Petia Dimitrova, Postbank Chief Executive Officer and Chairperson of the Management Board: Our focus over the next few years will be on digital transformation
25 April 2018
Petia Dimitrova is Chief Executive Officer and Chairperson of the Management Board of Postbank. She has been in charge of the lender since 2012, and joined the team of Postbank in 2003 as Country CFO. Before that, she has worked for PricewaterhouseCoopers and the US Embassy in Sofia. Currently, she is also member of the management boards of the Association of Banks in Bulgaria, BORICA, Atanas Bourov Foundation, Endeavor Bulgaria Association, and the International Banking Institute. Ms. Dimitrova is also member of the University Council of the American University in Bulgaria, member of the Young Global Leaders Forum, part of the World Economic Forum, as well as member of the Young Presidents’ Organization (YPO), etc.
Established in 2007 after the merger of Bulgarian Post Bank and DZI Bank, Postbank, whose legal name is Eurobank Bulgaria, is currently part of the Greek Eurobank Ergasias group. The bank operates primarily in the field of consumer and business lending, card payments, and offers saving and specialized services to corporate clients, including factoring, investment banking, and custody services. Back in March 2016, the institution finalized the acquisition of the Bulgarian business of the Greek Alpha Bank, which operated in Bulgaria through its branches. At the end of 2017, Postbank ranked fifth on the market in terms of assets, boasting the impressive BGN 7.4 billion. In the overall ranking of Capital last year, the lender ranked third, climbing from its eighth position in 2016 thanks to its better performance in all subcategories of the ranking. Its top ranking is in the Efficiency and Profitability category, where it reached third place thanks to its traditionally good performance in terms of cost-to-income ratio (4th place) and the high profitability shown for yet another year. The legacy of the lending boom period continues to weigh in the indicators of performance sustainability. Its weakest performance is in the margin of net income from fees and commissions, where it ranks 17th.
How do you assess the banking sector in Bulgaria in 2017 and what are your expectations for its development in 2018?
- 2017 was a very good year for the entire banking sector and for the economy as a whole. The prospects not only for 2018 but also for 2019 are even more optimistic.
The main driver of growth was consumption, which increased by 4.5 percent on an annual basis. Economic stability, declining unemployment and higher disposable income encouraged households to consume more. Lending resumed, as we reported a 3 percent increase in loans in the banking system. We achieved good results both in corporate lending and in lending to individuals and households.
High quality company projects were on the rise and the corporate segment continues to actively seek financing, which respectively leads to an increase in production and the opening of new jobs.
My expectations for this year are that lending growth will exceed 4 percent on an annual basis, similarly to the predicted economic growth. However, I do not expect a “new lending boom”, but rather the revival of certain sectors that will be even more actively seeking financing. At the same time, non-performing loans are declining, which shows that our customers are financially better prepared than before.
Traditionally, deposits continue to grow, going up by 6 percent in 2017. Despite the low interest rate and keen competition environment in 2017, banks maintained their income levels. Net profit is 7 percent lower than in the previous year, but this is mainly due to one-off effects which took place in 2016.
For Postbank, 2017 was one of the most successful years and the results we achieved confirm this. We reported an over BGN 450 million increase in business loans. We registered an over 50 percent hike in housing loans, and our portfolio increased by BGN 110 million. As a result, our revenues went up and we reported a record-high profit of BGN 136 million. We continued to create modern banking products and services that are unparalleled on the market and that give real added value to our customers. We invested in an entirely new brand for innovative consumer lending, Momento, which we will continue to develop in 2018. But most importantly, our customers still trust us. My expectations are that 2018 will be even more successful both for the banking system as a whole and for us, as well.
What are the new market and regulatory challenges for banks and how are you going to deal with them?
- Regulations have always been one of the most serious challenges in the banking sector. They change the way we do business, and provide additional security and stability for us and our customers when it comes to deposits, transfers, payments or financing. At the same time, each regulation brings about more requirements for us and entails additional costs for its implementation, related to the introduction of new rules and procedures. At Postbank we started the preparation a long time ago and we are ready to meet the requirements of the new regulations coming into force in 2018. The most important of these are the new Payment Services Directive (PSD2), the new Data Protection Regulation (GDPR) and the new IFRS 9 accounting standard.
Perhaps the biggest challenge right now is the PSD2 payment services directive, which opens up new opportunities for our new competitors and fintech companies. It allows third parties to offer services related to customers’ bank accounts by positioning themselves between the customer and the bank. On the one hand, this is a threat to us, but on the other, we could turn this “healthy competition” into something positive.
Fintech companies have very good ideas, they are flexible and if we worked together, our customers would be the one to benefit. Thus, competition shifts to the level of quality of products and services, which benefit consumers.
The entry into force of the new regulation on personal data protection makes us review all procedures and systems for personal data protection of customers. The new IFRS 9 changes the reporting of financial instruments and will have a huge impact on the entire lending process – from granting loans to their reporting and collection, as well as on the capital base and adequacy. Banks will need to carefully review their risk assessment models, which may require changes in existing business practices and ways of pricing new products.
