Jyrki Koskelo, Member of the Supervisory Board: Fibank exceeds expectations, has met all the criteria of the European Commission

The Bank is also interested in developing outside Bulgaria

- Mr. Koskelo, you have extensive international experience in a number of countries. Over 20 years you have worked in the International Finance Corporation (IFC) of the World Bank. How does the Bulgarian banking system look through the eyes of a foreign expert?
- First of all, let us look regionally. The entire area is undergoing changes because of Greece, which is a neighboring country. But the processes also affects the overall European banking system. So actually, Bulgaria cannot be separated from the entire system. It is generally accepted among my colleagues that in order for a banking system to work well, different types of banks are required. You need those that focus on rural areas and agriculture, others with a focus on small and medium enterprises, as well as those that are universal. In the same context, you need foreign and local banks. All this needs to be in balance.
I think that Bulgaria is in a good position because there is diversification of the banking system and historically this produces the best results.

- For nearly six months you have been an independent member of the Supervisory Board of First Investment Bank. Would you tell us more about your work with the Bank?
- In fact, taking this position was the result of my work in the years back, and of that of my former colleagues in the International Finance Corporation (IFC) of the World Bank, towards improving the corporate governance of Fibank. As of this summer I accepted to become part of the team of First Investment Bank as an independent member who, you may say, comes from a world different from Bulgaria. But this was not accidental, it was a programmed approach of the Bank with a view to improving its management
And my first impressions from the 6 months I have spent with the Bank are that almost everything is much better than I expected. I can say now I know well enough where I am today. Overall, the experience for me has been very positive. I realized that I can contribute to the continued improvement of the Bank.

- Does this mean that the share of banks with Bulgarian capital is sufficient, or do you think it should be larger?
- I wouldn’t like to quote the country, but one finance minister told me recently that here again there must be balance - enough local capital on the one hand, and on the other hand sufficient foreign ownership to bring even greater balance. And whether this balance is proper, is a matter of timing. My sense is that in Bulgaria the share of local capital will grow.
Whether this will be Bulgarian capital in foreign banks, or in locally owned banks is a different matter. But you need both.

- In 2014 Fibank received liquidity support. In this regard, the Bank has a restructuring plan approved by the European Commission. How is its implementation progressing?
- First Investment Bank has an independent monitoring trustee who monitors closely the implementation of the restructuring plan on behalf of the European Commission. The Bank has met every possible figure in that plan and has even exceeded expectations. I'll give you a concrete example: so far Fibank has repaid a total of BGN 750 million of the liquidity support. In 2015, the Bank prepaid BGN 150 million above the amount due for the year. That is to say, the Bank has repaid a much higher percentage of the liquidity support than laid out in the plan approved by the European Commission.
Within days, the third quarter report will be submitted to the European Commission. It shows liquidity exceeding the one envisaged by the plan by BGN 600 million, or a liquidity ratio of 24.4 percent for the Bank. The cost of funding at the same time has decreased from 3.3% to 2.6%.
We are currently working on a new governance structure which has been an explicit requirement of the IFC. The structure will be introduced by the end of the year and will make the Bank more transparent and effective.

- What do you think of the upcoming stress tests of banks in Bulgaria?
- This is an interesting question, but I will phrase it a little differently. Yesterday (Wednesday- editor's note) I was in Warsaw, where there was a meeting of several financial regulators, attended by most European institutions and the International Monetary Fund. There was discussion about the entire banking system and where it was going. Also discussed were the stress tests. It was interesting because some countries follow the public approach of the single regulator. Others have their own stress tests. Banks that are multinational can be subject only to the first approach - a single regulator. The message from the discussion in Warsaw was that regulators are trying to harmonize with each other.
If you take one Italian Bank for example, they will have a regulator that will be under the European Central Bank because it is one of systemic banks in Europe. While here the regulator will not pay much attention to the Italians, so there will be enough time to explore the local banks and the smaller banks.
For a stress test to be reasonable, some banks will have to fail. Who will pass remains to be seen. But it will be like that everywhere in Europe, and here also.
Failing the stress tests does not necessarily mean anything very bad. The Greek banks for example, in their stress tests a few weeks ago, if I remember correctly, were EUR 14 billion short. But if you ask these banks do they think they need this EUR 14 billion, they will all respond - no. The regulator however says that is the number. And accordingly, they are given time to raise this capital. And some will fail.
The important thing is to approach with prudence. It is still too early to say who will pass and who will fail. It would not be correct to make such a speculation. Just the central Bank has to do a prudent job and we’ll see the results.
Specifically for First Investment Bank - the Bank has hired external advisors with vast experience and is fully prepared for the upcoming tests.

