Банкеръ Weekly



At first sight, the Bulgarian banking sector remains aside from the events on the world financial markets. However, the Bulgarian economy is not a closed one and it is inevitable that the crisis that emerged in the US last summer leave its mark - either direct or indirect - on the local crediting institutions. As representatives of the banking business claim, the effect will be felt most strongly in the price of loans that Bulgarian banks take from abroad and in the more difficult access to this resource. And this is not only valid for the creditors whose shares are owned by large international financial groups. The same effect will also be felt by banks that are property of Bulgarian investors who use foreign financing actively. In a situation of this kind, the deposits of individuals and companies emerge as a traditional source of money. Of course, considering their time structure, they are not as convenient as foreign credits, but are still an alternative solution to the lack of free resources. It is not accidental that in the past few months
the fierce competition among the banks moved
from the field of crediting towards the attracting of resources from households and companies. Ordinary consumers are showered with calls to entrust the banks as much of their money as possible for the longest period of time.
That is why the crediting institutions started to look much more like deposit collecting funds... One by one they began to announce higher interests rates on their deposits. Rates like 7.25% for 3-month deposits, 6.5% for twelve-month ones, and 8.18% for 18-month ones that were unthinkable several months ago are now offered by many.
The persistence of the banks reflects the increasing importance that financing through deposits has for them. However, the constant information radiation has a positive impact on banks' customers. Experts comment that
consumers already compare the savings products
of different banks not only by their price but also by the conditions under which the interest is used, the term of interest accumulation, the liquidity of the money saved, and so on. The customer is seeking an ever improving complex deposit offer that proposes various extras, Lyubomir Punchev, head of the Retail Banking Directorate in UniCredit Bulbank, explained.
That is why several crediting institutions launched special 48-hour deposits as well as deposits with one- or two-weeks term. Others developed savings accounts that allow money to be drawn or added at any moment without a change in the interest rate. A third group is relying on hybrid products that combine the safety of a time deposit with a guaranteed interest rate and the opportunity for a significant additional income based on stocks, gold, and oil, which do not bind the customer with costs or risks accompanying a direct investment in these assets...
But the truth is that
even without persistent advertising campaigns
the savings of people and companies held on bank deposits and savings accounts have been growing in the recent years.
The growth in volume on an annual base varies between 30 and 35%, the figures the Bulgarian National Bank (BNB) publishes every quarter prove. They reveal that as of December 31, 2007 12 million bank accounts of non-financial companies and households accumulated BGN32.32BN. It means that a growth of 33.1% has been achieved on an annual base.
Of course, figures for each bank differ. Many of the institutions have not yet prepared their final 2007 figures. Others were busy developing new savings products and could not provide us with an analysis of the dynamics of the money they had attracted. However, the figures that we managed to collect are eloquent enough.
For example, Allianz Bank Bulgaria reported a 55.4% increase in the money attracted from businesses and individuals in 2007. MKB Unionbank collected 42.2% more deposits compared to 2006. The annual growth of savings at ProCredit Bank was over 38 per cent. Deposits from other customers in First Investment Bank are up BGN768.3MN (30.86%). UniCredit Bulbank has achieved a 16% increase in the attracted resources compared to 2006.
However, comparing these percentages would not be correct since they have been calculated on quite different bases. For example, as of December 31, 2007 deposits of individuals and companies in UniCredit Bulbank amounted to BGN6.33BN, and those in First Investment Bank - to BGN3.3BN. Savings of non-financial companies and individuals in Allianz Bank Bulgaria amounted to BGN1.4BN, and those in MKB Unionbank reached BGN704.4MN. The money attracted from clients of ProCredit Bank exceeded BGN585MN.
If we look back at the BNB summarized figures we shall see that some BGN13.5BN of the deposits are held on accounts of non-financial companies. Their amount has grown 38.8% for a year. Households have deposited a total of BGN18.86BN in the banks. For just three months - from September 30 to December 31, 2007 deposits of individuals have grown by over BGN1.7BN. For the entire 2007 they are up by BGN4.3BN (29.3%).
