Банкеръ Weekly

Briefs

TIMES OF CHEAP CREDITS ARE OVER

Mr. Hampartzoumian, you said once that you liked glass. Isn't that material too fragile to be liked by a banker, a person who should be fond of solidity and stability? Isn't it more logical that you preferred metal instead?
- Who said I don't like metal? Being an Armenian I have an affinity for gold of course. And what I said about glass is also true. But you should know there are some kinds of glass that are very difficult to break. I don't know if you have heard about tempered glass on which one can walk. It is used for making staircases, floors, various constructions, etc. Therefore, the widespread belief that glass is fragile is to a great extent deceptive.
And cooking is your other passion, right? Which is your best culinary achievement?
- Yes, I like to cook. I do that seldom but always with pleasure, only for friends, and they are very glad to taste my meals. I usually cook shrimps or meat. I don't use recipes and I often venture to make experiments and it works.
Do you often make experiments in your work as a banker?
- No, I cannot do it because a bank is expected to be stable, well administered, with efficient procedures for all its activities, and they should be strictly observed. Even if an experiment is undertaken, it can only be made within the limits of strictly set rules.
It turns out that the power of an executive director is very limited in modern banking. Is all in that business rules and procedures?
- A considerable part of the business is within precise rules and procedures. Bank institutions' stability and trust in them are in fact based on that. And that's just normal because when we have a personnel of about 4,000 and almost 1.2 million clients that system cannot be managed as the shop on the corner where the owner knows all his suppliers and customers. He is the sole master there, while the executive director of a bank cannot have such rights because it would be difficult to exercise them the proper way.
Aren't the rules set by the central bank sufficient? Why is it necessary for the credit institutions to have numerous internal rules in addition?
- The central bank, or the regulator, is interested in a much narrower range of issues than a commercial bank. The regulator's task is to maintain the stability of the finance and credit sector. It is not concerned about the number of products or the market shares, for instance. And the principal aim of a bank is to provide financial services to its clients and at the same time maintain its business in such a state that the regulator should not have any reprimands towards it. It is that wider range of interests which necessitates the existence of additional rules and procedures in the credit institution itself for each of the operations it performs.
I'm asking all these questions because there is a widespread public opinion in Bulgaria that the executive director of a bank has unlimited power.
- There are banks in our country which management is almost the same with the owners. In multinational companies and credit institutions, however, there is a very clear distinction between the managerial team and the shareholders. Such a distinction is rarely made in Bulgaria, just like we don't make any difference between commercial and investment banking. In the case of investment banking the financial institution often has a share in the client's capital, while commercial banks' products are debts, and the risk regarding the capital remains entirely for our clients.
In other words, it turns out that even the CEO's rights are limited in big banks. Is that so?
- Yes, it is and it's only natural. That is called balance between the responsibilities and power one person has. And Bulgarian legislation requires deals to be sighed by at least two executive directors. It might sound to you like a paradox, but the power of a bank executive is even more limited than that of the owner of the dairy shop in your neighbourhood.
How do you see the banking sector at present from your position of a CEO of the top credit institution in Bulgaria?
- The banking system is in the process of restructuring the products it offers and is in a slightly more uncertain environment, caused by the international financial crisis. It won't have a direct impact on us, but it could influence us indirectly.
What do you mean by products' restructuring?
- I want to say that in the present situation the management of risk demands greater prudence from banks and that cannot but reflect on the prices of bank services and on the criteria which their clients should meet if they want to use them.
Speaking about prices, how would you answer the recent accusations by some mass media that banks were secretly rising the prices of credits?
- Banks cannot do anything in secret. We are not operating in a kind of conspiracy between ourselves. We are working with our clients. Currently, 30 banks offer their products on the market, at that in an environment of fierce competition between themselves. So, how could there be any secret about the price of loans in such a situation? But clients should be aware that the times of cheap credits are over. Until last year the price of a mortgage loan in our country was very close to that of a mortgage credit in the USA. I shall not comment if that is normal or not because we are speaking about a market. And competition usually results in such effects in periods of high growth. But what has happened to international finances already has a sobering effect on the domestic market as well and will one more time confirm the rule that there is no such thing as a free lunch.
When speaking about prices of credits it should be born in mind that over the last few months the risk premium for Bulgaria rose considerably. Well, that higher price of money cannot but be transferred to customers as well. It's impossible that everything in the country grows more expensive and the price of loans to remain unchanged.
According to BNB's data, credit growth has been getting ahead of bank deposits' growth over the last year. Is that dangerous?
- No it isn't as long as it is not a long-term tendency. By the end of 2007 due to the easy and cheap access to financing from abroad many banks preferred it, because it could be obtained at prices comparable to those they paid on deposits. But now that way for securing a money resource is neither easy nor cheap, especially for institutions which are not so well known on global markets. Presently, there is much less liquidity on international markets than six months ago. And it is only logical that the price of money would go up when there is a shortage of it. For some institutions which used to get money from international markets some months ago, it is currently impossible to obtain any funds, no matter at what price.
How can you explain the most recent trend to advertise mostly deposits instead of credits, as it used to be over the last few years?
- As absolutely normal. When it became more difficult and more expensive to attract money from global financial markets, it's only natural to pay more attention to the money that could be attracted from Bulgarian citizens and firms.
What an effect do you expect on banks if the BNB decides to raise minimum mandatory reserves once again?
- It's understandable that credit growth would slow down.
And what about the price of loans?
- Of course, when banks are forced to keep some of their money as minimum mandatory reserves which do not bring them any yield, the price of the remaining part of their money would go up. So, the answer comes quite naturally.
Well, let's talk about something else now. What worries you most in the development of Bulgaria's economy as a whole?
- Let's put it that way: the economy's sustainable growth over the last few years has been mainly due to foreign investments. They exceeded EUR5BN in 2007 and that is a very good achievement. But it is alarming that about 30% of these investments were in real estates, and another 20-30% - in the industries connected with them. It's clear that a certain drop in real estate prices would result in a decrease of investments. Therefore, a policy should be followed that would create fair conditions for attracting investment into other sectors that would compensate the eventual withdrawal of capitals from the real estate market.
But I'll say right away that I believe the real estate sector still has a big potential for development. Because it does not concern hotels and flats alone. Bulgaria badly needs infrastructure, industrial centres, etc. and their construction ultimately depends on real estates.
You said that conditions should be set to attract investments in other sectors. Would you specify? Because it is said we have already reached the maximum possible reduction of taxes.
- Yes, tax conditions in Bulgaria are among the best in the world. But it's very important to eliminate the numerous administrative barriers to making business in our country. Moreover, corruption at various administrative levels should be drastically reduced because it leads to indirect costs for the businesses which are not at all negligible. And finally, public expenses for maintaining the administration should be steeply cut down.But you know that reforms in the public sector have a significant political resonance and we cannot expect, therefore, they would be done at the end of a mandate.

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