Bank digitalization

4 January 2018

Undoubtedly, one of the leading trends that we will continue to follow with my team at Postbank in 2018 is the digitalization of services and the introduction of innovations at all levels and in all sectors of the economy, not only in banking. We will certainly speak more and more about digital wallets, robot payment, chat bots, voice commands, artificial intelligence and the use of mobile applications with biometric fingerprint recognition technology. They allow us to be more efficient, but require time for integration. Mobile applications and digital innovations are changing our society. Our customers are looking for modern products and services with added value that can save them valuable time, that they can use anywhere and on any device. It is up to us, the banks, not only to introduce, but also to create innovations for the convenience and experience of our customers, as well as to keep up with market trends. There is currently an ongoing process of consolidation, introduction of new regulations and low interest rates on loans and deposits, which are changing the banking model. On the other hand, we will continue to monitor the development of companies in the fintech industry, which are not only our competitors but also potential partners, as together we can provide even more innovative services to our customers.
 
I expect interest rates to start rising, albeit gradually, in 2018 or in early 2019. Some factors pointing at this have been present since 2016. The Federal Reserve began to raise the key interest rate in the United States, and in recent months the Bank of England has done the same, which in its turn raised the key interest rate for the first time in 10 years. The ECB is not expected to raise interest rates until the end of the asset purchase program and before a lasting stabilization of the euro area economy has been achieved, which will be no earlier than the end of 2018. In Bulgaria, the momentum of low interest rates will continue for some time due to the huge liquidity in our banking system. That is why we constantly advise our clients to keep in mind the recent stabilization and even their rise. I believe we will see the real reversal of the trend when economic growth becomes sustainable and lending is on an upward trend, and this is something we are already witnessing. High-quality projects of companies are increasing and this can only make us happy. The company segment is looking for financing, which in turn leads to new products and new job openings. Our expectations are that by the end of the year the growth of lending will have exceeded 4 percent on an annual basis, and in 2018 it will reach 4.5 percent. I am happy that since the beginning of the year, in Postbank we have reported an increase in business loans of BGN 440 million. Company lending is growing by a little over 1 percent on an annual basis, and consumer and mortgage lending by 4.5 percent and 5.3 percent respectively. Currently, there is great interest on the part of customers for the purchase of homes. In order for loans to grow, it is not the low interest rates that are most important, but the positive expectations of market players. The good thing is that they have coincided in the last year – confidence is high, the economy is growing and interest rates are historically low.
 
At Postbank we mostly finance companies operating in retail and wholesale, manufacturing, hotels, transport, restaurants, as well as export-oriented sectors. Many construction companies, investors and real estate agencies are also looking for financing. Therefore, I expect them to be again among the sectors that we will most often lend to in 2018. Our observations show that there is an increasing number of high-quality and reliable projects with potential for the development of start-ups, and this can only make us happy. Certainly, traditional sectors such as agriculture, livestock and processing will also continue to develop next year.
 
Regulations continue to be one of the most serious challenges in the banking sector, but, overall, they provide additional security and stability for both us and our customers. New rules and standards are to be introduced, regulating almost all aspects of the business – new capital buffers, provision of pre-contractual information, protection of personal data, trading in financial instruments. Also, we should not forget the new directive on payment services. All this raises the costs of banks and requires more and more trained personnel working in this environment. Banks and other payment institutions will have to make additional investments to implement and refine information systems and applications in connection with the new requirements regarding the security of payment transactions and the protection of personal data.
 
IFRS 9 is undoubtedly the most important change in the banking business next year. The new standard will change the reporting of financial instruments and will have an impact on the business ranging from the granting of loans, their reporting, provisioning, collection, to the capital base and adequacy. On the other hand, the revised Payment Services Directive, which enters into force in the European Union on 13 January 2018, will facilitate the entry of new players into the banking services market, as well as fintech companies. As banks, we will have to meet the new requirements for data security, adapt to the new competitive environment of open banking and start providing even more innovative services. We will be able to translate our operations in accordance with the regulation, partner with new players in the market, which is already happening, and benefit customers. We will also completely rethink our banking model in accordance with the possibilities provided by the new payment services directive PSD2.
 
The environment is currently calm and economically stable, so I hope there are no events we have not anticipated and that their impact on the Bulgarian market would not surprise us. Certainly, what lies ahead and is important for all of us is the Bulgarian Presidency of the Council of the European Union. All political events affect the economy, and in particular the banking sector, to a certain extent, and this is inevitable. Bulgaria’s EU accession has undoubtedly brought many positives to Bulgarian business, which enjoys the right to free movement of goods, people and capital. Therefore, I expect the upcoming events to have an entirely positive impact.