by Andrei Lybenov - investor.bg
Peter Andronov has been CIBANK’s CEO since March 2008. Since October 2007 he has been a representative of the Association of Banks in Bulgaria in the Bank Supervision Committee under the European Banking Federation. From 2002 to May 2007 he was the head of Bank Supervision Department at the Bulgarian National Bank.
He graduated from the University of National and World Economy in Sofia in the period 1990-1995, with a major in Finance, Banking profile. Since 1995 he has been a lecturer in the University of National and World Economy, Finance Department, in the Higher School of Insurance and Finance and the New Bulgarian University /International Banking Institute, teaching “Introduction to Finance” and “Bank Regulation”. Since 2003 he has been a visiting lecturer at IMF.
- Mr Andronov, what is the reason for the lending slowdown in Bulgaria?
I suppose you are aware of the statistics in the other EU countries. In almost all of them the credit portfolios of the bank systems are not only growing slower, as is the case in Bulgaria, but are diminishing – considerably at that.
The reasons are obvious and apply for Bulgaria as well. The economic downturn making long-term planning impossible and putting the main markets off balance, forces entrepreneurs to be much more cautious. Most companies limited considerably their investment programs and postponed a host of initiatives for better days to come.
Projects for grants under the eurofunds are one of the few exceptions in relation to which the business makes long-term commitments. Citizens also prefer to wait until the market stabilizes to a certain extent before investing in the purchase of real estate, for instance. Others are uncertain about their job or have already lost it, thus ceasing to be potential credit applicants.
On the other hand, banks themselves are more demanding regarding the repayment capacity of its customers. Forced to finance themselves with costly local deposits, financial institutions naturally transfer the high price to its credit products. Add to this the rising problem loan premium, which further decreases the attractiveness of offered loans.
Despite that data for different banks show that almost all of them keep lending, even at a lower scale. What is more, the first advertising preferential loan proposals for 2009 are already on the market. If indications for stabilization in USA and Europe prove to be the beginning of a third global economy recovery process, after certain time there will be ground for more active lending at home, which, however, would in no way be comparable to the turbulent growth before the crisis.
- Have you evidenced a growth in bad loans and where – companies or individuals?
Naturally, all banks encounter this problem, although considering the Q3 GDP data it could be deemed that the volume of non-performing loans is within normal limits. Contrary to the first manifestations of the crisis mainly evident in construction development and real estate trade, now the companies experiencing difficulties are from all sectors – metal extraction and processing, logging and wood processing, textile and sewing industry, chemical production, transport etc. – to name but a few. In those cases banks and their customers look for, and more often than not manage to find, mutual solutions to overcoming the difficulties.
Furthermore, if employers encounter serious difficulties, this is bound to affect natural persons as well. The exact data in the reports of the Bulgarian National Bank indicate that problem loans in the bank system as a whole have increased by approximately 1,5% versus the comparatively stable level two years ago. The average share of these loans in the bank system as a whole is slightly over 7%. If we view loans through the prism of provisions, we will see that the largest loss is incurred in consumer loans – 6,3% of the total amount, whereas, since they are secured, company and mortgage loans are related to much less loss at this stage - respectively 2,8% and 2,2%.
- Did Bulgarians overestimate their possibilities of repaying loans?
It is possible to say that. I do not wish to pronounce the Bulgarian the greatest sinner, considering the fact citizens in far better developed economies with rich financial traditions, such as the American, overestimated their possibilities on a mass scale and misled by cheap loans and constantly rising prices on the market, especially on the real estate market, committed themselves to risky long-term loans.
Do not forget, seven or eight years ago loans for the population in the country represented below 5% of the country’s GDP. Now they represent over 27%, but are still twice less in comparison to highly developed countries. Unfortunately, we started learning how to live on loan at the wrong moment, when over the Atlantic they had taken it into their heads to fight the economic cycle with low interest rates.
