Petia Dimitrova: Striving Towards Innovation Is a Postbank Trademark
Interview for BGLOBAL Magazine
Mrs. Dimitrova, all of the bank’s customers are asking themselves what is happening to interest rates. What will Postbank’s approach be regarding changes in the interest rate policy? Have you already started increasing interest rates? At what pace will this happen for business customers and households?
We are already beginning to observe a reverse in the interest cycle. Central banks have started increasing interest rates and shifted to a tighter monetary policy, including a halt to bond purchases and a fight against inflation. The last two base rate hikes of the Federal Reserve by 75 basis points and of the European Central Bank by the same rate demonstrate decisiveness and a serious commitment to the goal of quickly curbing inflation that worries consumers and governments alike.
Increasing interest rates on loans in the country is expected but will be happening gradually. Here we must note that banks cannot unilaterally increase rates on existing loans, but the price depends on the market index or other reference interest rate loans are tied to.
The first to experience an interest rate increase are the customers, mainly large companies, whose loans are tied to EURIBOR. Until recently its value was negative, however due to the ECB’s rate increase, the three-month index value is already more than 1%.
For the other customers there is no change yet as for the majority of them the rates are tied to the price of the resource attracted by the banks which is still low due to the high liquidity in the system. Meanwhile, banks are still lending at the same price levels, but I expect that to change soon.
After two rate hikes, ECB interest rates have already increased by 1.25 percentage points. Will the entire increase transfer to the end customers in Bulgaria?
That will depend on the market, but as a whole I do not expect interest rate increases to be at the same level as the fluctuation in the ECB base rate. As I mentioned, loans tied to EURIBOR will follow to a greater extent the changes in the ECB while those whose price depends on the value of the banks’ resource attracted will be less sensitive to the changes on the interbank market.
The great risk in case of sharp worsening of the macroeconomic environment and increase in interest rates is an increase in non-performing loans. This is why we are carefully observing the behavior of our customers and we are ready to react if we notice them experiencing temporary difficulties in repaying their loans since we have always been their loyal and trusted partner.
We will try to protect our customers and restrain to a maximum extent rate hikes, but customers should be aware that this is to come.
What can people and companies with savings expect? Currently, the inflation is eating up a major part of their money. What returns and novelties could you offer them?
We could expect a certain increase in interest on standard term deposits, but they will be far from the rates we experienced a few years ago. This is why the rich portfolio of Postbank has a broad spectrum of innovative savings solutions, tailored and catering to the financial needs of customers, offering them an even better customer experience.
In the past year we offered five types of structured deposits, tied to the performance of different indexes. Allow me to give you an example of why these products are so attractive – the end of last year saw the successful completion of the four-year emission of the INDEX TECH structured deposit that brought its investors a bonus interest of 14%.
Investing in a structured deposit is beneficial in that it unites the security of a bank deposit with the opportunity to receive returns tied to the performance of a given stock market index. The structured deposit is a tool with the potential to receive a better interest on the maturity date compared to regular term deposits without risking the amount invested as with investments in shares and bonds.
Our customers liked this type of products and this encouraged us to roll out more like our new Index DAX structured deposit whose first accumulation period wrapped up just recently. The product guarantees a fixed interest for every year of the term in addition to the option of an additional interest based on the performance of the stock market index at the end of the period.
What is happening to lending this year? Until when will the high levels continue, given that the Bulgarian National Bank is considering a potential new raise of the counter cyclical capital buffer?
Lending in the country is still growing at double-digit rates but we are expecting it to cool down soon due to the expectations of a recession and increase in the interest rates. With another raise of the counter cyclical capital buffer the Bulgarian National Bank is giving a clear signal that it believes that demand is too high and banks will have to prepare for a slowdown in the economy and a potential increase in bad loans.
Loan demand is high at the moment because this is the way for households and companies to curb high inflation. Households consider purchasing real estate as way to protect their savings and future income from the inflation. In the past years, real estate prices have grown at double-digit rates and the inflation accelerated, which makes real interest rates on loans negative.
Similarly, companies with the ability to invest want to do it now in order to stay ahead of rising prices for construction materials and new equipment. On the other hand, some companies need more working capital due to the high prices in resources and energy carriers.
We are expecting the growth rates to start cooling from now on and to be around 5% next year.
In February, the European Systemic Risk Board warned of vulnerabilities in the home lending market in Bulgaria because of the high growth and overpriced real estate. Do you believe there is such a risk and how do you manage it at Postbank?
