AS one of the largest Bulgarian banks, Bulbank is considered to be at the forefront of the Italian business presence in Bulgaria.
Since being purchased through privatisation by UniCredito Italiano (part of the UniCredit Group) in 2000, Bulbank has been developing as one of the leading financial institutions in this country, offering what its management assesses as the best corporate service to customers.
According to Alessandro Decio, deputy board chairman and chief operations officer of Bulbank, the bank is also ready to meet the challenges to both the banking system in this country and of economic development on the path to the European Union.
As one of the main players on the local market, Bulbank has always had a consistent view on the approach to be employed in curbing lending growth. Bulgaria has been pressured by the International Monetary Fund (IMF) to lower the current level of 50 per cent growth a year to no more than 25 to 30 per cent, which led to Bulgarian National Bank imposing a series of restrictive measures on banks.
The IMF also said that excessive lending to companies and individuals had led to an increasing negative gap in this country’s balance of payments.
However, in Decio’s view, it is not the macroeconomic figures that Bulgarian authorities have to be worried about, but rather the stability of local banks.
“We believe that the lending growth in its excessive figures has only a limited impact on the balance of payments and if the balance itself should not be a big issue from macroeconomic perspective. It is instead normal and appropriate that BNB is concerned with the lending growth in the context of banks stability, but if this is the issue to tackle, I think more focused measures might be appropriate. Let me state once again that we have the highest respect for the challenges and regulators and that Bulbank will act as usual in compliance with the regulations and well aware of our corporate responsibility “ he said.
Like many other bankers, Decio believes that the Government and the BNB should concentrate on monitoring the structure of imports, and thus work towards measures to prevent the spending of large financial resources on importing consumer goods.
“The authorities should not limit or block the import and purchase of manufacturing equipment, because this equipment will boost local production and eventually increase the import of Bulgarian goods abroad,” he said.
Asked to name a similar situation where Italian authorities had imposed restrictive policies on local banks, Decio said that his country had had “contingentamento” (a cap on credit growth). However, he said the motives of the Italian central bank, when it introduced such limitations at the end of the 1970s and the early 1980s, were quite different.
“Our national bank wanted to achieve two different goals – the first being to keep rising inflation under control, and the second, to facilitate and force some of the Italian banks to invest in government securities and thus finance public debt,” Decio says. Still, he believes that whatever the reason – whether an economic crisis or excessive lending growth – restrictive measures should be carefully planned and considered.
Although predicting that the BNB measures would have only limited results, Decio said that the pace of credit supply increase would gradually calm down and produce the figures that both national and international institutions expect it to.He said that there would also be an improvement in the balance of payments in the next few years, prompted by Bulgaria’s accession to the EU.
Another issue related to the “lending growth crisis” in Bulgaria is the competition among the commercial banks in attracting borrowers. This competition recently has led to reductions in interest rates on loans, making the price of borrowing attractive to customers. This may be expected to continue and would reflect the competition among banks, as well as the fact that Bulgaria’s economy was improving and developing appropriately, Decio says.
Recently, international rating agency Standard&Poor’s upgraded the credit rating outlook of Bulbank to positive from stable and affirmed its credit and deposit ratings. The long- and short-term counterparty credit and certificate of deposit ratings on Bulbank were affirmed at BBB- and A-3.
The agency made the decision on the basis of the positive economic trends in the Bulgarian economy and its observations of the continuing integration of Bulbank with its parent, UniCredit Group. S&P said that Bulbank should benefit from the continuing positive economic development and structural reforms in Bulgaria.
S&P said Bulbank’s rating was constrained by the improving, but still high, economic and industry risks in Bulgaria, and concerns about strong credit growth “in a country that lacks a developed borrowing culture and where creditor rights are uncertain”. This is however, a sphere to which Bulbank is devoting much attention. According to Decio, they focus not just on attracting clients to give them loans but on extending quality loans.
Bulbank sees as an achievement the fact that it has introduced individual credit ratings for each client. This makes it one of the leaders in banking in Bulgaria. Because of the implementation of the requirements of the Basel II Agreement, Bulgarian banks will soon have to renegotiate the lending contracts with each borrower in order to evaluate the individual risk for each of them.
“Although not fully, we have introduced individual risk assessments, and this is reflected in every loan agreement we sign, thus shaping the conditions under which every loan is based – in terms of interest rate and others,” Decio said.
Bulbank is proud of the fact that they work with most of the Italian businesses in Bulgaria. Decio listed three main reasons for such co-operation. First of all, they are an Italian-owned bank and have units with Italian-speaking operators, removing the language barrier.
“Bulbank offers the best international service to corporate clients in Bulgaria and this drives Italian and local businesses that operate in this country to turn to us,” Decio said.
The third advantage is that they know many Italian-born business people and thus know how to provide them with the most appropriate service.
The Italian business presence in Bulgaria is on the rise. Italy is the biggest importer from Bulgaria.
“Italian businesses are satisfied about operating in Bulgaria, because this country gives them a number of advantages: fiscal and currency stability, low taxes boosting investment and others. It also has an attractive market, with low costs of labour and utilities,” Decio said.