Interview with Mr. Nedelcho Nedelchev
Chief Executive Officer of Fibank

For 24 Hours newspaper, issue 123 of 10 May 2017

Currently the economy is stable and growing, the banking market is good, we are in excellent shape, and there is interest from investors

Fibank’s top positions speak of successful development: we rank third in assets, second in lending to Bulgarian businesses, and first in volume of credit card transactions

CV: Born in 1974, graduated in International Economic Relations from the University of National and World Economy in 1997. Started working at FFBH in 1997, in 2001 became a manager. Deputy Minister of Transport and Communications in the period 2003-2005, member of the Supervisory Board of First Investment Bank in 2007-2012, FFBH Manager from 2009.

- Mr. Nedelchev, tell us couple of words about yourself.
- I am 42 years old, from Sofia. Graduated the English High School, and then International Economic Relations. Married, with one wonderful son aged a year and a half.

- Any hobbies?
- Travel, skiing, fishing. Can’t wait for my son to grow a bit older so he can join me in them.

- How did you start work in finance?
- As a student at the English High School, I enrolled in a management and marketing course for high school students in the distant 1991. The professors were mainly from the Sofia University, but there were also some international lecturers. The topics of financial markets, investments and corporate finance were quite new and unfamiliar for Bulgaria, and they determined my further interest in studying economics. I started working in 1995, while still at university, in a financial house where I managed clients’ investments. In 1997 I was invited to FFBH (First Financial Brokerage House). The work there was very intense: it was the time of the beginnings of the local stock market, and of the arrival of the first foreign capital market investors. For the first 4-5 months in FFBH, we sometimes had to perform back office duties. These initial years with my FFBH colleagues taught me that there was no such thing as low-prestige work. All that matters is that work is done properly and in time. During the 1997-1999 period we built the foundations of a business in which FFBH has been a leader in Bulgaria for two decades now: trade and investment in securities, and corporate capital markets transactions.
For 20 years, we have been a key partner to many foreign institutional investors in Bulgaria. In 2016, we were once again the leading intermediary on the Bulgarian Stock Exchange. Over the years, FFBH was instrumental to a number of high-profile and complex transactions, not only capital-market but also private ones, and we provided advice to some of the largest companies in Bulgaria. Among the examples are the initial public offering of Fibank in 2007, which to this day remains the largest transaction of the kind on the Bulgarian stock market; the purchase of Unionbank by First Investment Bank; the listing of Sopharma on the Warsaw Stock Exchange; the merger between Albena and Albena Invest Holding in 2016.

- And how about your transition from finance to government: in 2003 you became Deputy Minister of Transport?
- With part of the team of HM Simeon Saxe-Coburg-Gotha we had worked for years prior to his coming to Bulgaria, while they were investment bankers in London. In 2002 I was assisting the Ministry of Economy team on the amendments to the POSA (Public Offering of Securities Act). I was invited to the Ministry of Transport as an expert, not as a political person. There I was responsible for the communications sector, as well as for the development of information technologies. Those were very dynamic years since serious investments were made in telecommunications, while at the same time our regulations were harmonized with the European legislation. For two or three years the sector was tremendous developments, such as the launch of BTC's broadband services (ADSL), the privatization and launch of a third GSM operator, and the granting of 3G licenses. As a result, competition and service quality increased. That led to a sharp drop in prices and increased accessibility of mobile services and the Internet for all. While in government, I was also in charge of one of the workgroups of the EU negotiation process. Besides communications, our scope covered a number of other important sectors such as science and education, and media. Our team started the investments in computers and Internet in all Bulgarian schools, which for me was one of our most important initiatives.

- You have been with First Investment Bank for 20 years now. How do you see the current position of the bank in the banking services market?
- Better than ever. And this is not just a subjective opinion, it is determined by a number of objective factors. From the smallest bank on the market back in 1993, First Investment Bank is now third in assets in the country, notwithstanding the competition of major foreign banks. We have established ourselves as a leader with the quality of our services, and by always placing the convenience and interest of our clients at the center of our business. All banks today offer attractive credit products and competition pretty much boils down to the quality and convenience of service, which remain our priority and competitive advantage. As to our depositors, we are actively developing new products and alternatives to the traditional deposit in order to be able to offer attractive conditions.
Fibank’s top positions speak of our successful development: we rank third in assets, second in lending to Bulgarian businesses, and first in volume of credit card transactions. Fibank has undergone intensive development over the years, and perhaps the economic environment has sometimes defined solutions that subsequently proved not to be the optimal ones. But overall, the amount of bad loans is within the average for the system, and the quality of our loan portfolio was proved by the asset quality review.
We have arguably the best retail business model, but lending to this segment still lags behind our potential. In recent years, banks in the region have faced a number of difficulties, and we made no exception. But in the long run this greatly contributed to the internal restructuring and to optimization of the bank's business. The liquidity crisis of June 2014 was overcome, and the support received was repaid in time. In the meanwhile we implemented a number of internal measures to improve our operations.
In 2015, Fibank prepared for the asset quality review, and after the results were announced in August 2016 we promptly introduced an effective program to address the review recommendations.

