Banking system of Bulgaria resembles a fish in marshy shallows. It is alive, but barely moving. This is hardly a surprise to anyone who follows the state of Bulgarian economy – it has fallen into complete timelessness, nothing develops and the projects for corporate upgrade are the only exception. Most companies are literally struggling to survive. In this situation, they reduce their turnovers, use of credits is symbolic in volume while payments in the best case remain unchanged. Example in this respect is given by the C-Banks system of immediate payment exchange RINGS. For twelve months the volume of customer orders has increased by 800 million levs and in June 2013 it reached 80.8 billion levs, while in previous years, the annual increase was between 4-5 billion levs. It appears that the activity has experienced a nearly five-fold drop. In this context, one may say that business activities are shrinking.
Of course many people may be accused of excessive pessimism. As a matter of fact for a year the assets of the country’s banking sector grew by nearly 3.7 billion levs and in June 2013 they were 83.15 billion levs. A more detailed analysis, however, shows that this increase is mainly due to the results of the three credit institutions – Corporate Bank, Unicredit Bulbank and First Investment Bank. And in a situation which lasts for more than four and a half years for the economy, an increase in one or another bank index is not a guarantee for an economic revival. The deposits of citizens grew for a long period and at a fast pace, but that does not mean that the population has become wealthier and more solvent.
The current situation of economic crisis
efficiency is the true indicator of trends
in one sector – as measured by operating income, return on assets, capital, and profit. A comparison on an annual basis show that for local banks all these indicators go down. The worst is that the net interest income continues to decline, and this result cannot be offset by a reduction in the cost of bank provisions. The reason for this is the inability of banks to find a sufficient number of paying customers and this deficit could not be overcome for years, although the credit institutions permanently reduce their interest rates on loans. And since this method does not give the required result, banks are forced to compensate for the reduced interest income by increasing revenues from fees and commissions. They constantly innovate and come up with different methods of collecting additional revenue. So far, the result of this policy is positive (for banks, of course), but it is not sufficient to cover the decline in income from interests. It is clear that these games transfer money from one pocket to another can not last forever and if you do not revive production and trade, indicators of credit institutions for efficiency will continue to slowly but surely get worse.
Of course, against this backdrop there are
banks that do better than others
For the first six months of 2013 these are Unicredit Bulbank, DSK Bank and Corporate Bank, and First Investment Bank. Only they fall in the top ten credit institutions which cover the five indicators which BANKER has developed over the 17 years for its quarterly ranking of the best credit institutions in the country. These are quantitative criteria – total assets, equity and earnings, as well as two performance indicators – return on equity and return on profits. Practice has shown that the combination of them balances the many distortions in the reporting of results of credit institutions due to occasional transactions or accounting operations and provides a relatively reliable picture of the state of banks within the three-month period analyzed.
The BANKER