The general expectation is that the record-low interest rates are coming to an end. What are your predictions and how are you preparing your institution and your clients for the upcoming rise?
- Interest rates on bank loans will remain low in 2018, and I expect them to start rising gradually next year. The movement of interest rates is a cyclical process, and in the United States we are already seeing an upward movement, as the Federal Reserve again raised the key interest rate by a quarter of a point at its last meeting. It is only a matter of time before Europe follows suit. For example, the Bank of England has raised the key interest rate for the first time in 10 years. For the time being, the ECB is waiting and is not expected to raise interest rates before concluding the asset purchase program and before there is a lasting stabilization of the euro area economy, which will be no earlier than the end of 2018.
In Bulgaria, the low interest rates momentum will remain for some time due to the huge liquidity in our banking system. However, our clients should be aware that at some point interest rates will gradually begin to rise and they must be prepared for this. At the moment, banks offer loans with record low interest rates in all segments, but we do not engage in “aggressive” lending, even in the conditions of strong competition. Low interest rates should not be the only incentive to take out a loan, especially regarding longer-term loans. It is not good for a business model to rely only on the low cost of credit. We constantly advise our clients to keep in mind that interest rates could increase and it is important for them to assess their capabilities well and not to take excessive risks. Each individual business model must be built on a foundation that can meet different challenges. If a client has taken a loan at the lowest interest rates levels, they cannot help but expect that at some point this interest rate may become higher. For entrepreneurs, the main factor for borrowing should be the more sustainable business environment, which currently gives them the confidence to make long-term plans, rather than low interest rates.
For example, if a customer has withdrawn a BGN 200,000 loan, even a one percent increase in the interest rate means that they will have to pay about BGN 2,000 more per year, or BGN 160 on top of their monthly installment. When a person seeks financing to carry out their plans, they usually make emotional decisions, but when choosing a loan, rational arguments must be sought. This is where the role of the banking expert as a good consultant comes into play.
The sector has been discussing consolidation for years, and real deals have already been concluded. What can speed up this process and is your bank specifically interested in participating in acquisitions and mergers?
- Consolidation in the sector is ongoing and I expect it to continue this year.
The process of mergers and acquisitions is natural worldwide and our market is no exception. Postbank started with the acquisition of the branch of Alfa Bank in Bulgaria, and this transaction was of key importance for the entire banking market in 2016. Others followed us and I expect new bank mergers to take place, as the market still has potential for mergers and acquisitions. Small banks can hardly be profitable enough in this environment of constant competition among lenders, the entry of new players and regulations. However, I do not think that this process needs an additional catalyst. The decision whether and when to sell a bank depends entirely on its shareholders, and is a function of the market environment and future prospects. In Bulgaria, large banks are still more efficient and more profitable. They can more easily meet the increased regulatory requirements and invest in new technologies. And last but not least, they can meet the expectations of their shareholders.
Are banks going to sell more non-performing loans and what levels do you expect at the end of the year?
- I would not say banks will be selling more non-performing loans, but rather that we are observing a continuation of the process that began several years ago. Admittedly, 2017 was particularly successful in this regard – lending increased and non-performing loans continued to decline as a result of write-offs and sales. BNB data show that the ratio of non-performing exposures decreased by 3.5 percentage points last year, but still remains above the European average. For this year, I expect the decline in the share of bad and restructured loans to continue. The level of bad loans is also one of the indicators that the European Commission, the ECB and, of course, the BNB closely monitor. In Bulgaria, the percentage of non-performing corporate loans is one of the highest in the European Union and this to some extent acts as a brake on lending. This is one of the reasons for the new legislative initiatives, which aim to encourage banks to clear their portfolios faster in order to focus on what they do best – lending.
What are your expectations for the country’s economy and what will be driving growth?
- The prospects for the Bulgarian economy at the moment are very good. My expectations are that GDP growth will accelerate to nearly 4 percent in 2018 compared to the reported growth of 3.6 percent in 2017. Consumption and investment will remain the main drivers of growth. Investment is expected to recover in 2017 and its contribution has been positive in the last three quarters, as the launch of new EU-funded projects gained momentum alongside renewed interest in the construction sector and a wave of new investment in production capacity. Business activity is accelerating, and not only in big cities. Employment is also on the rise, and this affects the solvency of households and lending by banks. The main problem in business at the moment is the lack of workforce, and we are no longer talking only about quality, but also about quantity. Unemployment figures are still falling, and in certain regions of the country they are practically zero. This requires businesses to rethink their plans and start paying more attention to productivity and automation as a way to compensate for the shortage of workforce in many sectors.
What is the focus of your bank going to be this year?
- Our long-term strategy remains unchanged. We will still be striving to be the preferred bank for our customers and to provide them with an integrated service that they can use seamlessly. In the current conditions of fierce price competition on the market, this is the only thing that can distinguish you from the others. The digital transformation of the banking business continues and this trend will be the focus of our strategy for the coming years. Convenience, innovation, quality service through all channels – this is what our customers demand from us and we will strive to meet their expectations. Along with the investment in digital solutions, we will continue to develop our branch network by opening new centers for express consumer lending under the Momento brand.