The task of regulators is to be cautious and to protect financial stability. Following its latest meeting last month, the European Systemic Risk Board pointed out a few risks for financial stability like rising energy prices, high inflation and a drop in asset prices, notably in the real estate sector.
In the past few years, real estate prices in our country did mark significant growth which is at the basis of home lending’s rapid development. But in order to say that real estate prices are overestimated or that there is a bubble, we would have to take into account other factors like the reasons for increased demand and accessibility of real estate.
Our data show that the highest demand is in the major cities in the country – those with growing population, well paid jobs and enough new construction. Lowering unemployment and increasing income made purchasing an own home accessible to many more people. In fact, if we look at data, in terms of citizens’ income housing is more accessible now than 15 years ago. Over this period, real estate prices have doubled, whereas the average wage has tripled – from BGN 500 in 2008 up to more than BGN 1700 currently.
We have strict criteria on lending, carefully assessing the creditworthiness of each customer as is required under European regulations and the good practices of our international Eurobank group. Before home lending, we make a strict analysis of the financial state of the borrowers and an assessment of the market value of the property. Loans are given to natural persons with a good and stable income, quality collateral (in mortgages) and an assessment of the creditworthiness of each customer. For companies we analyze their financial state, the environment, market perspectives and how realistic their investment and business plans are. We implement these strict criteria for many years now and therefore we believe that the risk profile of our portfolio is good enough.
What is the conclusion Postbank draw from the so-called loan moratorium in the most severe moments of the pandemic?
The moratorium on bank loan repayments helped many borrowers not fall into arrears and continue regularly repaying their debts. It was a very timely and adequate measure that helped prevent a short-term liquidity problem into a credit one therefore a problem for the whole economy. The end of last year marked the end of the grace period for the last loans postponed under the moratorium so this is an appropriate time to analyze the results thereof. The creditworthiness of customers that chose to benefit from the moratorium is very good, excellent even, which shows that it carried out its goals and prevented a potentially systemic problem. A major part of customers currently repay regularly under their standard repayment plans which shows that this was the right measure at that time.
What makes Postbank stand out from the other leading banks in the Bulgarian market?
Our constant desire to develop and sustainable effort in seeking innovation are some of the typical traits of Postbank for more than 30 years now. Over this time, we have proven ourselves as one of the most successful systemic banks in Bulgaria. Logically, we also grew to be a reliable partner, employer and socially responsible company. Furthermore, we have established ourselves as an institution customers trust and offering them solutions for their future. This would not be possible without the efforts of our entire team. This is why I would like to thank all my colleagues, customers, shareholders and the strong international group of Eurobank that Postbank is part of.
We offered our customers several next-generation innovations: we were the first bank to introduce Smart POS that turns a smartphone into a POS terminal, the first certified bank offering instant payments, the first metal credit card in the Bulgarian market. Another innovation we launched is our unique next-generation mobile wallet ONE Wallet with which customers have an even better customer experience and we will soon be announcing further upgrades. Our customers have active and flexible control over their funds 24/7 which is an irreplaceable convenience nowadays.
Furthermore, in the past two years we started a complete renovation of our branch network and invested in modern digital express banking zones which were immediately recognized as a preferred alternative to banking at a register. Thanks to the intuitive devices in these zones, our customers can easily and quickly carry out themselves a major part of the main banking operations after simply identifying themselves with their debit or credit card, without having to be registered for the bank’s internet banking.
The products and services we offer our customers are developed in line with the contemporary market needs. Excellent customer experience is a permanent part of the bank’s corporate policy. We will continue developing it, investing in new technologies and green future aligned with our ESG strategy as they bear the change in the sector.
What is Postbank’s strategy regarding the green transition? Are there sectors you will stop lending? What novelties do you offer in the field of energy efficiency?
Our strategy is to actively manage our impact on the environment, not to restrict sectors from lending. Speaking about green economy we must not forget that the majority of economic activities unfortunately harm the environment due to the way they are carried out.
We realize that implementing the green transition is a complex and lengthy process, therefore we see our role as supporting businesses adapt by applying no-waste, energy efficient and smart technologies, investing in innovations of all kinds. This is why we are developing new products and services to cater to the specific dynamic needs of business.
The banking system’s profits have been increasing by 50% over the last year. What is this growth due to? Do profits from fee contribute significantly?
