the CEO of United Bulgarian Bank (UBB) Stiliyan Vutev, for instance, have repeatedly warned of the credit dependence which may be compared to addition to substances among drug users. People take credits to pay for goods they need, but at a certain stage their incomes turn insufficient to pay the installments and they take new credits to pay the old ones. This is a downward spiral that may not be easily avoided. This is the mechanism how certain financial crises emerge, including the one that is presently shaking the world. It all boils down to the fact that credits to individuals are very lucrative for banks and they tend to neglect certain risks in order to enlarge their market shares in customer services. The results of this process are usually deplorable. The Bulgarian bank sector of today is not on the verge of such troubles, at least because loans to individuals do not dominate their credit portfolios, but the tendency shows that these products may exceed the financial resources extended to companies. At that point, credit institutions and even the central bank will have to think about imposing certain restrictions to the credit extension. It seems that this moment is far away now, but five years ago nobody thought that the volume of credits to individuals might increase tenfold reaching BGN16.28BN, as it is now.

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