The greater the confidence in the banking system is and the more capital buffers there are, the more stable the system is. Its credibility is undermined by defaulting debtors, by the authors and distributors of rumours and recently – by Finance Minister himself who suggested the incomes from interest rates to be taxed. The group is joined by 86 Members of Parliament, who in times of crisis decided to support the idea of the Finance Ministry. MPs who did not vote, are also to be blamed because of their abdication from legitimate actions to protect their constituents. Both of them still have a chance to make it up to the people on whose votes they will count in next year’s elections at the forthcoming second reading of the amendments to the tax law.
As for the size of banks’ capital buffers, it is 2.5 billion levs and it is sufficient enough to absorb any new problematic loans. Parallel to this borrowed funds from individuals and companies are growing, although this trend may be seriously limited by the recently expressed fiscal greed of those in power.
Bank also report some growth in the corporate loans and assets. These are all factors that at least temporarily put off the bleak outlook, which businesses live every day.
Contrary to all their European counterparts, Bulgarian banks do not create trouble to the government nor function expecting it to support them. The same cannot be said about the attitude of the Cabinet to banks. Because the government not only relies on a stable cash inflow from the Central Bank, which for the 2013 draft bill they even dared to unilaterally fix (according to their needs), but also intervened in the delicate bank-client relationship introducing a tax on interests from deposits. Besides all this, Finance Minister continues to boast in the country and abroad of the local bank stability, as if it were his own achievement and if there were no Central Bank in Bulgaria.
To this all one can also add the surprising introduction of high fees for grid connection of the renewable energy sources, for which the Bank Association sent a letter to the government, warning that the move can cause some 2 billion levs worth of loans to go into default.
Banks’ reserves, however, are not inexhaustible. And since the economy is writhing in agony, how can manage financial institutions to be continually profitable. Such is the simple dialectic of life. Banks are not excluded from it.
As a matter of fact, the reports of the Central Bank for the first nine months of 2012 contain some very disturbing facts. For example, the accumulated profit from the beginning of 2012 until the end of September is indeed by nearly 20 million levs higher than in the corresponding period of 2011. But the reason is simple: it’s almost entirely due to the DSK Bank, whose profits grew by 61.62 million to an overall of 186.12 million levs. The majority of other credit institutions have experiences shrinking profits. A downside is that, according to reports, the success of DSK Bank is due to the reduction in expenses for provisions, and not to the increase in the bank’s operating revenue. Rather, its net income from interests, fees and commissions have shrunk, which applies to the entire banking system.
This means that banks may have mastered the increase in problematic loans, but still can not cope with the challenge of finding new profitable business to lend to. Central Bank’s reports show that corporate debt has increased from 35.33 billion to 37.56 billion levs, while mortgage and consumer loans have decreased.
Another indication of erosion in the banking sector are the so called capital buffers. This is the pool of funds that banks use to cover emerging problematic loans. A year ago it was around 3 billion levs, at the end of September 2012 it declined to 2.5 billion levs.
Even in its current size, the capital buffer is high enough to guarantee the stability of the credit system. But no one can predict whether it will be that stable by end of the crisis because no one can predict how long the crisis itself will last. A concern that problems with defaults on loans will deepen stems from the fact that in March the volume of problematic loans (those not serviced for more than 90 days) was 10.71% of total loans, three months later it grew to 11.28%, and in September 2012 – to 11.6%.
