The Interview was made by Chavdar Parvanov, "Dnevnik" daily

Bank shares are among the stocks on the Bulgarian stock exchange which have been the most negatively affected by the world financial crisis. Since the beginning of the year the shares of First Investment Bank (FIBank) have fallen by more than 60%, those of Corporate Commercial Bank - by 12 per cent, Central Cooperative Bank lost more than 73% of its capitalization, and Bulgarian American Credit Bank by 51%. A recent poll made at pazari.dnevnik.bg also promised poor perspectives ahead of the sector. More than half of the inquired persons expect loan portfolios to shrink and financial results of the sector to get worse. This is another indicator that the stocks of the lending institutions will remain outside the investors’ focus. We addressed Maya Georgieva, Executive Director of FIBank, to comment on the issue.

What will be the direct negative effects of the world financial crisis upon the Bulgarian banking sector?

Bulgarian banks have not directly participated on the market of the financial instruments which brought the current financial crisis. We are a developing country and from this point of view it is more effective to invest funds and loans in the domestic economy instead of buying financial instruments created for the developed countries which are wondering how to manage their money. Thus the Bulgarian lending institutions protected themselves against this crisis. It is a fact that the mother companies of some banks operating here have been negatively affected by the problems with which certain financial institutions in Europe were encountered. However, I do not expect this to have a direct impact on their subsidiaries in Bulgaria. For example DSK Bank has the biggest contribution to the formation of the mother company’s – in the face of OTP - income. The Bulgarian banks keep being highly liquid. Probably their profit will be smaller but this will be good for the depositors because their money will be safer.

The indirect impact however can be felt by the higher cost of loans. How will this affect Bulgarian business?

The increased price of the financial resources is a world tendency and there is no way that it has no effect here conducted by the prices under which the credit institutions borrow funds from the mother companies and under which the Bulgarian banks raise capital on the international markets. On the other hand however the demand for credits has been strongly reduced. The companies are postponing their plans for expansion with a view to the increasing interest rates and the poor market situation. The business has made its calculations well and it prefers not to receive new loans under the current conditions. In this connection we are about to renegotiate the syndicated loan of 185 mln. euro which we took last year. It had an option for en extension of one year. However we consider that we will need such large funds and we intend to repay at least half of the loan.

When will the negatives become more distinctive in the banks’ reports?

I think that this will be notable in this year’s reports, but it will be more distinctive in the financial results from the next year. At the beginning we thought that the crisis will be over by the end of the year but it is becoming deeper and deeper. So 2009 does not seem to bring much profit to the banking sector.

If the banks are the blood system of the economy how will an "occlusion" of the loans affect the "patient"?

It will have effect to a certain extent, I think. We can expect a certain decrease - of 1 percentage point for example - from the expected six per cent. Let us take the South American economies as an example - Brazil and Argentina. Regardless of the fact that they are so strongly connected with the American economy and the dollar their economies and banking sectors have not suffered from the crisis. The reason is that they are developing and the granted loans have a high rate of return. The developed economies are counting on the derivatives in the pursuit of higher profits. 

If the demand for corporate loans is dropping will it be possible to compensate it by infrastructural and energy projects in order to avoid the decrease in loan portfolios?

That is right. I think that the next few years will be the years of the infrastructural and the energy projects. They will build the basis for the further development of the economy.  

How are you acting on the real estate market at the moment?

We have not been lending for projects in the sea resorts and for construction in certain quarters in Sofia for years. If you take a look at our loan portfolio you will see that the share of construction is 6-8 per cent. The tourism is 2 per cent. At the same time the loans to individuals constitute about 26 %. We used to grant loans for tourism 5-6 years ago but later on we changed our approach because we decided that the resorts have already been overbuilt.

However, we are still granting mortgage loans to individuals. The individuals are honest persons. The mortgages in Bulgaria cannot be compared to those in the USA. The Americans are used to living on credit. They start building credit history from the earliest age. That is why when the economy starts slipping and the interest rates rise a number of consumers have difficulties repaying their liabilities. What matters for the Bulgarian is the home and that is why his attitude towards this type of loans is exceptionally responsible compared to the consumer loans for example. For the last few years we have had only one or two cases of court proceedings on mortgages. I keep being asked whether we have low-cost loans. No, we have not. The people are paying off their mortgages. For this reason we believe that the mortgage loan market is perspective. We are the only country from the former socialist block in which the people actually own their homes. Only the requirements to the borrowers will be raised because the most important thing will be to officially prove their incomes. The deposits are also increasing because in the situation of a crisis the Bulgarians stake on savings. 

Just a year and a half ago the bank shares were amongst the most attractive investments. Now it is just the opposite. How is it possible that on one side the banks in Bulgaria are financially stable, and on the other - their shares have fallen?

This is the direct negative effect of the crisis. For example at the initial public offering of First Investment Bank 62% of its shares were written by foreign investors. When they faced problems they started selling. In a view of the low liquidity of the Bulgarian stock exchange there was no way this did not lead to falling off. The news from the outside world turned banking into a bad word. After all the things that happened the attitude towards this sector changed.

How expedient is it to sell a bank at the moment at the situation of the crisis?

Definitely the situation now is not suitable and the number of those who wish to take part in the consolidation process is much lower. On the other hand however strategic investors show their interest in the sector in Bulgaria because the banking services are yet to enter into the sector.

How is FIBank planning to develop in the future? Will it take advantage of the interest of such strategic investors or it will keep on independently?

This question should be addressed to the shareholders.