Petia Dimitrova: Regulations continue to be one of the most serious challenges


6 May 2017


What does the banking sector in Bulgaria look like after passing the reviews and stress tests in 2016?

The results of the asset quality review and the stress test confirmed something that people working in this sector know well – that our banking system is at a very stable level, the banks are well capitalized and liquid, and are successfully managing their loan portfolios. This is evidenced by the record high profit for the past year, the likes of which we have not had since 2008. I am glad that the results of not just our bank, but of the system as a whole, have further solidified the confidence people and companies have in commercial banks, which is evident from the steady increase in deposits.
I believe that the combination of good capital position, high liquidity and good results will allow the sector to work calmly and continue to play a key role in the development of the Bulgarian economy. I expect 2017 to be an even more successful year for the banking system as a whole and for us.

2016 has become one of the most successful years for us here at Postbank. We realized record sales and profits of almost BGN 120 million. Our loan portfolio is of very good quality, our capital adequacy is significantly above the average for the system, and liquidity is well above the regulator’s requirements. In an extremely short time, we acquired and integrated the operations of Alpha Bank’s branch in Bulgaria – a landmark deal in the ongoing process of consolidation in the sector.
We have offered a number of modern and innovative products and partnerships that are unparalleled on the Bulgarian market, and I can safely say that we are among the leaders in all segments in which we are competing. The year was even more special because we celebrated our 25th anniversary on the Bulgarian banking market as a leading modern bank, which throughout all these years has been operating under the same strong brand – Postbank.

What are the new market and regulatory challenges for banks and how will you deal with them?

Challenges in our line of work are a daily occurrence, however, they have never bothered us – on the contrary, they motivate us to offer not just quality products and services, but products with added value for the market and our customers.

Regulations continue to be one of the most serious challenges in the banking sector. More and more new rules and standards are being introduced, regulating almost all aspects of the business – new capital buffers, new requirements for mortgage loans, trading in financial instruments. Let us not forget the new Payment Services Directive, which is expected to lead to significant changes in the sector. All this increases the banks’ costs and requires more and more qualified people who can work in this environment.

At the same time, competition is increasing, as there is great interest from non-banking financial institutions and FinTech companies, which are competing with traditional banks, yet are subject to almost no regulations.
These trends are present in Bulgaria and we see the emergence of more and more companies for peer-to-peer lending, cheap money transfers and payments. For the past year, non-banking financial institutions reported an increase of 22 percent in their loans to households, with the total amount nearing BGN 2 billion.

I will never tire of repeating that the more quality improvements in this business, the greater the potential for growth. That is why the main task for banks now is to increase our efficiency. The stronger competition, but also the historically low interest rates are an incentive to find new opportunities to achieve efficiency. At Postbank, we will continue to rely on quality service to differentiate us in the market, as well as the development of alternative banking channels and innovation in all areas of our business. We strive to be different and we prove it every day – we offered the Different Consumer Loan, which introduced some entirely new standards in consumer lending in Bulgaria, the easy and convenient m-Postbank mobile banking app, free online video consultations via Skype and mobile banking experts who are at our clients’ disposal in different cities throughout the country. We developed the More Today credit program, with which consumers can increase their disposable income by up to 50 percent and an innovative Super @ccount for salaries, which does away with the monthly fee and people can receive a cash bonus using it actively in their daily lives for electronic operations. We also partnered with pension and insurance companies and made serious investments in the brand, supporting sales with strong and out-of-the-box marketing campaigns.

The long-awaited consolidation in the sector began with Postbank acquiring the Bulgarian business of Alpha Bank, followed by the deal for UBB. What are your expectations for this process in this and the coming years?

Postbank was the pioneer in this process with the acquisition of Alpha Bank’s Bulgarian branch and this transaction was a key event for the entire banking market in 2016.
The consolidation in the banking sector has long been discussed and, as I have repeatedly emphasized, it is a natural process, especially today, when there are economic preconditions for market consolidation. We will see other deals in the coming years, but I do not expect a “wave of consolidations”, which I think has become somewhat of a trendy thing to say – I expect a gradual reduction in the number of banks. In our line of work, size matters as large banks have more opportunities to meet the ever-increasing needs of their customers. On the other hand, the ongoing consolidation process changes the competitive environment and this leads to even better and more affordable services being offered, which again benefits customers.

When do you expect the period of record low interest rates to end and how can customers prepare for this?

Interest rates are really at historically low levels at the moment and I expect that this trend will reverse and they will gradually start to increase, but this will not happen this year. There are two factors that affect the current interest rate levels – on the one hand, the options for further reduction of interest rates on deposits – transferring these this savings to borrowers – are almost exhausted; on the other hand, in the developed countries, there is a slow accumulation of a critical mass to reverse the direction of interest rates and this effect will sooner or later spread to Bulgaria.
At Postbank we don’t see a possibility for lower interest rates and our experts advise our clients to keep in mind that they may soon stabilize and even rise. The advice to our clients has always been the same – “consider your options well and do not take excessive risk.”

What other trends will shape the development of the sector in 2017?

Without a doubt, one of the leading trends will once again be the digitalization of services, the introduction of innovations – from the idea stage, through product development, to marketing, as well as quality customer service. Therefore, I expect these to be increasingly important in the banking business in the future. In today’s world of low interest rates, first-class service is the only way to have satisfied and loyal customers. There is another important trend that we are seeing at the moment – it is more important what customers share with each other, and not so much what the bank says about itself and its products. The new leaders in the sector will win by finding innovative ways to improve customer experience and adapt to market changes, i.e. they will stand out with both scale and flexibility. The main advantages that can be achieved as a result of investing in the digitalization of the banking business are the optimization of prices and the reduction of service costs. This in turn will allow us to have even more satisfied customers and to know them better.

What are your expectations for the country’s economy and what will drive its growth?

Right now, the prospects for the Bulgarian economy are good – last year GDP growth was 3.4 percent, and this year we expect it to once again exceed 3 percent. The movement in the market is already being felt, although last year we had lower absorption of EU funds and insufficient volume of investments. Exports and consumption remain the main engines of growth this year. Business activity is growing, and not only in big cities; employment is also increasing. Unemployment is expected to drop from 8 percent at the end of 2016 to 7 percent by the end of 2017; this would affect the solvency of households, their incomes and their demand for more loans.

We expect loans to increase by about 3 percent, which is comparable to the expected growth of the country’s economy. Right now, customers are very interested in buying housing, mainly preconstruction. The BNB data as of the end of February are also positive and show that the volumes of lending to businesses in Bulgaria on an annual basis are increasing for the third consecutive month. In Postbank, we also saw over 50 percent growth in new loans in 2016 compared to a year earlier. Our forecasts and analyses show that a new increase is coming and this year we will have even higher volumes of both consumer and corporate loans.

What is the focus of your bank’s activities for this year?

Our focus has not changed and our intentions are to continue to develop in the same way as before – to grow and be among the leading banks in the country in key segments, offering modern products combined with a modern way of service. We are also working on a sustainable plan for the bank’s digitalization and we are planning serious investments towards this. We will continue to offer innovative services and personalized products to our customers. We will aim to achieve growth not only in lending, but also in all banking operations that our customers use on a daily basis. The conditions are also favourable for entrepreneurs in all regions of the country and we will continue to be their trusted partner. We rely on a combination of the best personal attitude towards customers and new technologies. We have achieved all our successes thanks to the strong and motivated team of excellent professionals, with whom we have been creating the future of banking for 26 years.