New mergers expected in the banking sector

“It is only logical that we witness new mergers in the banking sector,” Assen Yagodin, BoD Chairman and Executive Director of Bulgarian Development Bank (BDB), said at a financial forum. “Declining profitability, which is not likely to be contained, as well as the higher capital adequacy requirements will pose additional problems to some financial institutions. Banks are pressed by high funding costs and cannot afford to increase further the cost of credits because of the strong competition,” he explained. Problematic loans are eating up the already low profits and the lack of additional sources of income will have an adverse impact on some market players. All this provides an incentive to seek consolidation,” pointed out Yagodin. “However, such a development will optimise and improve the quality of the sector,” the banker commented.

The expert added that banks began to seek new sources of proceeds last year since the deteriorating credit portfolios required “fuel” for the worsening credit provisions. This is the most important thing for the sector this year. Such sources can include the sale of insurance products, which is a risk-free business. Although it is not a typical banking activity, it is a good form of compensation for the reduced incomes from lending.

According to Yagodin, the last serious problem of the persisting worsening of credit portfolios stands fair chances of being eliminated this year. “If this issue is solved, it will mean that the banking system, which entered the crisis as a stable sector and behaved adequately during this period, has good prospects of regaining its position without having used a single lev of the taxpayers,” he concluded.

Peter Andronov, CEO of CIBank, said that financial institutions were very actively looking for other sources of funding - through the European Investment Bank (EIB), the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD) and other international institutions. “Most of these funds are intended for small- and medium-sized businesses that we want to support,” Andronov explained. However, the banker voiced his concern about the possibility of finding borrowers who meet the requirements and offer good projects.

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