BULGARIA, as an integral part of the Balkan and South-Eastern Europe region, is very important to the Greek banking industry, says United Bulgarian Bank executive director Christo Katsanis.
Interviewed after hours in the bank’s Sofia headquarters conference room, of which a wall is lined with awards and honours bestowed on the bank, Katsanis speaks with the authority of one well-versed in the dynamics of Bulgaria’s banking industry, having spent several years in the country.
“Greece itself is a small market, although of course income per capita is higher in Greece than it is in Bulgaria. But, given that the prospects of the Greek economy are limited, expanding into the Balkans is an obvious alternative.”
Bulgaria’s banking system has developed impressively in the past few years, he said, and most banks are very stable. More than 85 per cent belong to large international groups.
Banks, of course, try by all means to increase their market shares and to achieve the highest possible profitability. These imperatives mean that the market currently is characterised by cut-throat competition.
Retail banking was likely to continue to be the focus of Bulgarian banks, as had been the trend elsewhere in Europe for the past 20 years.
The proportion of credit to GDP was still low, whatever the concerns of the International Monetary Fund and other observers, Katsanis said.
“The percentage is low, it is the tempo is growth that is the source of concern.”
Out of the credit percentage of GDP, 10 per cent is related to retail banking, and out of that 10 per cent, three or four per cent relates to mortgage lending.
In the Eurozone, mortgage lending represents up to 39 per cent of GDP.
He said that despite the obvious differences between the economies of the Eurozone countries and Bulgaria, a significant increase in mortgage lending in this country could be sustained.
Another sector where there was an increase in institutional investment was the launching of specialist funds such as mutual funds.
“Banks will focus on supporting insurance companies, and pension funds, in managing their assets.” Currently in Bulgaria, assets of mutual funds as a percentage of total savings make up less than 0.5 per cent, while in Western Europe, they represent about 50 per cent.
In the next three to four years in Bulgaria, this percentage could be expected to rise to five per cent, still low compared to European standards.
Katsanis said that corporate lending would increase, depending on the decisions and actions of individual banks.
“The more sophisticated environment in Bulgaria in years to come will definitely create a lot more opportunity for investment banking.”
He said that some banks, those that have good infrastructure and experience in dealing with development challenges in Europe, especially in new markets, would try to get a chunk of the flows related to European programmes, and would develop products related to such programmes.
On the process of bank consolidation, of which the Bank Austria Creditanstalt acquisition of Hebros is a sign, Katsanis said international and domestic developments would be key factors.
Currently, Bulgaria has 35 banks.
Asked what the impact of consolidation would be on consumers, Katsanis said that more competition was better for the consumer, but the outcome of the current process depended on a number of factors.
“We shall have to see how much consolidation we shall have, what will happen with e-banking, and what services will be provided by banks from outside the country.”
It was difficult to forecast the number of banks after the process was complete.
“Who knows? Maybe 20 banks, maybe 15. Some banks will definitely be acquired or absorbed.”
Katsanis said that with Bulgaria entering the European Union, all banks with home bases in EU countries would be able to enter this market without formal permission. Should any bank do so, it would be a high-profile, international bank.
A key debate in Bulgaria’s banking sector at the moment centres on the measures being taken by the central bank to calm the rate of credit growth, and Katsanis was asked his view on the impact these measures could be expected to have.
“Some banks will be affected, some will benefit. It depends on their liquidity, and on the loans provided until now. These are the first, obvious, things we can say.
Banks that are the most affected will do everything not to lose their clients. If a client cannot get credit from a bank, whatever loyalty may have been built up, that client will go to another bank.”
Looking at the changing landscape of banking in Europe, Katsanis noted that Greek banks now control about 13 per cent of the banking systems in the region spanned by Bulgaria, Romania, Albania, Serbia-Montenegro and the FYROM.
This process was taking place at the same time that Scandinavian banks were expanding into the Baltic, and those of Austria into the territories of the former Austro-Hungarian empire.
“It is a kind of regional integration in the framework of European integration,” he said, adding that it could also manifest a higher degree of mutual investment, such as increased Bulgarian investments in Greece.
As to his own bank, Katsanis said that UBB was emphasising in its plans that the main direction of its development would be in retail banking, including a significant expansion of its network. Thirty new branches are to be established in the three years to come.
UBB will further develop its corporate banking, including the setting up of a regional credit centre.
The bank has excellent relations with international institutions such as the European Bank for Reconstruction and Development (EBRD), Katsanis said.
In the past two years, UBB has signed a number of agency agreements in this field.
As regards technology, another priority is that “while we have the best electronic banking system in the country, we shall be putting even more emphasis on this”.
Asked to list the pros and cons of Bulgaria from the point of view of Greek investors, Katsansi said there were a “lot of pros” sometimes related to the “cons” of Greece.
The trend of Greek investment in Bulgaria can lead to “disindustrialisation” in Greece, but “that’s life,” Katsanis said. “Always, the sponsor of a project tries to find the best way to achieve a good performance for his company”.
Another advantage of Bulgaria for Greek business people is that this is country is close, and is scheduled to join the EU “so it is good to have a foothold now”.
Production costs in Bulgaria are lower. “One can produce a few kilometres north of the border and then sell to Greece and to other countries”.
However, no situation is static.
In time, Bulgarian employees will receive better salaries, and it may be argued that increased spending power will benefit the economy.
However, higher wage levels could affect the Greek textile industry investments in Bulgaria.
Katsanis cited the example of Portugal, which had been able to support an apparel industry until the mid-1990s, when wage levels began to rise towards the levels of other European countries, and its industry found itself facing the same problems of those of Greece and France. At the same time, Bulgaria is seeing the first effects of competition from China.
“The landscape changes,” says Katsanis.
He believes firmly that, while Bulgaria and Greece should be working together on a strategy to create an integrated economic space, this should not be done purely at technocratic level, but also has a cultural dimension.
“The nations of the region know too little about each other. The states have to develop cultural and civilisational links. It will take a huge effort. Such a thing has not even begun.”
Greece, Bulgaria and Romania should work together to have a much stronger voice in Europe, Katsanis said.
“I am an optimist - we shall have regional integration,” he said.