Банкеръ Daily

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What the financiers say about BDB

Tsanko Kolovski, financier, former CEO of Investbank


"Banks can sell their receivables to collection companies or to any SPV, and financing such a transaction (ed.note between BDB and St. George Group) may not only be with the buyer's capital, but also with credit from another bank. Such receivables (loans) are usually sold with a discount of nominal amount-depending on the quality of the claim itself. Accordingly, if, for example, the discount is 50%, the loans being sold amount to BGN 150 million. Assuming that the information of 500 million assets is correct, the discount is larger.


Why is this being done?


Because the banks from which the loans are purchased have classified them into the appropriate groups and have allocated capital for provisioning. The loans being sold are "bad". Most of the loans sold in this case are probably in the "loss" group, i.e. the proceeds from their sale will have either no or a positive impact on their financial results and certainly a positive impact on their capital and liquidity. Collateral on the loan from a collector company is most likely the assets, representing the receivables themselves and the balances on the loan collateral. With each loan repayment, the collecting company or SPV repays the loan it received to buy the portfolios. Any repayment that exceeds the purchase discount generates a profit for the collection company or SPV. Any unpaid claim is a loss.


What do banks that sell their loans earn? - portfolio clearance, capitalization, liquidity, in some cases - positive financial result and last but not least - release of human resources involved in the management of bad portfolios and collateral.


What does a collection company or SPV earn? - through know-how and active management - collecting loans or realizing collateral worth over the discount for which they were purchased.


What does the Bank that finances such an operation earn - lending income, provided that the rules and cash flows of the collecting company or SPV are managed. Credit security must also be ensured by a proper assessment of the real assets on the loan portfolio which are to be pledged in favor of the bank, as well as by a risk and quality assessment of the receivables.


What is unusual in this case:


The BDB did not explain anything. It was hoped that this would be one of many issues and would be lost somehow in the unprecedented interest in the do-goodery for the small, medium-sized businesses and the entire Bulgarian people that are about to happen. The deal could be explained in five sentences in understandable language. But that this would have raised a bunch of questions like: - why this company? Is it preferred by the two banks that sell their portfolios? For example, does this company have a preliminary agreement for the transaction with both banks - in which there is nothing wrong and would put the operation in a completely different light?


And more:-As a collector company, why do they convince us that it, similar to Robin Hood, would reschedule the claims of the folks whereas, if the banks had not sold the loans, they would have chased their borrowers and left them on the street? Are  the portfolios retail only or are there corporate receivables? Why does a company with such unconvincing  indicators fall into sight?


It is very nice that BDB has made such a good deal in competition with other banks, but provided you realize that you are on public radar – doesn’t the bank have the capacity to make the deal look beautiful, indisputable and clear, instead of going into self-defense?


Atanas Katsarchev, financier, former member of the BDB Supervisory Board


"The Development Bank is a credit institution. Its main activity is to enter into credit agreements, with the capital of the borrower not being fundamental in making a decision.


Leading data is the transaction for which the loan is requested, the history, if any, reputation, cash flows, risk, etc. A comprehensive assessment gives an idea of the probability of loan servicing.


Banks normally have bad credits. And they must take action within two years to manage them. So, it is customary for them, at a given stage to decide to sell a portfolio of bad credits, which are obligatorily backed by assets (real estate, receivables, machinery, equipment, shares, etc.). Collateral is at least 110 percent of the loan amount.


If BDB has given a loan to a company that has bought a bad portfolio at a good price, the practice shows that the company repays the loans within 3 years by selling the collateral.


Most often, these are good deals for the lender bank, for the bank with bad credit, and for the company that manages the asset sale process.


There is no information in the public domain as to whether the loan transaction is good or bad. Emphasis is on the image of the deal, i.e. how moral BBR is to credit companies with similar activity.


Lack of sufficient information and public pressure.


This is today's society, and therefore the government makes decisions under pressure. Gustave Le Bon envisaged this as early as 1895 in his book  “The crowd: A study of the popular mind” The psychology of society and the decisions of the authorities will be conducted not by expert opinions, but by the moods of the crowd. And the crowd forms their opinion based on the media and the level of knowledge of the individual.


This also applies to the coronavirus epidemic.

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