This ambition naturally brought a global crisis. Since it is already a reality in Bulgaria as well, it would be good at least to try to limit the damages. Clients who have become aware of the fact that they have overestimated their possibilities should contact their servicing bank in due time to seek a mutual solution. One of the mistakes most often committed is that borrowers wait until the last moment when the situation is already out of control. Banks benefit from clients’ settling their liabilities and when the latter provide objective argumentation and demonstrate uprightness, are willing to offer reasonable alternatives.
- Did you implement the staff and network optimization? Have you initiated other cost optimization?
Last year CIBANK successfully completed the process of integration to the structures of КВС, which has over 80% shareholding in the bank. We are governed by a long-term strategy, which projects a number of measures for work optimization, improving the quality of service, implementing an innovative approach etc.
Thus the structural changes are to a larger extent a result of high-level strategy for development of the bank adopted in 2008. It envisages a relocation of a larger part of our branch network to more suitable locations, restructuring of entities working at loss and establishing high-potential spots.
The Head Office and branch network reorganization according to КВС standards is a main factor in our decisions regarding staff. That entails appointing staff in certain entities and reappointing or releasing employees in others. The crisis added an additional element characteristic of all banks – sales staff requalified to recovery specialists.
Naturally, the crisis forced us to look for reserves in expenses and limit costs that do not generate revenue.
- Which are the sectors that still enjoy more trust and you continue lending to?
A leading priority of Cibank is SMEs. That was envisaged in our strategy at the beginning of 2009 and we are working hard in this direction. КВС has rich tradition supporting SMEs and we will use the best practices from the experience of the parent company.
One of the attractive sectors for the bank is agriculture, where we already accumulated experience and financed a number of projects. The energy sector, the food and drinks industry and pharmaceutical industry are among the sectors which are of interest to us. CIBANK has a specialized entity working with municipal and other public institutions. Projects financed under the eurofunds are also reviewed with priority.
- How do you provide the necessary finance – on the internal or external market? What is the role of deposit attraction?
Besides finance provided by КВС, we aim at seeking resources from other external and internal institutions as well. We work actively with the European Investment Bank; The Bulgarian Development Bank, The National Guarantee Fund and others. Owing to this cooperation our clients are offered specialized products and preferential conditions. A case in point is the contract for 25 million euro for financing SMEs and municipalities concluded with the European Investment Bank in December 2008. New cooperation opportunities with other partners are also actively investigated.
Regarding deposits, we aim at offering our clients attractive conditions within reason. We use various marketing approaches to attract attention, but service quality and the stability of the institution remain more important.
- Are you of the opinion that high interest rates under short-term deposits can have a negative role in stabilizing the financial market?
Yes.
- When do you expect loan interest rates to decrease and what checks this trend in the conditions of extremely low Eonia and Leonia?
I, as well as my colleagues from other banks, have explained that thousands of times. Eonia and Leonia are not the benchmark to base your conclusions about the price of lending on. It is directly dependent on the price of the resource, mainly supplied from the local market.
In other words, if now banks pay an average of 1,5% more for new deposits in comparison to September 2008, they are bound to resell their money at least with the same increase. Do not forget that part of the attracted funds remain at the Bulgarian National Bank as minimal obligatory reserves and do not bring profit, and not a small part of the loans turns into loss, i.e. the margin for risk over the resource value is also going up.
When this tendency will change, is a wide topic but I repeat once again – do not depend on Leonia to signal the turn. The index simply reflects a short-term and shallow market, which has nothing to do with the real source of bank resources – customer deposits.
- Are there indications that parent companies or other foreign financial institutions show interest in depositing cash funds in our country considering the higher interest rates?
It is difficult to speak of all parent companies in general. They do not always have one and the same policy and some provide deposits and liquidity resources even at present. Not to mention the funds already deposited whose amount is not low at all. If I understand your question correctly however, we are talking about a potential speculative interest on the part of foreign financial institutions. In this line of thoughts let me remind you that speculative capital today is much less than a year ago. Secondly, if an external investor wants to make profit by trading off eurodeposits in Bulgaria, they are certain to look for profitability, which consists of the resource price plus the effective risk premium for our country on the international markets. Considering its amount at present, and comparing it to the price of eurodeposits in the country, I do not think that the difference is so considerable to whet speculative appetites.
