“Why do all countries say their banks face problems and only Bulgaria claims to be an island of stability! Is it possible that you do not disclose everything you know or you delude yourselves, Western experts ask. It is neither the one, nor the other”, says the deputy governor of the Bulgarian National Bank Kalin Hristov, who confirmed the stability of Bulgaria’s financial system to a Radio Bulgaria reporter.
What is happening today in Europe’s financial sector, to what extent is Bulgaria connected and affected by it and in what do we differ?
“In 1996 and 1997, we were in the middle of a severe economic crisis and we introduced into our banking system very conservative methods that European countries are introducing now”, Kalin Hristov said during a seminar on the financial stability of Bulgaria’s bank system. For a period of ten years, Bulgaria has drastically reduced its external debt. Bulgaria did what most EU countries were reluctant to do – it privatized many things and used the money for redeeming its external debt. As far as the security of the bank system is concerned, the minimum capital adequacy is 14 per cent, provided that the requirements of EU banks have only now been raised to 9 per cent. “It is not that we have been cleverer and we knew that the situation would grow worse, we were rather driven by the fear that we were in a very bad situation and the only way to earn credit was to act conservatively”, Hristov commented. The main weakness of European banks is the lack of sufficient assets. “We have never committed the same sin, so it is not surprising that we do not suffer the same pressure they do suffer now”, Kalin Hristov told Radio Bulgaria.
The Bulgarian banking system has always operated in conditions of higher liquidity, which creates more stability but raises the price of the money resources and consequently of loans.
“This is the same as building a house. If you want to make it resistant to earthquakes, you use more concrete, but this makes it more expensive", Kalin Hristov further explained. "If you want to have a more stable bank system, this will cost you more in terms of the financing price, hence the price of loans. Very often, people go to the website of the European Central Bank to check the credit rates in the Eurozone and are surprised to see that these countries are in a worse economic situation but offer cheaper credits. This gives rise to pointless comparisons. And at the same time, these countries might have a public debt to the tune of 120 per cent from the GDP. One example is Ireland that has spent 30 per cent of its GDP to bail out its banks. This price is once again paid by everyone via taxation, and the accumulated debt that future generations will have to pay”.
An important characteristic of Bulgaria’s financial sector is the fact that, even though banks operating in the country might be owned by foreign financial companies, they are registered in Bulgaria and work under the regulations of the Bulgarian Central Bank. The Bulgarian banking system is independent of what is now taking place in Greece and other EU countries and does not possess the so-called “toxic” assets. Thus, Kalin Hristov refuted certain allegations that billions of euros from the savings of local banks are withdrawn from banks in Greece. Data from the Bulgarian National Bank shows that an 8 % annual growth in deposits is expected in Bulgaria. And this is the main reason why Bulgarian banks remain independent of external financial resources.
“The amount of deposits that households make per year since 2009 shows that Bulgarians save some 2.25 billion euro annually. This is linked to the overall picture – people are insecure so they save more and spend less. Some people see this as a drawback but I think it is an advantage because people shouldn’t spend their money only to create incentives for the economy. Such behavior of households that generates a significant level of savings ensures the liquidity of the financial system. And this liquidity is used in the payment of external debts”.
This was Kalin Hristov, deputy governor of the Bulgarian Central Bank, on the stability of Bulgaria’s banking system.
English version by Rossitsa Petcova