There are a couple of factors influencing the banking system’s profit, the main being the growth of business, higher income from fees and commissions and the improving quality of the loan portfolio. The greatest contribution comes from the increase in interest income for banks related to the high demand for loans. Over the last year, the growth in lending surpasses 13% but this only has a 10% increase effect on income from interest or in other words – new loans are still given at lower levels than those that are being repaid. Naturally, the growth in lending and more customers carrying out transactions also leads to higher income from fees and commissions, although to a lesser extent than the previous factor.
Another important factor is the improving quality of the loan portfolio that gives banks the ability to lower their expenses for provisions therefore increasing their profits. Over the past year bad loans in the system dropped by almost 2 percentage points down to 5.8% which is the lowest level for the past 10 and more years.
What distinguishes Postbank from the other leading banks in the Bulgarian market?
Our main goal is to be as useful as possible to our customers, providing them an excellent experience and offering them modern solutions, spaces and concepts that best cater to their needs at any time and any place.
Therefore, we maintain uncompromising standards regarding the quality of our broad spectrum of products and services. Being leaders in the field of digital banking is not only a calling, but also a motivation to continue growing in this field because our customers appreciate it and expect it from us.
Our well-functioning model is to use the most advanced technological infrastructure in balance with the human factor, offering clean, fast personalized and secure services 24/7, servicing our customers – both natural persons and companies – large, medium and small, and to contribute to improving the perspectives for Bulgarian economy and society.
How are the main indicators of the bank’s development turning out for the first half of 2022 – loan portfolio, deposits, profits, market share?
The bank’s indicators are very good. We are continuing to grow, expanding our portfolio and gaining market positions.
Our loan portfolio reaches BGN 9.63 billion as at June 2022 which is a 13.1% annual growth and a market share of 11.9%. We are growing at the rate of the market which is our goal as we do not wish to gain market share at any cost but to strictly stick to our loan criteria and maintain our excellent profitability indicators.
Deposits amount to approximately BGN 12.5 billion with a 12.1% annual growth and a market share of 10.9%. Over the last year we have improved our market share by over 20 basis points which demonstrates our customers’ trust in us and the right strategy we have adopted.
We are proud with maintaining excellent efficiency indicators. We are the fourth largest bank in terms of assets but third in net profit and expense to income ratio among the big banks. In the first half of the year, we realized a net profit of BGN 90 million which provides a return on capital of 10%.
What new trends are observed in housing lending?
At the bank we drafted an analysis that showed that consumers are permanently turning their preferences towards higher quality homes. There is an increased interest in property with excellent characteristics in locations with better infrastructure and close to green areas. As a result of the changes in lifestyle during the pandemic, customers are looking for ever bigger and spacious property. There is an increasing interest in three- and four-bedroom apartments, unlike for the smaller ones where a drop has been observed.
We have a broad portfolio of solutions, products and services, thanks to which we can cover our customers’ expectations and individual needs. We constantly analyze not only data, but also consumer behavior which allows us to sum up that a high-quality consultation, high expertise and speed of the financing process are of decisive importance. Through our specialized Mortgage Loan Centers, we provide professional support for everything from the consultation, through the preparation of an offer, to the drawdown of the loan for the purchase of an own home, easily and conveniently, and most importantly – with a personal banker and a personalized approach. In response to both new customer habits and expectations for a full remote process, our innovative Online Mortgage Loan Centre service combines our years of home lending experience with the latest technology to offer them speed and efficiency. The application process and obtaining a pre-approval opinion is done entirely in a digital environment and this is part of the excellent experience we strive to provide to our customers.
We recently launched the Welcome Program, which is our newest financial solution, uniting some of the products most desired by our customers and offering a wide range of attractive banking services with added value. The program is focused on the customers’ need of complete solutions. As part of its terms, consumers receive a rich package of everyday banking services with the unique My Family package program without a fee for the first year. It includes some of the products and services most used by the bank’s customers, needed for everyday banking and managing family finances.
What percentage of your portfolio are business loans and household loans respectively? What growth have they had in the first half of the year?
We are a universal bank and our portfolio is very well balanced between business loans (52% of the portfolio) and household loans (48% of the portfolio).
Over the last year the demand on the market for household loans has been overtaking company loans and we are no exception to that.
Since the beginning of the year, we have granted more than BGN 470 million in new loans to households, reaching BGN 4.58 billion with the growth in both segments (consumer and mortgage lending) almost the same. Meanwhile, loans for companies have grown by more than BGN 300 million up to BGN 5.05 billion.
