Mr. Andronov, BNB (Bulgarian National Bank) statistics reported that bad loans had marked a dramatic jump to BGN 6.2 bn, or nearly 16% of the total volume of loans in July. What caused this increase?
- I have no idea why the figure 15.94% has been circulated. Obviously, it was calculated by some financial reporter and widely copied by other media. Indeed, if BNB monetary statistics is read properly, it proves that it allots a share of below 12% to bad loans and restructured loans pursuant to ECB methodology. It is inexplicable why part of the portfolio was excluded, provided that it represents nearly one-fifth of all loans.
If we disregard the corrupt system of spreading similar news and revert to the serious problem of the increase in bad loans, I would like to give an update on the issue. It cannot be argued that their growth is accelerating. If their growth was higher in July than in June, it is simultaneously lower than growth in the last several months. Generally speaking, the data does not outline a clear trend in terms of growth - whether it is accelerating or slowing down. However, it certainly shows a continuous deterioration in portfolio quality. The latter is a logical consequence of the recession in Bulgaria, of high unemployment, a significant part of which has not been reported at all. It has also resulted from the dire condition of thousands of enterprises, the majority of which practically stopped operating, from the dramatic outflow of foreign direct investment and many other negative factors brought about by the crisis.
For the first time, non-performing loans of companies exceeded the percentage of bad consumer loans. Meanwhile, lending registered a minimum growth rate. What is the problem? Is it the lack of quality projects or the more conservative approach of banks?
- I call on you again to be cautious in making conclusions about the figures circulated in recent days. I have serious reservations about their accuracy. As for lending, it will not grow in coming years at the rate of the pre-crisis period. Actually, this is valid not only for Bulgaria. As a result of the crisis, the financial statements of most enterprises deteriorated. This automatically makes them ineligible to apply for new loans. In turn, companies which have been coping with the crisis successfully and can receive loans are very cautious and patiently expect definite signs of improvement in the economy. Thus, banks, despite their willingness to grant more loans, cannot rely on numerous opportunities for the financing of companies. Naturally, they focused their efforts on the population.
Do banks have the resources to cope with a larger share of the arrears?
- The above-mentioned amount of BGN 6.2 bn results from only one approach for identifying problematic loans - that of ECB. There are many other institutions which can indicate larger or smaller amounts. Moreover, the reserves and the problems are not identical in all banks. However, since the controversy started because of the numbers in the monetary statistics, let us use the 6.2 bn in question. In fact, the banking sector has already set aside over BGN 2.6 bn in provisions and more than BGN 1.1 bn in rebates on capital. That is, approximately BGN 4 bn of any possible loss has already been covered by the banks. At the same time, excluding consumer credits, there is collateral on all other loans which, despite the slump in property prices, still have sufficiently high value to cover the difference up to 6.2 bn.
Risk coverage capital in our country continues to be one of the highest in the EU. Actually, at the end of June, the capital adequacy ratio was over 18%, compared to the required 12% for Bulgaria and 8% for the EU. The reserves which our banks accumulated over the years have helped Bulgaria remain one of the few countries whose banks have not benefited from state support. Unfortunately, however, the depth and duration of the crisis in our country have considerably exceeded the power of its manifestation in the rest of the EU member-states. The strong presence of the construction and tourism sectors in the economy which is typical for the Southern zone of the EU, as well as the related branches, contribute to the much more profound manifestation of the crisis and to the slow and prolonged recovery. It is precisely the structure of the Bulgarian economy which is dominated by pro-cyclical sectors that will be a test not only today but also in the future. It will force banks to accumulate larger reserves in good times but will also put them through longer and severe trials during crises.
Recently, the increase in fees for ATM cash withdrawals has been a pressing issue. Did CIBANK resort to a similar measure?
- We have not increased the fee for ATM cash withdrawals and it is currently among the lowest on the market. Some banks increased the fee for the withdrawal of money from foreign ATMs in order to encourage the use of their own, the maintenance of which is quite high.