Petia Dimitrova: Banks in Bulgaria are an indispensable factor in the prosperity of the economy

 
Mrs. Dimitrova, another successful year for banks in Bulgaria has passed. What are its digital expressions?
This year has been successful for the sector despite economic difficulties. The banks in Bulgaria have once again shown that can work together, being trusted partners to businesses and citizens – stable, well-liquid, with high capital adequacy, clean portfolios, and very low levels of bad loans. In Bulgaria, they are around 4%, comparable to the EU average. This is a good indicator that banks are functioning well and that people are planning their investments more wisely, building good financial literacy. To me, success lies in the stability of the banking system and our satisfied customers. We have met the requirements of the ECB and BNB. We complied with all laws and regulatory requirements, which are substantial. This is thanks to BNB’s consistent policy over the years. All this contributes to Bulgarian citizens’ peace of mind about where they invest their money. Deposits in the system reached 131.6 billion BGN as of the end of October, growing over 8% annually and surpassing the amount of loans, allowing banks to maintain some of the lowest loan interest rates in the eurozone. The total amount of loans as of October 2023 exceeded 95 billion BGN, a 13% annual increase, and nearly two-thirds more over the past decade. I want to stress that through their lending policies, banks play a key role in the economy, ensuring sustainable growth and stability – key factors in creating and maintaining jobs. All this is crucial for the prosperity of the economy and the country’s stability, with banks being an integral factor.
 
This was your first year as Chairperson of the Board of the Association of Banks in Bulgaria. How was it for you, and what distinguished it?
It was very challenging. We worked hard to reorganize the Association and incorporate a new mission, vision, and values. We organized a strategic board meeting to discuss important projects to focus on in the coming years. We united on issues affecting us all – adopting the euro, increasing financial literacy, especially among young people, ESG initiatives, new regulations and their impact on banking, digitization, and the importance of the banking system for the economy and society. Our main goal for the next twelve months is preparing for Bulgaria’s entry into the eurozone. As a banker and Chairperson, I hope that on January 1, 2025, we will welcome the euro as our new national currency. I’m convinced that everyone in the country, including the government and parliament, is working hard towards this – timely drafting and passing of necessary laws to allow banks and businesses enough time to prepare and meet eurozone membership requirements. This preparation is both time-consuming and expensive – banks are expected to spend between 300 and 400 million BGN on the euro adoption, including currency exchange, IT system updates, and information campaigns.
 
Will our entry into the eurozone have a positive effect on the economy and lending?
Bulgaria joining the eurozone and the world’s second most-used currency is a long-awaited process that will positively affect our economy and accelerate reforms, increase prosperity, and reach European living standards. It will bring many benefits to citizens and companies, not just in terms of reduced transaction costs but also through higher investments and the opportunity to be a full member of the eurozone. This will positively impact lending, opening many additional opportunities, including the development of Bulgaria’s capital markets. The Association of Banks in Bulgaria plans to conduct an explanatory campaign among citizens, relying on support from the BNB and the government, to explain all the benefits of adopting the euro, which will significantly improve the business environment. We – the banks, business, and the state – must speak with one voice and send clear messages to help our customers, employees, and society navigate through a sea of information and fake news and reasonably and clearly appreciate the benefits of adopting the euro.
 
How will entry into the eurozone affect existing lev loans? What rules will determine interest rates on old lev loans after we join the eurozone?
There is a consensus in Bulgarian society on this issue, as reflected in the National Plan for the Introduction of the Euro, that revaluation will be done at the fixed central rate of 1.95583 leva per euro. Existing contracts – for loans, deposits, financial instruments in levs or referring to levs – will not be changed or canceled. Loans and deposits will be revalued at the fixed rate. I advise clients to deposit the money they keep “under the mattress” into their bank accounts before the euro adoption. We will ensure that at the beginning of 2025 all accounts will be automatically and free of charge converted into euros, which will be much easier and more convenient for clients than physically exchanging cash. Regarding interest rates – fixed interest rates on loans will remain the same, and floating interest rates cannot be higher than before the euro adoption – so no client will be disadvantaged by the change.
 