What is Postbank specialized in in terms of business lending?
The goal of offering services to as broad a spectrum of customers as possible, allowing us to diversify risk, is set out in our corporate strategy
Specialization bears the risk of concentrating exposures in a certain sector which makes the bank more vulnerable in times of economic downturn.
Furthermore, the Bulgarian market is small enough for specialization to not be necessary. For example, unlike many other countries, there are no specialized mortgage lenders here. Even the largest leasing and factoring companies are part of banking groups rather than independent market players.
This is why we do not and would not wish to have specialization in terms of the customers we work with, including in business lending. We are capable of offering every business customer the full servicing, from standard banking services – deposits, loans and transactional banking, specialized services – factoring, leasing and project financing, and capital market services – derivative transactions, investment brokerage and custody services.
What is the bank’s policy regarding the green transition? What are your leading products for company and household energy efficiency?
We are confident in the role we have to play in carrying out the green transition – it affects all economic agents, not only businesses but households as well – and without our participation it would not be possible. The significance of introducing energy efficient and smart solutions in both companies and households alike is especially noticeable now, when energy prices are unpredictable, inflation is high, and consumers are trying to find ways to save from their expenses and save their funds. This is why we offer a broad range of different products to meet the basic needs of our customers.
Environmental, social and governance (ESG) initiatives become increasingly important within the banking sector since institutions correct their strategies and practices in order to have even better results. Financial institutions have the opportunity to use these initiatives and make them strengths in the market. We recognize our key role in setting the example for our customers and strive to offer eco-friendly products in our loan portfolio in order to be in line with the market trends and the customers’ changing needs with the right set of eco financing products.
This is why, and in relation to the abovementioned market trends, social commitment regarding ecology and the changing needs and interests of more and more customers in investing in energy efficient improvements and homes, we are soon to launch the market-first Green Mortgage. The innovative product offers financing for purchasing an energy efficient property (Class A and above) or other energy efficiency improvements on existing property (for example purchasing solar panels), aiming at improving the energy characteristics of the real estate. Customers will receive a special interest discount on the interest rate of the mortgage and will be able to save on their monthly expenses for the mortgage.
We have analogical solutions for business – we offer both standardized products and such that cater to the specific needs of our customers and are in line with the specificity of their activities, so we have a solution to all kinds of situations: purchasing energy-efficient machines, electric vehicles as well as introducing energy efficiency measures in manufacturing premises, any solution, aimed at improving processes efficiency and energy and raw material consumption.
Furthermore, we are proud of our innovative savings product Index Climate Change Structured Deposit that had well-deserved success on the market a few months ago – with the long-lasting low levels of profitability on deposits, it gives an opportunity for additional income thanks to its connection with the Solactive Climate Change Europe BTI PR Index. The choice of this index is part of the sustainable policy and long-term investments the bank makes in terms of environmental protection and saving natural resources.
What programs does the bank work under in terms of European and national financial tools? What share of the business segment of the bank’s portfolio comes from loans under such programs offering eased lending terms?
Postbank is actively supporting small and middle businesses in the country thanks to our broad spectrum of products and individual solutions. A significant part of this financing comes under the guarantee tools provided by the bank’s long-term partners – the European Investment Fund, the European Bank for Reconstruction and Development, the Bulgarian Development Banks, the National Guarantee Fond, the Fund of Funds. Part of these programs are also appropriate for startups.
The total amount of contracts concluded with customers under guarantee tools reaches nearly EUR 1.8 billion with a new EUR 150 million negotiated in 2022 alone.
What is the effect of the acquisition of Alpha Bank’s and Piraeus Bank Bulgaria’s business in the country?
Thank you for this question as I will take advantage of the opportunity to point out that Postbank was the first to de facto start the wave of consolidations in the market – initially with the deal for the Bulgarian branch of Alpha Bank in 2016 and later with the acquisition of Piraeus Bank Bulgaria in 2019, carried out for a record-breaking four months which demonstrates our solid expertise.
These acquisitions were especially important for us as they provided us a larger market share, bigger branch network, more customers, new opportunities to invest and digitalize and better customer service.
Our main goal is to grow organically but we are ready for new consolidations and will not miss a single convenient acquisition opportunity. By the way, the Eurobank group we are part of also undertook a series of acquisitions of other banks in the region in 2021.
It is important to us that shareholders appreciate what we do and wish to support us in our plans for developing the business in the Bulgarian market.
