From January 1 2007, BNP Paribas Bulgaria EAD will be transformed into BNP Paribas SA Bulgarian branch, meaning that it will be fully integrated into the global banking group.
The bank is also setting up an insurance company in Bulgaria, for which it has already received a licence, and which will be headed by Mario Kostov as general manager.
This was announced at a December 11 news conference in Sofia by BNP Paribas Bulgaria chief executive Ulrich Schubert.
The group BNP Paribas operates in 85 countries with a total staff of more than 150 000 in 3400 locations. While it is a global bank, about 80 per cent of its staff and activities are in Europe.
In 2005, the group had a net income of 21.5 billion euro, roughly equivalent to the GDP of Bulgaria.
“We are not only a large bank but quite a profitable bank, which is necessary to grow further,” Schubert said.
Growth continued in the first nine months of 2006.
BNP Paribas is number one in the eurozone in terms of capitalisation. “We are a European leader,” Schubert said. The group’s net banking income is 81 per cent European, which Schubert contrasted to the position about five to six years ago when France was the source of 80 per cent of this income. “The bank has moved from being mainly French to being mainly European.”
The bank has an 110-year history in Bulgaria, re-emerging and evolving strongly from the 1990s onwards, after its buyouts of Dresdner Bank and European Bank for Reconstruction and Development interests.
“Our way here in Bulgaria has been one of innovation.” In Bulgaria, the bank had introduced commodities financing, escrow services, created a trade centre, local derivatives capability, project and export financing and corporate bonds, he said. The bank was introducing commodity price hedging and carbon credits, “very necessary as Bulgaria enters the EU,” Schubert said.
In the first nine months of 2006, BNP Paribas in Bulgaria had growth in gross operating income and pre-tax profit of close to 40 per cent, a performance similar to that of the group as a whole.
He said that, on a technical level, all activities and assets of BNP Paribas EAD would be transferred to BNP Paribas SA Bulgarian branch on December 29.
Schubert said that the logic behind the change was that “Bulgaria is entering the EU and should adjust our corporate structure to our home market, Europe, and Bulgaria is part of Europe”.
The transformation was the same as that done when Hungary and Poland joined the EU.
He said that the bank’s clients, especially its Bulgarian corporate clients, were becoming increasingly integrated into international groups, and needed a banking partner that could service them wherever goods came from and wherever goods were going to.
“As the financial markets become more mature, we need to strengthen our local competitive position. Sofia can become a more competitive financial centre in the future, as happened with Lisbon, Amsterdam, and I can say, Dublin.”
Schubert said that BNP Paribas had plans to roll out a much broader development strategy in Bulgaria, from the Sofia branch. “This branch is the central platform from which we shall do it.”
The establishment of the insurance company was “just the first step,” he said.
“You will see other activities develop in Bulgaria that today are the strength of BNP Paribas group worldwide.”
He said that there direct benefits of the transformation into a branch. The branch would have the AA rating of the group. BNP Paribas SA had much larger equity than the bank locally could have. Local staff would have “unlimited” training opportunities. The branch would benefit from the many preferential positions that the group had with suppliers and trading partners worldwide.
Schubert said that what would not change was the bank’s powerful IT systems, the close relations with clients, and the bank’s commitment to social causes.
Asked about the cost of borrowing in the banking system after the country joins the EU, Schubert said that, lacking a crystal ball, he could not say how interest rates in Europe would develop. However, there was another element, the spread of the interest-free risk rate. This had dropped in the past five years from six to seven per cent, down to 0.3 to .4 per cent.
“So most of this development has already happened. Getting into the EU will not have a big impact. On the contrary, in corporate and retail banking, I think - and this is my personal view - that as Sofia becomes a more important financial centre, competition will increase, and prices will go down. Over time, not on January 2 but in one to three years, domestic borrowing costs will, compared to other countries, be more advantageous to Bulgarian companies and individuals.”
