Violina Marinova, CEO of DSK Bank: Interest rates in Bulgaria are optimal given the current economic environment

- Mrs. Marinova, the latest statistics of the Bulgarian National Bank (BNB) show that businesses and citizens with greater financial opportunities continue depositing their money in banks instead of investing in new projects. What is the reason for this trend, given that, for several quarters, now we have managed to avoid a crisis?
- Bulgaria is not isolated from the processes which take place in the European Union and in the global economies. The impact of the Eurozone, debt problems, other processes and phenomena at a macro level determine the development of our economy. The EU economy will report weak results for the first half of the year. Despite the fact that some main indicators forecast a mild and short recession, the data available so far  does not indicate the start of any recovery. In March, the annual growth in corporate deposits was 9.9% and households’ deposits recorded a double-digit figure - 13.3%. So, based on everything happening in the economies of our neighbouring countries and globally, the behaviour of businesses and households in Bulgaria is understandable – they refrain from implementing any projects, staying in a conservative awaiting position.

- Your colleagues stated recently that, at present, banks are "fighting" for projects and that, actually, refinancing and „thefts of good projects" are the only niche where something positive is happening. What is your comment?
- The banking sector in Bulgaria is highly competitive. The good relationships at the background of a long and fruitful competition in the banking sector do not allow for any "thefts" of projects. There is no recipe but calculated risk is the leading decision-making approach. Together with the proper identification of innovative and bold business decisions, it contributes to the reputation and to the subsequent financial dividends for banks.

- In general, what measures can be taken in order to reduce interest rates? Do you think that now they are being calculated in a non-transparent manner?
- Interest rates are based on market principals, not on the introducing of specific measures. My opinion is that the interest rates on the Bulgarian market are optimal, given the economic environment in which we all live and operate as economic entities.

- Non-performing loans continue to be a pressing issue. What are your expectations for this year? Have they hit rock bottom?
- The fact is that, in the first three months of 2012, the number of non-performing business loans marked a slight increase, while the bad loans of individuals remained almost unchanged. For the first quarter of 2012, non-performing business loans increased by 1.7%, while those of citizens by 0.5%. The share of non-performing loans (overdue more than 90 days) at the end of March reached 16.21%.
I want to note that banks in Bulgaria also assume part of the burden of this phenomenon, which results in a declining net interest income. Low domestic consumption and greater inter-company indebtedness result in lower revenues of both firms and citizens, which face difficulties in servicing their loans. Unfortunately, the bankers’ forecast from the end of 2010 that the recovery of small and medium-sized business will be most difficult turns out to be true. This applies to their crediting as well but they are, by definition, the backbone of the economy.

- Last year, exports were identified as the main engine of the country's economy, but in the first months of 2012, the funds received under this item decreased. What are your expectations for economic development? Is there a risk of a new entry into recession?
- Exports lagged behind imports by BGN 1.253 bn in the period January-February and they were down by 6.1% on an annual basis. We should make a distinction - whether exports are based on finished products or on raw materials for further processing. In the latter case, Bulgarian companies need to improve their efficiency, optimise costs and consider options for entering high-tech areas of development, for implementing infrastructure and logistics projects.
BNB's statistics on the balance of payments for the first quarter of 2012 showed the entrance of over €230 bn in foreign direct investments, which is an optimistic sign against the background of the withdrawal of FDI during the same period last year. The reduction in exports earnings is partially offset by delays in the process of withdrawal of FDI and redirecting of capitals to countries such as Serbia, Romania and Turkey.

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