Petia Dimitrova: With the expected acquisition of BNP Paribas Personal Finance, our clients will receive even faster, more affordable and innovative services

Interview with Petia Dimitrova,

Chief Executive Officer and Chairperson of the Management Board of Postbank for the financial and economic portal Money.bg

 

 

Ms. Dimitrova, please tell us more about the latest consolidation deal on the Bulgarian market – the expected acquisition of the Bulgarian branch of BNP Paribas Personal Finance by Postbank?

 

I have always said that the main goal of market consolidation should be increasing profitability and it should be carried out primarily for the benefit of our existing and future clients who will receive even faster, more affordable and innovative services from the bigger bank.

The acquisition of the Bulgarian branch of BNP Paribas Personal Finance, which we expect to be finalised in the first half of 2023, is precisely such a step. It will allow us to expand our market share and take an even stronger and more stable position in the “big four” of the banking sector. For many years, BNP Paribas Personal Finance has maintained significant presence in consumer lending in Bulgaria by offering top class quality services. Therefore, the expected closing of the deal will help us expand our portfolio with a large new client base, together with a different and dynamic business. We want to preserve and develop the business model of BNP Paribas Personal Finance, together with the team that achieved these successes over the past 15 years.

This acquisition is made possible because we are part of the strong international Eurobank Group, whose strategy clearly encourages such a strengthening of positions in the countries where it is active.

 

 

What are the main challenges the bank and its clients have faced this year?

 

Banks are an integral part of the financial ecosystem and as such we met all the challenges that were thrown at us over the past few years. The pandemic, supply chains disruptions, Russia’s war with Ukraine, subsequent inflation and the onset of recession are just a few of them. We have to be patient and focus on a longer time frame where these factors and price stability will be the centre of our attention. Moreover, Christine Lagarde, the President of the European Central Bank, recently pointed out that inflation in the euro area has not yet peaked and there is a real risk that it will turn out even higher than currently expected.

Europe bore the brunt as the war hit hard the businesses on the old continent and caused a rise in energy prices and inflation, respectively.

Postbank sends off a year that was very successful for us. We continue to grow, to expand our portfolio and to increase our market share. Our loan portfolio exceeded BGN 10 billion, which is a growth of 14.5% on an annual basis and a market share of 11.9%.

We pride ourselves on maintaining excellent performance metrics. We are the fourth largest bank by assets, but third in terms of net profit and cost-to-income ratio among the major banks.

 

 

Were there any regulatory changes (not just banking) that significantly impacted the bank’s business and what were they?

 

The role of regulators is to be vigilant and to protect financial stability from potential risks. This is why several months ago the European Systemic Risk Board at the European Central Bank called on regulators to prepare for a potential crisis by committing financial institutions to build up capital and reserves to offset losses.

We have strict lending criteria, we carefully assess the creditworthiness of each client as per European regulations and the best practices of our international Eurobank Group. Prior to granting any mortgage loans, we perform a strict analysis of the borrowers’ financial situation and an assessment of the market value of the property. Loans are granted to natural persons with good and stable income, high-quality collateral for mortgage loans, and an assessment of the credibility of each client.

For companies, we analyse their financial situation, environment, market prospects and the plausibility of their investment and business plans.

We have been applying these strict criteria for many years and for this reason we believe that the risk profile of our portfolio is sufficiently good.

 

 

What do you think will be the main risks that banks will face in the coming year and how will they affect their business models?

 

The risks faced by the banking system are related to interest rates and the financial health of borrowers. Businesses and households have become accustomed to the low interest rates in recent years and some of them will have difficulties adapting to a higher interest rate environment, if they do not have sufficient reserves. Some of these reserves were eaten up by inflation and the rise in prices of energy and other resources.

The Bulgarian banking system is well prepared to meet the economic slowdown. Banks have high liquidity and very high capital adequacy of over 20%. Furthermore, next year the countercyclical buffer rates are planned to increase by 1% and to reach 2%, which shall provide additional protection for banks. The ratio of non-performing loans is low at 5.6% and the provision coverage ratio is 75%.

Difficult times are coming that will require skilful manoeuvring, but I emphasize again that the banking sector will meet the challenges in extremely good financial health.

 

 

What lending terms should the companies expect from banks in the coming year?

 

Lending in the country is still growing at double-digit rates, but we expect it to start to slow down soon as a result of the expected recession and rising interest rates. With another increase in the countercyclical buffer, the Bulgarian National Bank is sending a clear signal that it considers demand too high and banks should prepare for an economic slowdown and a potential increase in bad loans.

Banks will continue lending but at different rates. Companies and households will have to assess their own financial capacity and whether they will be able to repay their loans in the new environment.

 

 

Will there be significant differences in the terms of lending to companies for green projects and for energy-intensive and environmentally harmful businesses and what will they be? 

 

The sustainable transformation towards green investments can only be achieved through the successful partnership between supervisory authorities and banking institutions. The need for close cooperation to develop regulations and assessment methodology is a key factor in the development of successful environmental practices in the context of the Green Deal.

We have strong support and international know-how to implement our environmental, social and governance (ESG) practices as part of the Eurobank Group. We at Postbank are fully aware of the positive economic and social impact of the decisions enshrined in the bank’s strategy as part of its mission to invest in sustainable development and support the green transformation.

We are currently in the process of implementing a large-scale photovoltaic project at the Head Office of Postbank. Its completion will provide us with a number of technical and market advantages, allowing us to reduce operational risk since the infrastructure will be under less load, while simultaneously increasing the confidence of employees who will know that the company is implementing the latest technologies for sustainability and climate change mitigation.

Driven by the market dynamics and the tenfold increase in new installations worldwide over the past decade, in early 2023, we will also offer on the market а “Green Loan” for corporate clients. This is an excellent opportunity for us to make Postbank an important part of this expanding business segment for green financing of solar energy production projects.

 

Citizens in general are worried about a possible tightening of the requirements for them and the risk of an increase in interest rates on consumer and mortgage loans. What are the prospects in this area in the coming year?

 

We are already starting to see a reversal of the interest rate cycle. Central banks started raising interest rates and shifted to tighter monetary policies, including suspending share repurchases and fighting inflation. The recent hikes in key interest rates by the Federal Reserve and the European Central Bank demonstrate determination and a serious commitment to the goal of quickly overcoming inflation.

We expect an increase in interest rates on loans in the country, but it will happen gradually. BNB data shows that this is starting to happen for consumer loans – the average interest rate on new consumer loans has risen by 0.8 basis points over the past four months to 8.36% and this is just the beginning.

The interest rates on business loans and mortgage loans remain unchanged for now, but they will inevitably go up, as well. Mortgage rates in UK and the US already exceeded 6%, which is an increase of between two to three basis points over the past year.

Currently, Bulgarian households can take out a mortgage at a lower rate than in many developed countries, which does not reflect the changed market environment. The main risk in the event of a sharp deterioration in the macroeconomic environment and an increase in interest rates is the increase in non-performing loans. That is why we carefully monitor the behaviour of our clients and we are ready to react if we notice that they are experiencing temporary difficulties in servicing their loans, because we have always been their loyal and trusted partner.

We strive to offer a variety of refinancing options and to minimise interest rate hikes, but clients should know that this is going to happen. Banks will continue lending but at different rates and, in turn, companies and households will have to assess their own financial capacity and whether they will be able to repay their loans in the new environment.