It should be acknowledged that a significant part of the increase is due to deposits larger than BGN50,000.
Every second lev
deposited in a bank is on accounts of people who represent the richest group of Bulgarians. For the last quarter of 2007 alone, BGN878MN have been put on accounts with balances exceeding BGN50,000. Thus the total amount of money in this group goes beyond BGN5.3BN.
Of course, deposits of smaller amount contribute to the accumulation of a larger resource on households' bank accounts, too. For example, savings accumulated in deposits ranging between BGN2,500 and BGN5,000 last year grew by over 40 per cent. As of December 31, 2007, households kept more than BGN1.8BN on 515,000 accounts of this size.
It seems that even if they fail to admit it,
Bulgarian people are growing richer
The money kept on accounts in local banks is mainly owned by Bulgarian citizens. An improvised survey showed that only 0.6% of all deposits in Allianz Bank Bulgaria are held by foreigners, 2% is the figure in ProCredit Bank, 3% in UniCredit Bulbank, and 27.08% in First Investment Bank.
Specialists expect that this trend continue in the future. According to the forecasts, savings in the banks will begin to grow even faster.
UniCredit Bulbank predicts that the rate of deposits growth in the coming three years will fall down to about 19% a year. However, in real terms the attracted amounts are expected to grow faster: in 2008 - by BGN4.5BN, in 2009 by a larger amount, and in 2010 by up to BGN5.2BN, Lyubomir Punchev said.
Experts point at several factors that stimulate the growth of the attracted funds. First of all there is the fast rate of economic growth and the increase of the average salary. Another force that is driving the growth is the proportional income taxation, they say. Other experts are more radical. They claim that a great part of the money will return to the banks also because of the poor performance of mutual funds and the capital market in the early months of 2008. But will these rates of growth be sufficient to finance
the still great hunger for credits
if some day the foreign markets refuse to pour liquidity in the local banking sector?
Despite the measures that BNB undertook for restricting the credit expansion, in the last quarter of 2007 the amount of loans launched increased by 64.3%, compared to a 57% increase as of September 30, 2007. So, in the end of the year the debts of companies and households to the banking sector reached BGN36.6BN which is a considerably greater amount compared to the size of accumulated savings. There is one more thing that we should remind - people prefer to keep their money in euro while borrow in levs. If we look at the statistics of BNB again, we'll see that of all the money that households have put in bank deposits (totalling BGN18.8BN) only 40%, or BGN8BN, are in the national currency. At the same time, of all BGN13.8BN launched to the population as overdraft, home and consumer credits more than BGN11BN (85%) are in levs. This indicates that in a critical situation banks may feel hunger for levs. And during a currency board, the mint cannot operate at fast speed.
That is why it is logical that the price of this type of financing will keep growing.
However, no definite answer can be given to the question whether or not interest rates on the deposits will keep going up. According to the forecast given by Lyubomir Punchev from UniCredit Bulbank,
interest rates on the deposit market will remain
at their current level for a short period of time and will fall in a longer term. The last statement also reflects the expectations for the course of the base interest rates in dollars and euro which the Fed and the ECB are cutting, Punchev explained.
The net interest margin may be pressed and the banks' non-interest revenues will become more significant, said Radoslav Milenkov, head of the Financial and Accounting Directorate at First Investment Bank and a member of the Managing Board.
If we should trust the bankers who say that confidence in the banking system is very high in Bulgaria, in the coming five or ten years the bulk of Bulgarian people's savings may remain in the crediting institutions rather than be invested in alternative instruments. This is why it is more reasonable for the banks to conform the growth of credits they launch with the increase in savings and change the current practice which allows the amount of loans to exceed the deposits. Otherwise there will always be a threat that the Bulgarian banking system is too vulnerable from the international financial crises.

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