Nedelcho Nedelchev, CEO of First Investment Bank, for BANKER newspaper

- The profit reported for the last year reflected the bank's good potential and I think it will further increase in 2018. Indeed, the profit for 2017 was lower than that for 2016, but that was also valid for the entire banking sector due to the one-off positive effects on profit that characterized 2016. Such an effect was, for example, the large dividend that all banks in Bulgaria received from the international card operator VISA. For Fibank alone, the dividend in 2016 amounted to BGN 25 mln. In 2017 such an effect was not present.
Moreover, due to the overall decrease in interest rates across the banking system, net interest income declined. All banks experienced pressure to renegotiate old loans, and new loans were agreed at lower interest rates. In Fibank too, this trend led to reduction in interest income. Our general observation however is that interest rates are stabilizing at their current levels. In our bank, the net positive margin on interest-bearing assets is around 4%, against 3.7% for the banking system.
It is worth mentioning that last year we had an increase in net income from fees and commissions from BGN 89 mln to BGN 99 mln, which came not from charging higher fees, but from growth in the number and volume of transactions. The rate of provisions to total loans was 1.4%, close to the 1.3% average for the market.
As already mentioned, the profit for 2017 was BGN 85 mln which gave us a return on equity ratio of 9.7%, compared to an average 9.6% for the market.

Has there been a shift in the bank’s business to new customer groups?
- As early as 2016 we emphasized on the development of retail and SME banking. Fibank had the highest growth in consumer loans for 2017. Overall we rank second in the banking system in the retail banking segment. We believe that the improvement of the macroeconomic environment as a whole, the increased income of the population, the higher consumption and the reduction of unemployment form a very good basis for the development of retail banking. This does not mean we have neglected corporate banking, but we are concentrating more effort on the advancement of services for individuals.

Speaking of retail banking, what are the prospects of a forthcoming increase in interest rates of loans for individuals and SMEs?
- In all cases, such an increase will happen. It is another matter whether it will begin as early as 2018, or in 2019. We believe it will not be a sharp one. However, my advice to borrowers is to plan well when buying a property, or making an investment with longer-term financing, and calculate their ability to repay the loan at increased interest rates and, respectively, higher overall cost of repayment. At the same time, it is not the purpose of Fibank, nor of any other bank, to provide loans that will be overly burdensome for clients even under the changed market conditions.

Throughout 2018 and the first month of 2018 we have witnessed a decrease in non-performing loans in the banking market both in absolute terms, and as share of loan portfolios. How has this process developed in Fibank, and what is its impact on the financial performance?
- First Investment Bank has a medium-term program for further reduction of non-performing loans, which aims at reaching low levels of such loans within a few years. By the end of the first quarter of 2017 non-performing loans accounted for 21.5% of the total portfolio, while at year-end their ratio decreased to 17.6%. This is a significant decrease that involved writing off of fully provisioned loans and shrinking the problem loan portfolio by more than BGN 200 mln, this trend still continuing. The average loss provision coverage ratio for existing problem loans of the bank is 60%. The difference to 100% is covered by collateral with greater value than the difference itself. You realize that collection of problem loans is time consuming due to the legal proceedings related to sale of collateral. It is a constant process that continues over time. As for new lending, levels of deterioration are quite low, resulting in very few newly-generated bad loans.

After the asset quality review of 2016, Fibank, had some supervisory recommendations to reduce risk assets. How were they implemented? And what actions were taken with regard to the property in Kremikovtzi that the bank acquired as collateral and that forms a large portion of its acquired assets?
- The property in Kremikovtzi is indeed an essential part of assets acquired by the bank. In this case, we are working along two lines. One is to clear the unnecessary buildings and completely recultivate the terrain. The other involves talks with potential investors for future development of industrial and logistics projects on the territory of Kremikovtzi. There has been serious interest, and we expect an interesting project to take place there in the coming years.

You mean a project where the bank sells this asset?
- Yes.

And what is the implementation status of the other recommendations of the banking supervision?
- From the end of 2015 to the end of 2017, the cumulative effect of all measures taken to reduce the risks for the bank exceeded BGN 600 mln. That includes the Bank's profit for the two years, amounting to BGN 175 mln, provisions set aside for 2016 and 2017 in the amount of BGN 232 mln, and additional risk mitigation measures for individual claims - partial repayments and additional collateral for over BGN 250 mln.
We believe that we have fully covered the BGN 400 mln that Fibank had to cover according to the findings of the 2016 asset quality review. That is why as early as last year we announced that the capital buffers Fibank had to accumulate according to BNB recommendations have been built up.
Apart from these purely financial steps, we also took administrative steps to improve the efficiency of the bank’s management. We increased the capacity of risk management and collection departments. We created a new unit for sale of acquired assets. There is also a new department dedicated to intensive management of performing exposures with forbearance measures.

And the recommendation to attract new investors in the bank? How far has its implementation process come?
- I have repeatedly commented on this, and I will again emphasize that First Investment Bank is a public company traded on the Bulgarian Stock Exchange. Disclosure of any information related to attraction of new investors before a binding offer is in place can affect stock prices, and that is unacceptable under existing legislation. Therefore I can only say that the process of negotiation with various potential investors continues, and that we will select the best offer for our clients, employees and the shareholders of the bank.

Over the past couple of weeks the topic of Pirin Park, the investments in it and the participation of Fibank was once again raised in the public space. What is the amount of claims of the bank from all borrowers related to Pirin Park, and in particular from the company Ulen?
- I cannot comment on claims from individual clients because of bank secrecy considerations. But I will say that the total amount of claims of the bank from households and businesses in Bansko is less than 1.3% of its total loan portfolio, the vast majority comprising loans to individuals and small and medium enterprises from Bansko and the region. Moreover, the default rate on these loans is below the average for the country.

Mr. Nedelcho Nedelchev was appointed Chief Executive Officer (CEO) and Chairman of the Management Board of First Investment Bank AD in May 2017. During the 2007-2012 period Mr. Nedelchev was member of the Supervisory Board of First Investment Bank AD, and in 2013 he managed the project of acquisition of Unionbank EAD, and was member of its Supervisory Board until its merger into Fibank.

Mr. Nedelchev started his career in the Aval In brokerage house. In 1997 he was financial analyst in First Financial Brokerage House OOD, was soon thereafter promoted to Head of Analysis, and in 2001 became one of its managers. In 2003 he was appointed Deputy Minister of Transport and Communications of the Republic of Bulgaria, and in the 2003-2005 period was also Deputy Chairman and Chairman of the Board of Directors of Bulgarian Telecommunications Company AD. From September 2005 to March 2006, Mr. Nedelchev was an adviser to the Minister of State Administration. During his professional career he has been involved in the management of a number of companies operating in the energy and telecommunications sector in Bulgaria, as well as in the field of financial consulting.