- You recently reported that the capital buffer recommended by the BNB after the AQR was already built up?
- At the end of March 2017, First Investment Bank reported implementation of the specific measures for capital increase, and fulfillment of all BNB recommendations. With the BGN 266 million pre-tax, pre-provision profit for 2016, and with the measures for de-risking part of our loan portfolio, such as prepayments, additional collateral, etc., we managed to build up the capital buffer recommended by the BNB. In 2016, we allocated provisions in excess of BGN 150 million, and the realized after-tax profit of BGN 99 million will be included in the bank's capital.
To date, Fibank is soundly capitalized and has a well-performing and diversified loan portfolio as evidenced by the multiple inspections of various institutions such as the European Commission in 2014, the EC-appointed consultants Bain & Co in the 2014-2016 period, Mazars and Deloitte in the process of asset quality review in 2016. We are now again using the experience of Bain & Co as consultants in de-risking our loan portfolio, and development of new products. Today, First Investment Bank is a seamlessly functioning banking platform.
Our financial results over the last two quarters clearly indicate that we are on the right track. Fibank's interest spread has stabilized at good levels, and fee income is mainly driven by the rising volume of customer transactions, rather than by fee increases. Optimization of administrative costs is a continuous process, mainly achieved through digitization of banking services. As regards provisioning, our expectations are that following the significant provisions allocated in recent years, the price of risk will normalize within the average for the banking system. In our opinion, the dynamics of all above described components is predictable and positive, as already evidenced by the visible improvements in all performance indicators of the bank. That gives us confidence in the future sustainability and profitability of the applied business model.

- Why then are you looking for new investors in the bank?
- First Investment Bank is one of the largest banks in Bulgaria and we need to have a strategic view on the market locally and regionally, within the 5 to 10-year horizon. What we have witnessed in Central and Eastern Europe in recent years is a withdrawal of former strategic investors – the EU banks. Until the crisis of 2007-2008, the situation was different: these same banks were aggressively seeking development in the region. In those years there was specific interest in buying our bank, but the crisis sharply interrupted the investment intentions of foreign banks. Today, they are focusing on solving the problems in their core markets, and at least in the medium term will not pursue strong presence and large market share in any country in the region. This creates an opportunity for the emergence of new regional champions who, after achieving and consolidating leading positions in their own country, may start to apply their successful models in neighboring countries as well. We see serious growth opportunities in Bulgaria, both organically and as a result of consolidation processes. Currently, there are also very interesting proposals for investments in our neighboring countries. Attracting a serious international partner can seriously accelerate our growth and turn the bank into a regional leader. The potential of the banking sector in the region is being noticed by international investors. After the attractive and sometimes speculative investment opportunities in Western Europe have been exhausted, all major investors are now exploring the opportunities in the region. Currently, we have a combination of several positive factors: the economy is stable and growing, the banking market is good, we are in excellent shape, and there is interest among investors to invest in this market.

- Your stock price has risen considerably over the past few months, what do you attribute that to?
- Banks in Bulgaria and the region faced a number of challenges in recent years, and Fibank made no exception. The fact that we have successfully overcome them, and the stable and good results we show are appreciated by investors. I would not like to influence the market in any way, but even now the shares of Bulgarian publicly traded banks are traded at significant discount of over 30% compared to their peers with comparable profitability indicators in the rest of Eastern Europe. Take for example Banca Transilvania in Romania, the banks in Georgia, or OTP in Hungary. The deal with UBB of just 4 months ago is also an important benchmark for the value of banks' capital in Bulgaria.

- Are you looking at selling a minority or majority share, and what is the attitude of current majority shareholders regarding the process?
- As I have already mentioned, we are looking for a partner in our strategic development plans. We hired Citibank as experienced consultants to help us analyze our various options.
The current majority shareholders have always supported the bank: since its creation until now, no dividends have been distributed so that profit may be capitalized and increase the equity of the bank. Also when needed, they have supported the capital with cash - there was such a case back in 2006. They understand and agree with the bank's strategy of attracting a partner, because they see the growth potential and want the bank to be able to take full advantage of it. The ultimate solution regarding the type of investor and its relative share will always be guided by the principle of best performance for all shareholders of the bank, and of further long-term development of our banking platform in the interest of our customers.

- What are your other priorities besides attracting an investor?
- We see a lot of potential in the development of services for individuals, as well as for small and medium-sized enterprises. We are already working on an important project called "retail loan factory" with a view to making our retail lending even faster, more attractive and convenient. The Bank has excellent positions in the SME segment, which we will further develop with new services and attractive terms. Innovation has always been among our main priorities and we will continue to develop the electronic banking channels, for the convenience of all our customers.