From the financial reports of the banking sector in 2011 all sorts of interpretations began popping up. Recently appeared a publication, where the author tries to calculate how much banks earn per minute. According to the article the amount is about one thousand levs. How the writer got the idea to consider exactly this is something that only he knows. The trouble is that his account is not accurate. It was made per three hundred and sixty days, during which the banks were supposed to work 24 hours a day. Banks, as most businesses in our country work 260 days, and only eight hours a day. If we set these parameters in the equation, we can deduce that at an overall profit of the sector of BGN586.14 million for their working time in 2011,
banks earned an average of BGN1,565 per minute
You can continue to indulge in per-minute calculation by paying attention to the fact that every minute the banking system carried out transactions of an average BGN1.46 million, granted loans averaging BGN16,025, set aside provisions for bad credits of BGN10,339 and accumulated deposits of BGN48,878. This is an interesting but useless statistics, because it cannot help make any serious conclusions and forecasts for the banking sector.
Much more important is what profit brings to banks an asset unit or a capital unit, whether their problematic debts increase or decrease, etc. The answers to these questions allow analysts to predict what the cost of loans will be and whether income on savings in banks will rise, which makes these topics the most interesting ones for businesses and citizens.
However high, at first glance, the profits of credit institutions for 2011 may seem to be and they are by about BGN30 million less than in 2010. The profits per asset unit and per capital units are also shrinking. The reasons for this are not a smaller volume of the credit institutions’ turnover, nor higher provisioning costs for problematic credits. Whatever interpretation may be given,
assets of banks increased
by nearly BGN3.1 billion in 2011 and reached BGN76.81 billion. Loans grew modestly – by BGN2.1 billion and the total amount reached BGN54.62 billion. Deposits did increase by BGN6.1 billion to BGN53.34 billion. It is seen that even at dramatically higher rates of deposits, their size is still smaller than that of loans. Which means that the difference is covered by external funding.
It is true that foreign owners have withdrawn nearly BGN2.4 billion from their Bulgarian subsidiaries in 2011. But these were their own funds that were poured two or more years ago to maintain the growth in the lending sector of Bulgaria. Now they are not usable, because banks fail to find a sufficient number of good projects and creditworthy business customers who need loans.
Attempts by banks to lower interest margins
are in fact what explains the smaller size of their profits. How does this happen? Net interest income for 2011 decreased by BGN50 million, or by about 1.7 percent year-on-year. If banks kept interest rates on loans from their 2010 levels their net revenues in 2011 would have increased by at least 3.9 percent – which is the proportion the volume of loans increased. Following this policy in 2012, there may be further margin squeezes if interest rates on deposits fall by a percentage and a half, while there is no increase in provision expenses.
Many bank managers say they are planning to lower interest rates. But they will proceed with actually doing it only after they manage to permanently reduce their costs, without generating withdrawal of deposited funds. In any case, a sharp reduction in the cost of credit should not be expected. It is more likely that incomes from savings to get reduced, but this is understandable having in mind the constant pressure to reduce the weight for debtors.
Another important issue that directly affects both businesses and general public is:
Is the banking system stable?
The short answer is yes, and the extensive explanation is difficult to be presented in a short form accessible to everybody. People who are not strong at analyzing themselves the financial performance indicators should listen to the opinion of the Central Bank. It manager Ivan Iskrov has repeatedly said that banks in the country are with much better indicators of stability than the best credit institutions abroad. And this is true. Those who do not believe can compare and evaluate indicators such as capital adequacy, liquidity, total risk component, etc.
Naturally, there are banks that perform better than others, which the BANKER has been monitoring for more than fifteen years. These are five top indices which represent the position of each bank in the financial market and the effectiveness of its operations. These are the size of the balance sheet, equity capital, profit, and also return on assets and equity. Only institutions that meet all five criteria to rank among the top ten may fall in the
group of the best.
In 2011 the elite club included seven credit institutions that were also part of it during the quarterly charts made during the year. These are Unicredit Bulbank, DSK, Raiffeisenbank (Bulgaria), First Investment Bank, Corporate Bank, Societe Generale Expressbank and Piraeus Bank Bulgaria.
