Petia Dimitrova: By acquiring BNP Paribas Personal Finance, we will establish ourselves as the bank of choice for individual clients

 

Ms Dimitrova, will the consolidation of BNP Paribas Personal Finance to Postbank be easier after your successful experience with the purchase of DZI Bank and the acquisition of the Bulgarian branches of Alpha Bank and Piraeus Bank?

 
We value all the consolidations that you mentioned and that we have successfully completed over the years, regardless of the specifics of each individual deal. We approached all of them with respect, professional inspiration and full commitment. The expected acquisition of the Bulgarian branch of BNP Paribas Personal Finance will be a continuation of this established practice, complementing the rich expertise we already have. Moreover, we want to preserve and develop their business model, together with the team that achieved these successes over the past 15 years.
This deal 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. But the charts alone are not the driving factor for us. Our main goal is increased profitability and our understanding that we are doing it primarily for the benefit of our existing and future clients who will receive even faster, more affordable, convenient and innovative services from a larger institution that is part of a strong international group. And this deal was made possible precisely thanks to the fact that Postbank is part of Eurobank Group, the strategy of which includes expanding its positions in key markets and investing in strong businesses and successful teams like ours.

 

 

What did you like about the consumer lending practices of BNP Paribas Personal Finance?

 

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, as well as with new opportunities for cross-selling and implementation of innovative digital solutions for the clients.
Last but not least, the well-prepared highly professional team that we are about to welcome into our big family was of key importance for us.

 

 

Why is Postbank suspending the telephone banking service as of the 19th of December? How are the digital services changing and are the new ones going to be available to all of your clients?

 

Your question takes me back to 2013, when we introduced this service at the bank and when we had only one digital channel available – internet banking, and it had limited functionality.
A decade is a lot of time when it comes to the development of high technology and digitalization which, as you remember, received an incredible boost even in the two years of pandemic restrictions. And our strategic Mission Digitalization was initiated long before that. As a result of that, today Postbank offers some of the most state-of-the-art and advanced digital channels – Internet and mobile banking, the ONE mobile wallet, digital zones for express banking.
We recently began expanding the range of users of our ONE mobile wallet. We added new functionalities to the mobile application and made it available to both our clients and users who have cards issued by other banks in the country and are not using our products and services currently, but prefer our digital payment methods and greatly appreciate their benefits.
The other recent innovation is the digital assistant EVA – a chatbot based on artificial intelligence technology, providing real-time consultations. EVA was also the first banking chatbot in our country, which I am very proud of, as with each of our innovations.
The digitalization process will continue because it is undoubtedly the path to greater efficiency, bringing more benefits to our clients.

 

 

After more than six years of credit expansion, has the tipping point come where banks have to change their terms of financing? When will negotiations with clients begin and what are your expectations for a rate hike?

 

We are already starting to see a reversal of the interest rate cycle. We expect an increase in interest rates on loans in the country, but it will happen gradually. This is the place to remind that banks cannot unilaterally raise interest rates on existing loans and the price depends on the market index or other reference interest rate the loans are tied to.

 

 

It turns out that Bulgaria is the last country in Europe to raise the interest rates. Why was the process delayed in our country?

 

Events in Bulgaria often lag behind the events in Western Europe. I attribute this to the fact that it takes time for companies and households in other countries in Western Europe to feel the effect of the change in monetary policy and to begin to change their behaviour, which results in the effect being transferred to our country accordingly. Also, let’s not forget that ECB was the last major central bank to change its interest rate policy and that it approached this with moderation.
But it is not true that interest rates have not started rising yet. BNB statistics show that interest rates on newly-granted corporate loans have increased by 20 basis points over the past two months, while those on consumer loans have increased by 80 basis points since the summer. Only the interest rates on mortgage loans remain unchanged for now, but this is related to the longer period for approval and granting of these loans and, of course, to their lower risk profile. But they will inevitably rise in the coming months, as well.

 

 

By how much will free cash flow and the 1.3% base interest rate increase interest rates? How is this going to affect the interest rates on regular loans?

 

This is hard to predict because there are many factors that influence the interest rates on deposits and, respectively, on loans. You know that the base interest rate in Bulgaria is not determined by the BNB and reflects the price of the resources exchanged by the banks on the short-term interbank market. Very few banks in the country use this index to form loan rates, so its increase is not indicative of how much interest rates are going to increase.
The first to experience the rise in interest rates are the clients, mainly the large companies whose loans are tied to EURIBOR. Until recently, its value was negative, but due to the increase in interest rates by ECB, the rate of the 3-month index is already above 2%.

 

Will banks be forced to set aside additional provisions due to the increase in non-performing loans?

 
Currently, there are no indications of an increase in non-performing loans. On the contrary, their share continues to fall and in September it was 5.6% – far from the double-digit values we observed just a few years ago. If the country’s economy falls into a deep recession, then we can expect a more significant increase in non-performing loans and a corresponding need for additional provisions but, like I just said, our expectations are for a slowdown, not a recession. In any case, the banking system remains profitable and well capitalized and is able to weather a decline in portfolios.

 

Perhaps banks will be the most prepared in the event of Bulgaria’s entry into the euro area, because they have been coordinating their operations with the European payment system for a long time. What else needs to be done so there are no surprises when the time comes?

 
This is definitely the case! The banking sector in our country is among the most prepared for full membership in the euro area and this is due to the fact that our country is already part of the banking union. We are ready. We have internal communications and experts following a plan for entry into the euro area, and we are convinced that the adoption of the single European currency by Bulgaria will bring many benefits to the clients.
Among the main points to be actively addressed and communicated are the technical readiness for the adoption and the preparation process itself. That is why all preparatory measures must be implemented as quickly as possible. The timing of initiating this process will be key, because it will take time for all systems to ensure that the result on 1 January 2024 is a smooth and successful adoption.

 

Will clients be required to pay additional fees when converting receivables and payables into euro after Bulgaria joins the euro area?

 
The concept of the law for the introduction of the euro clearly states that the conversion of deposits and loans by the banks will be free of charge for the clients.
We are awaiting the solution for the exchange of large amounts of cash, because the physical exchange of the banknotes and coins is associated with large costs for the institutions that are mainly going to be responsible for this task – BNB, the banks and the Bulgarian Post Office. But not only for them – all merchants will be affected by this, because initially they will be obliged to accept both BGN and EUR, but they will have to give change only in EUR – i.e. they will have to maintain higher cash balances, which is expensive and inconvenient. Therefore, we will be actively encouraging customers to use electronic means of payment, which will solve this problem.

 

The Association of Banks in Bulgaria criticised the Insolvency of Natural Persons Act because it saw imperfections in the bill submitted to the Parliament. Do you expect that your requests for its entry into force to be postponed by at least two years shall be considered?

 
There is no doubt that there has to be a legal framework on the bankruptcy proceedings of natural persons, fairly, efficiently and expediently allowing for the possibility that an individual follows a statutory procedure to repay their obligations at a given time to all creditors. Especially since Bulgaria is the only country in the EU that does not have such legislation.
The opinion of the Association brings up and argues a number of problematic topics and we hope that the legislator is going to comply with them. The request for its entry into force to be postponed by at least 2 years affects the introduction of the bankruptcy register. The Association’s opinion also states that this is driven by the fact that the bill does not provide a clear regulation regarding the already existing cases, that is, whether already agreed or granted loans will fall under this Act or only those agreed or granted after its entry into force.
I would like to point out here that the need to refine this bill was emphasised by a number of other professional organisations.