Profit.bg discussed the banking sector in Bulgaria and its prospects in view of the slowing European economies with Petar Slavov, chairman of the management board of ProCredit Bank (Bulgaria):

Mr. Slavov how would a possible recession in the leading European countries affect the banking sector in Bulgaria? Is there a possibility for an increase in borrowing costs?

The crisis, which affected the financial markets across the world started in the USA, where the borrowers' abilities to repay their mortgage loans in the conditions of a recession were highly overestimated.

This came mainly as a result of the aggressive policy on the part of the financial institutions. When the competition for market share coincides with an economic recession, sometimes the market participants tend to panic.

The lack of a clear judgment on the potential losses creates mistrust among them and they are unable to plan their future relations. Little by little, however, the magnitude of the losses becomes clear and the financial markets, including the European ones, are settling down.

Here in Bulgaria we were just witnesses as to what could happen, if we get caught up in the competition for market share – to pursue growth, while at the same time underestimating the foundations of banking and lending in particular.

If some kind of a turmoil caused a similar crisis happens here, it would be purely psychological, rather than provoked by structural changes and problems. There was some tension but it was mainly due to the premature reaction of the local banks, which started to prepare for this crisis without having to, judging from their assets and liabilities.

Do you expect an increase in the interest rates on business and consumer loans?

Unlike most banks in Bulgaria, which focus on consumer lending, ProCredit bank's core operations are primarily related to providing services to small and medium sized enterprises.

The bank is part of a big group, which operates on three continents. We do business in Latin America, Africa and Eastern Europe. This means that the bank is exposed to influences globally.

On the other hand the bank operates on the domestic market which is relatively small. Our approach to assets and liabilities is entirely market-wise. The interests of our bank, both on loans and deposits, have changed.

The interest rates have changed but the policy of the bank as regards to lending and attracting deposits remains the same.

Will there be a bigger risk for the servicing of loans that have already been obtained?

Lending growth in Bulgarian is within the normal limits. The risk in business lending stood at around 75% in 2007. In ProCredit it is 45%. It may get risky, however, if the financial discipline worsens. It gets dangerous when a society starts living on credit.

ProCredit extends loans only when it is reasonable and when the borrower is able to repay the loan.

Photo: Petar Slavov, management board chairman, ProCredit Bank Bulgaria (ProCredit Bank)