What will be the effect of our entry into the eurozone on the interest rates of new loans? A few years ago, economists claimed that with our entry into the eurozone, loan interest rates in Bulgaria would become lower. But currently, the eurozone is in a cycle of rising interest rates.
Yes, we are currently witnessing a shift from years of zero or negative interest rates to gradual increases in many countries worldwide. Inflation and the battle against it continue to be serious challenges for the financial sector, and in an attempt to control it, major central banks have raised the base interest rate several times over the past year. In the USA, it has already reached the range of 5-5.25%, and in the eurozone, it has reached 4%. Naturally, this leads to an increase in interest rates on loans for companies and citizens.
We cannot be completely isolated from these global trends, but we are doing everything possible to ensure that the increase in interest rates in Bulgaria is moderate and considerate, both for citizens and businesses. The main reason is that the Bulgarian banking system is highly liquid and deposit rates remain low, which allows us not to rely on expensive “imported” financing.
In the last year, the average interest rate on newly granted lev loans to companies has risen by over 1.5 percentage points to 3.9%. Around the same time, we began to observe an increase in consumer loan interest rates, although at a significantly more moderate pace – the average interest rate for the past year has increased by just under 1 percentage point. As I already shared, the interest rates on mortgage loans are relatively stable at around 2.5% and we are yet to witness their rise. The good news is that the demand for loans remains high, which shows that the financial condition of companies and households is very good. The most optimistic forecasts are that we can expect a reversal of the cycle in the second half of 2024.
 
The minimum mandatory reserves in the eurozone are 1%, compared to the current 12% in Bulgaria. Will our entry into the eurozone allow banks to lend under more favorable conditions?
Currently, Bulgarian banks hold, by our estimates, about 14 billion BGN at zero percent interest at BNB, and after our entry into the eurozone, we will be able to use part of them for more profitable activities, including lending. But I would avoid the phrase “under more favorable conditions”. The granting of each loan by banks is the result of a strict financial analysis of clients’ creditworthiness, and I do not expect any bank to relax its financial discipline just because we are part of the eurozone.
 
Digital banking is developing extremely fast. What new digital services can bank customers expect?
Digital innovations around the world are on an upward trend, and the banking sector’s contribution is extremely significant in this direction. The accelerated implementation of high-tech solutions improves the user experience. Thus, we ensure our customers receive even higher quality, faster, and more efficient banking services, because the essence of banking lies in the relationships between the consumer and the financial institution. In this process, major market players have an advantage because they possess the resources and means to implement various technological solutions and provide even higher quality and more efficient banking services. Digital cards, virtual wallets, and QR code payments – all of these are part of the new reality. However, the speed of technological transformation depends on the people in the team.

At Postbank, we make significant investments in re-engineering processes and in human resources to create applications that are understandable for the customer and enhance the pleasure of contact with us. The Phygital model is the future of banking. Hybrid forms of banking, the complex interplay between digital and physical services, and the user experience across different channels and platforms – consistently, in real-time – this is what we do at Postbank and what our customers expect. On the other hand, digital payments play a decisive role in stimulating economic growth, innovation, and consumer convenience. In 2024, we expect to see an even greater use of blockchain technology in various financial processes, including cross-border payments, trade finance, and supply chain management.

At Postbank, we transform innovations into concrete financial solutions for the convenience of our customers, overcoming challenges and moving forward. We are distinguished by our focus on digital solutions that facilitate everyday life and personalized communication with the customer. Being close to the “pulse” of the people, we can offer them the right products. Our main goal is to maintain a personal connection with each client, despite the digitization of many of our services. Our strength lies in a good balance between high-quality services and personal attention to each client.

Habits today are different from those of yesterday because life imposes its own dynamics. Young people follow trends, seek new products, and individual personalized solutions. Banks that respond to customer requirements are preferred. We developed the digital assistant EVA – a chatbot based on artificial intelligence technology, fluent in both Bulgarian and English. The service is focused on communication and provides clients with the opportunity for real-time consultation. We also developed our career chatbot on Viber to find the most suitable candidates for us. Our unique digital zones for express banking are an excellent example of a value-added service, which is also in harmony with our policy of seeking sustainable digital solutions. Banks play a key role as a catalyst for business transformation towards a sustainable economy, and we will see many new digital innovations specifically aimed at accelerating the green transition. We follow the pulse of society, listen to the voice of our customers, identify their needs, and strive to enrich our portfolio of services by offering them comprehensive and attractive solutions that provide added value.
 
What kind of year are you concluding at Postbank, and what are your expectations for the consolidation processes in the Bulgarian banking sector?
The year has been very good for Postbank, and I specifically want to congratulate everyone for their hard work throughout the year. In early June, we welcomed a new member to our family following the acquisition of the Bulgarian branch of “BNP Paribas Personal Finance.” This came after acquiring Alpha Bank – Bulgaria Branch in 2016, and Piraeus Bank Bulgaria in 2019. These acquisitions have given us the opportunity not only to solidify our position in the consumer lending segment but also to start offering many more products to both our new and existing customers. The deal was also crucial for our Eurobank group, aligning with its philosophy to expand its activities in significant regional markets.
Regarding your other question, I am an open and consistent advocate for market consolidation. Our strategy encompasses organic growth as well as acquisitions. We aim to be among the major players in the market and will continue to pursue this approach.