How will the world financial crisis affect the Bulgarian market?

Undeniably, the world financial crisis will influence the Bulgarian market, but this influence may prove to some extent positive. The crisis will slow down Bulgaria's economic growth.  Next year, the country's GDP is expected to grow by six percent - this is not much of a growth, but it sounds quite achievable. The levels of unemployment are low, the inflation level from August until now in the country is above 11% and the prognoses are for the keeping of the inflation rates. Over the past few years, the credit portfolios of the Bulgarian banks were soaring rapidly. Now, the natural persons and the companies who apply for bank loans first consider carefully their incomes in the long term. The banks on the other hand raised the interest rates on loans and at the same time heightened the requirements towards the borrowers unlike the last two years when the banks were competing to offer more and more attractive loan conditions.  

The time has come when it is much more important to be a healthy and stable bank with a very high liquidity compared to the market share and the realized profits.

You mentioned high liquidity – is there a liquidity crisis on the Bulgarian market?

Most of the large banks in Bulgaria are subsidiaries of foreign credit institutions and they will inevitably have to conform to the realities on the international market. The price of the resources is unavoidably rising - let us take England for example – Halifax offers 10% annually on saving deposits, Barclays - 7.49%, Abbey Bank - 7.25% - obviously each bank is aspiring to maintain high liquidity. On the other hand the borrowers are waiting for better times and they do not take loans as they used to. The Banks in the European Union are also limiting lending to a maximum extent.

Bulgaria is not an isolated island and it is perfectly normal to observe the same processes here. The rising price of the resources will contribute to the raise of the interest rates on the loans in Bulgaria and this will naturally reduce the demand for loans. First Investment Bank has always been active on the international markets by issuing Eurobonds and syndicated loans – it is inevitable that the price of our resources will rise and thence the price of the loans will rise.

We are already experiencing such process - less and less loan applications are submitted at the bank. Our liquidity at the moment is above 25% - which is a very high level, almost unprofitable - but on the other hand it guarantees certainty to our customers.

What are the next steps FIBank will make in the nearest future?

We believe that now is the time to encourage the thrift of Bulgarians. We will present new products with very good terms. At the same time we will keep offering good loan products - credit cards and mortgage loans for individuals.

On the other hand, in connection with the lower interest of corporate customers in lending and with the increased deposit base we are planning to repay part of the existing 185 million euro syndicated loan in October. We consider that at this stage, bearing in mind the slower economic growth, we do not need new Eurobond and thence we do not need new financial instruments. We well keep granting loans to the leading economic branches connected with production, infrastructure and farming and the requirements towards these borrowers will continue being tightened.

How will the crunch affect the influx of foreign investments?

The crisis will not seriously affect the influx of foreign investments in Bulgaria. Even if the foreign investments in real estate fall as it is by the moment, the dropdown will not be considerable. Forthcoming is the development of industrial parks, offices and trade centers, alternative energy resources as well as of new investments in the financial sector.

Bulgarian economy does not rely on recourses from the capital markets. The accounted economic growth of 7.1% shows that Bulgarian economy is still not dependant on the world markets.