- The Governor of the Central Bank Mr. Dimitar Radev recently said he expected consolidation in the Bulgarian banking system. What is your opinion?
- In the entire Balkan region, there are too many banks. A Bank must be of certain size, of certain quality to be able to serve the market. And in general there will be consolidation in the region because it is determined by the competence of banks and by the customer service. The Central Bank must ensure that people receive proper service and to maintain the stable operation of the banking system. And some banks are simply in a better position than others – so that consolidation will have to happen.

- How will the introduction of the euro affect the Bulgarian banking system?
- This is a question with many dimensions. Firstly, it cannot be said when it is right to introduce the euro and whether to go in that direction at all. Some countries are hurrying towards it, others are delaying. I think the right thing is to realize that Bulgaria has had a stable currency board for many years. So you could even ask yourselves whether the euro will make any difference at all. But the decision to introduce the euro is taken by the government and other institutions, it is their right.

- Does your involvement in the supervision of Fibank mean that the Bank is interested in developing outside Bulgaria? Are there any plans to open new branches abroad other than those in Cyprus and Albania?
- Another multifold question. Let me rephrase it from my experience. When I was with the IFC, what we did was try and bring different people together so that they hear how business is done in Latin America, in Europe, in Asia, in order to gather impressions and make comparisons.
This is how I see my role – from experience I can bring ideas to the Supervisory Board that have not been previously discussed. But this does not necessarily mean expansion. And having said that, it should be noted that the Bank is already operating in Albania and if it turns out that looking for expansion makes sense, there may be expansion. We have to balance between different options.
Most importantly, as Supervisory Board we have different opinions. Because if there is only one opinion, from a single source, there is no way to make the right decisions. They require different elements.

- From are your observations, how is the Bulgarian corporate culture different than the Finnish one for example?
- Actually, I have not lived in Finland for a long time. But the fact that we are all part of the EU imposes a frame that leads us to the same models. Which means that corporate governance systems become uniform. For some institutions this process is faster, for some - slower, but we are all are moving towards the European model.
Therefore we are not speaking of Finnish, Bulgarian, or French model anymore. Of course every culture has its own peculiarities. But this is what allows businesses to thrive better and, in this case, the banking systems to operate in a single market.

- Low interest rates on deposits have led many to look for other investment opportunities for their free funds. Do you have plans to broaden the range of banking products to meet this demand?
- Well, this is again something that the BNB should handle. Central banks, not only in Europe, have lowered interest rates on all types of deposits. They will remain low for a long time, in order to stimulate economy and growth. We are in a situation where people with extra money are just looking for different opportunities. That is why different products exist - some in banks, some outside the banks- derivatives.
Banks need to comply with regulatory requirements and have limitations in what they can do. So they will probably lose a certain share of these funds that would otherwise come to them.
But the fact that investors will seek higher-yielding instruments is good because as a whole, the role of banks in Europe is too high. If you look at the US for example, banks there hold 20% of the financial market, and capital market instruments account for about 80%. Europe is the opposite. Therefore, there will be a shift of balance in the EU.
If banks take the proper approach the market will grow, but it will grow faster in its non-banking share. And this should be beneficial to both parties. Customers will receive better service. We have to look at what products we can offer that users can invest in.
The situation will force banks to think differently and introduce innovations but that does not mean they will be the only ones to do so. Which is good for the end user.
We have interesting times ahead of us. Along with society, banking is also changing. Who would have thought 10 years ago that the ECB will be what it is today. What we see is a better world than the one before. But where will we be in another 10 years? Certainly in a different place, and I hope it will be better.