Mr. Nedelchev, are you satisfied with Fibank's performance in 2019? What is your reading of the Bank's financial results?
2019 was a successful year for First Investment Bank, accompanied by growth in both our key market positions and our financial performance. By the end of the third quarter, the Bank's assets exceeded BGN 10 billion on a consolidated basis. For the first nine months of the year our consumer loan portfolio increased by BGN 108 million, placing us among the top 3 banks by that indicator. Mortgage loans increased by BGN 110 million over the same period. Our SME loan portfolio also increased by almost 10%. At the same time, we strengthened our position as a preferred bank for savings of households.
We launched services that were completely new to the Bulgarian market, such as the Garmin Pay service, featuring innovative payments by smartwatch. With it, we sought to respond to the modern and often fast-paced lifestyle that our customers lead. Fibank was also the first bank in Bulgaria to provide its customers with the opportunity to use the Apple Pay service. Thanks to it, any customer of the Bank holding a Mastercard debit or credit card can add it to their Apple Wallet and make fast, convenient and secure mobile payments.
All this helped us expand our activity in the transactional business and generate 4.6% growth in our fee and commission income. The net interest margin realized by the Bank has remained stable over time and even slightly exceeds the market average.
At the end of September, the Bank's consolidated pre-tax profit was close to BGN 80 million, which is an annual growth of 23.5%. According to preliminary reporting data, we have a slight and expected decrease in interest income due to the competitive pressure on loan interest rates, but an increase in fee and commission income. Therefore, and we expect to report good and stable financial results at the end of January.
Recently, the Management Board of Fibank approved two instruments aimed at raising the Bank's capital and you also announced a big sale of bad loans. Could you give us more details?
At the end of last year, we had some important news that we disclosed to the public. First Investment Bank is a public company and we adhere to best practices regarding transparency in the actions of the Bank's management.
In December 2019, the Bank signed agreements for the sale of portfolios of non-performing loans to individuals and legal entities totaling over BGN 500 million. The package sold contained mainly secured loans. The sale was in line with the Bank's strategy for managing non-performing exposures.
We also successfully placed a bond issue of EUR 30 million. These bonds are perpetual, deeply subordinated, unsecured and non-convertible, and will be included in the Tier 1 capital of the Bank. Fibank intends to use the additional capital to implement its strategy for lending to small and medium-sized businesses and individuals. The amount raised from the bond issue will be transposed at a ratio of EUR 1 capital to EUR 6 loans and will allow us to continue to be competitive with the international financial groups operating in Bulgaria.
The short period in which the bond issue was subscribed gave us an indication of the high interest in the Bank among the investment community. Therefore, the management of the Bank decided that it was a good time to proceed with an increase of Fibank's share capital.
Our aim is to raise between BGN 20 and 200 million in fresh funds. First Investment Bank has been a public company since 2007, when we realized the largest initial public offering (IPO) in the history of the Bulgarian Stock Exchange. In recent years, the country's capital market has suffered from chronic low liquidity. There are a number of factors and explanations for this, but one of them is that it is too small for international investors who look to invest in companies with free float in the range of hundreds of millions. The issuance of new shares by the Bank will present exactly such an opportunity to attract the attention of foreign investors to our market. Investing in one of the largest banks in the country will be an excellent point of entry into the Bulgarian economy, which has developed steadily in recent years. We already have had talks with potential investors who are interested in the new stock issue.
In what time horizon do you see our country as a member of ERM II and subsequently of the eurozone?
Bulgaria is expected to join the ERM II mechanism as early as this year. At least that is the government's stated intention. On several occasions, the finance minister indicated that this was expected to happen by the end of April. As for how long our country will stay there, this is clearly stated in the terms. The candidate country must participate in the ERM II for at least 2 years without significant deviations from the ERM II central rate and without devaluing its currency’s bilateral central rate against the euro during the period. I think our country is unlikely to spend longer in the exchange rate mechanism than the minimum time stipulated in the procedure. Over the last 20 years, Bulgaria has demonstrated sustainable economic stability, even in the most turbulent times of crisis.
How will the transition from BGN to EUR affect the banking sector?
It will increase confidence in banks and will likely improve their ratings, giving them access to better financing conditions. The fact that the ECB will oversee the systemically important institutions in Bulgaria will create a higher level of trust among the public, customers and partners of banks.
On the other hand, joining the euro area will have a beneficial influence on the entire economy, increasing the value of all assets in the country and stimulating investment. Hence, it will reduce credit risks and have a positive effect on the business of banks.
What are your expectations for the country's economy in 2020 and what do you think will be the main drivers of growth?
The extreme forecasts for economic apocalypse in 2019 did not materialize despite the apparent slowdown of the global economy. Some of the country's economic growth indicators have shown signs of stagnation, but it is still early to talk about entering a new stage of the economic cycle. Moreover, this is not due to internal problems, but is part of the processes in the global economy. In my expectations, growth in 2020 will be very similar to that of the previous year. Domestic consumption will remain high and continue to be a main driver in the GDP structure, so one can logically expect growth in its supporting and servicing sectors. The record low unemployment which was registered in the country last year and the income growth are good prerequisites in this direction.
Following a steady increase in exports in previous years, a decline has been registered since 2018 as a result of a slowdown in the trade in goods. I believe that in 2020 this trend will not deepen, but rather stay at previous year levels. I expect investment in the industry and business process outsourcing to continue to be strong, and real estate market to remain stable with reasonable price increases. The high level of absorption of European funds in infrastructure will also support the construction sector.