Petia Dimitrova: We will continue to work towards ensuring that banks retain their image as sound financial institutions that operate transparently and predictably


What is the state of the banking system in Bulgaria?
Despite the economic difficulties brought about by the war in Ukraine and the high inflation, the banking sector in Bulgaria remains stable, with a high level of capital adequacy and liquidity. At the end of the first quarter of 2023, the total assets of the banking sector reached BGN 160.62 billion (94.9% of the projected GDP), registering a year-on-year growth of 14.3%, while the sector’s net profit for this period amounted to BGN 784.4 million – A year-on-year growth of 37.9%. The liquidity coverage ratio (LCR) for our banking system is 238.2%, while the ratio for banks participating in the Single Supervisory Mechanism (SSM) is 161.0%. The return on equity (ROE) of our banking system reached 18.6% by the end of the first quarter of 2023. By contrast, according to ECB data, the average ROE of European banks stood at 8.0% at the end of the fourth quarter of 2022.
The confidence in the Bulgarian banks is high, as evidenced by the sustained growth in the volume of both deposits and loans.
According to BNB data, at the end of March 2023, the total amount of loans for the NGO sector registered a year-on-year growth of 10.8%, reaching BGN 75.74 billion, while the total amount of the deposits reached BGN 118.87 billion, registering a year-on-year growth of 13.1%.
The good performance of the banking sector is a prerequisite for preserving financial stability and overcoming the challenges posed by the reversal of the interest rate cycle, which is already a fact.

What are the most significant challenges faced by the banking system in 2023 and what are ABB’s top priorities?
We are facing a period of macroeconomic uncertainty, political instability, shifts in the economic cycle and actions by central banks to mitigate the effects of the high inflation. And last but not least, there are tangible risks of deterioration in asset quality.
In these challenging times, what both citizens and businesses need the most are stability, predictability and resilience. I believe that we, the banks, have repeatedly proven that we are precisely such a partner.
One of the most important topics for the banking sector, and for the business in general, is that of sustainable finance and the transition to a green economy. The majority of banks in Bulgaria are very proactive in offering products and services that support the transition to green and sustainable ways of conducting business.
Digitalisation and customer experience have been the focus of the sector’s investments in recent years. The pandemic also played a part in this. It is paramount for all of us to digitise and streamline our processes in order to meet the expectations of our clients. Speed and flexibility, improved customer experience, along with a high level of security of the banking transactions anywhere and anytime, are the main priorities of the banks when developing their digital products.
The adoption of the euro is undoubtedly among the biggest challenges – the future of our economy and quality of life depend on it. This is a very massive endeavour that requires extensive preparation on the part of the banks and we are working very proactively on this.
I am confident that the banking sector will retain its stability and will continue to be the driving force of our economy, and ABB will continue to pursue its mission of being the voice of its unity. We will continue to collaborate in order to maintain the trust of our clients and partners. We will continue to work towards ensuring that banks retain their image as sound financial institutions that operate transparently and predictably.

How are the banks preparing for the adoption of the euro in Bulgaria?
I believe that the banking sector is one of 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 working proactively on this. We have internal communication and experts who are following a plan for the adoption of the euro. We are closely involved in the coordination of the regulatory changes and the planning of specific steps and actions with regard to our role and activities. Banks will also take on most of the technical work, together with the huge investments, themselves. As a sector, we have done out part.
We are confident that Bulgaria’s adoption of the single European currency will bring many benefits to our clients. It will have a positive impact on our economy and will be a driver for accelerating reforms to reach European living standards and a more favourable business environment.
Bulgaria joining the euro area and adopting the second most used currency in the world is a long-awaited process and an important prerequisite for more optimism among businesses and clients.
The euro will make it easier, cheaper and safer for companies to buy and sell throughout the whole European Economic Area and to do business with the rest of the world. The biggest advantage of the adoption of the euro will be the minimization of currency risk for the economy.

What are your expectations regarding the inflation and the interest rate policies of the central banks – what is going to happen and how is it going to happen?
The global process of raising interest rates reflects, albeit at a slower pace, on the interest rates in Bulgaria. That is why the BNB announced that it will retain the level of the countercyclical capital buffer for bank lending at 2% in the second quarter of 2024. The 2% countercyclical capital buffer is effective from 1 October 2023 and aims to reinforce the resilience of the banking system.
Recently, the BNB announced its decision to increase the minimum reserve requirements for banks from 5% to 10% as of 1 June on the funds obtained from non-residents. A month later, from 1 July, banks will have to set aside 12% minimum reserves on the funds obtained from all client deposits. This ratio had not been changed in 15 years.
We can expect a smooth transition to higher interest rates in line with the consistent dovish interest rate policy set by the central banks. In Bulgaria, in view of the specificities underlying the setting of the retail interest rates, the dynamics in the deposit market and the high liquidity, the tightening of the interest rate policy will be carried out in a more cautious manner.

How have the business models of the banks changed against the backdrop of more than a decade of low interest rates? What will the banking business models look like in the conditions of this new reality?
I would like to stress again that the banking system in Bulgaria is stable, the banks are very liquid and well capitalised. We have learnt our lesson as banks and our business models are now much more balanced compared to 10–15 years ago, both in terms of our products and their revenues, as well as in terms of the quality of our clients and portfolios.
The status quo from ten years ago cannot be restored because the market has changed a lot. The consolidation in the banking sector, which we have been observing as a trend in recent years, is also a factor for the sustainable transformation of the business.
I believe that in the long run, banks that want to remain leaders will have to look for new sources of value beyond the boundaries of the banking product, the sector or the existing business models.
Just as it contributed to the successful resolution of the crisis caused by the pandemic, the banking sector can now help prepare our economy for a greener and more digital future. To this end, banks must keep improving their cost efficiency and shift the focus of their business models towards sustainability and longer-term value creation. This requires an even greater push to integrate climate and environmental risks into our existing risk management strategies and processes.

What is the role of banks in the environmental, social and governance (ESG) transformation of the business?
Transforming the economies from fossil-fuel-based ones to circular and sustainable ones will require large-scale changes in all public sectors. The focus will be particularly on the ecological and social consequences of our actions. Traditionally, the banking sector is engaged with the financing of activities which have been directly or indirectly related to the development of other spheres of the economy. Banks are key participants in the green transformation. We are fast-tracking the transition to climate neutrality through new requirements for our clients, but also through the decarbonisation of our own operations.
The role of the banks is essentially to focus on the areas that we can influence the most in order to achieve a positive impact.
No matter how important banks are, they are still just one participant in the national ecosystem. Carbon-heavy sectors also have to do their part through innovation to reduce their carbon footprint, and the governments and other industries have to address that with clear guidelines, harmonised methods and coordination.
The success of the green transition depends on a joint cross-sectoral and interagency approach to solutions that could be beneficial for everyone.

How are the green deal, the push for a carbon-free economy and the emerging green trends shaping the banks’ policies?
I can say with confidence that the Green Deal and the global push for a carbon-free economy have had a transformative impact on the banking industry. Our policies and operations evolved to embrace sustainability as our core value. We, the banks, integrated environmental, social and governance (ESG) factors into our lending and investment decisions, bringing them in line with the needs of our planet and the future generations.
By factoring climate risks into our risk assessment practices, we are protecting the stability of our industry and promoting sustainable economic growth.
We are aware that our responsibilities extend beyond the boundaries of our industry. That is why we are proactively seeking cooperation with the State, regulators, NGOs and industry associations. Together we can overcome the environmental challenges and pave the way to a sustainable future.
Let us continue to harness the power of finance to promote positive change, to build a world where economic prosperity and environmental well-being go hand in hand.