04.02.2021 We are looking for solutions to take the business through and out of the crisis

The Bank is implementing at full speed the anti-crisis programmes it was assigned in 2020
We are looking for solutions to take the business through and out of the crisis
Zhivko Todorov, Executive Director of the Bulgarian Development Bank, speaking to Banker magazine [Bulgarian: "Банкеръ"]

A year after the beginning of the crisis and the announcement of the anti-crisis programmes of BDB in support of citizens and the business, how do you assess the related progress and the latest changes in their parameters?

- The measures announced by the government in April 2019 have picked up a serious momentum and are satisfying the purposes they have been created for. Presently, the loans confirmed for guarantee, as a total under the two programmes, are in the amount of BGN 293 million. Over 1 200 companies and over 30 thousand individuals have received support through them. Each of the programmes has undergone reviews following the course of the pandemic and their conditions were adapted, so that more citizens and companies could be supported. There were banks that reacted quickly and implemented the new requirements. There were also banks that exhausted their resources and we increased their limits several times. Some credit institutions went through a certain delay but I hope that we could see even better results soon and the envisaged funds will reach the ones in need of them within the extended timelines. I would like to hereby express our gratitude to all partner banks enabling the support for the business and citizens to reach those in need of it.

What is the reason for the low level of interest on behalf of the companies in those loans, as highlighted in the latest survey of one of the national organizations of employers?

- We are familiar with the survey of the Bulgarian Industrial Association (BIA) and we have had multiple discussions on the topic. We do not find the available interest as weak, which is also evident of the data about the confirmed guaranteed loans.
The measure for support of the SMEs via BDB is complementary to the governmental toolset and is not the only and primary measure for the business. According to data of the NSSI for 2019 the number of companies in our country is a little above 419 thousand, of which 92,7% are micro-enterprises (with up to 9 employees), 6% are small (up to 50 employees) and 1,1% are medium-sized (up to 250 employees). Please, agree that with the resource provided by the government and the mandate of BDB we are not able to cover all financial needs of so many companies. In the conditions of a crisis the business is not seeking to increase its debt, unless it is highly necessary. A considerable part of these companies does not need liquid support which is provided through the guarantee programme of BDB. Others have chosen to use the opportunity for deferral and settlement of due debts to banks and their subsidiaries. For a third group an effective and preferred support is the grant financing or the fiscal measures in support of employment. These measures fall beyond the scope of the activities and functions of both the commercial banks and the development bank.
It has been many times that we have heard comments as to why BDB has not developed a programme with the maximum of relieved conditions, simplified procedure and direct provision of low interest or even zero interest loans to the affected enterprises. Pursuant to its mission and mandate BDB is not able to and not supposed to enter in direct competition with the commercial banks what such a programme would exactly comprise of, and it would disrupt the balance in the banking system. Moreover, BDB should not expose to an unregulated risk the capital of the Bank which is provided by the state for the purpose of implementation of the anti-crisis measures.

Apart from the support for those affected by the crisis and the mission for support of SMEs, it has recently become known that BDB acquired a real property adjacent to the building of the Bank’s headquarters. Has the acquisition of similar assets been laid down in the strategy for the Bank’s development in 2021?

BDB Group includes 5 subsidiaries accommodated in different buildings in the capital city. This incurs expenses, such as payment of rent, performance of minor repairs and the distance between locations is a hindrance to the good communication and functioning of the Group. Much time has passed in search of a good solution to get them all together in one location and this has been a unique chance – the availability of an offer for a property which is at the same time adjacent to BDB’s headquarters and already adapted for banking business. Both the acquired property and the building of BDB are cultural monuments – a part of the first architectural ensemble after the Liberation in Sofia following the European model. BDB already has a successful history in the management of such property and we are sure that this heritage will be well preserved.

The Bank is already a shareholder in the Three Seas Fund, a part of the initiative enjoying the US political and financial support. Would you please specify any particular projects you are working on with your Washington partners?

- The Initiative will co-finance with above EUR 1.2 billion priority projects for the countries from the region between the Baltic, Adriatic and Black Sea. Among the priority projects that Bulgaria has identified and which have already been announced to the public are the extension of the underground gas storage facility of Chiren, a tunnel under the Petrohan Pass, the resumption of the project parameters of Ruse-Varna railway and Cherno More highway.
Since the Fund is structured according to the best practices in the field of investments, the selection of projects will be made by a fund manager who will use the services of an exclusive investment advisor - Amber Fund Management Limited. The selection will be made by a fully market-based approach and the fund manager and the investment advisor will be able to use the local knowledge of shareholders, such as the BDB.
The Fund may participate with share capital in private, public or public private projects, and until present it has approved two capital investments: Cargounit – the largest private company for locomotive leasing in Poland, as well as the green data center Greenergy Data Centres OÜ from Estonia.
As a new investor in the Three Seas Fund, BDB is planning to host a mini-conference in Bulgaria in May 2021. The purpose of the event will be to introduce the Fund, to raise the awareness of its investment capacity, as well as to allow any possible stakeholders to contact the investment advisor.

As a manager of a bank with the mission of funding small and medium-sized businesses, how do you find the current situation of a freeze in lending. Do you expect it to stir up this year?

- The data on lending in 2020 indicate that after the temporary drop and slowing down the pace in the spring and summer we have seen a rapid recovery of the appetite for new loans since September on. According to data of the Bulgarian National Bank for the fourth quarter of 2020 an increase has been observed by 2.8% (BGN 1.0 billion) in the loans for non-financial enterprises and by 1.5% (BGN 392 million) for the households. Actually, this growth is not equally distributed among all sectors.

In the most affected sectors, such as transport and tourism, our focus is to stand by our clients who are suffering difficulties and together to look for solutions that would take their business through and out of the crisis. We will continue to work in the same way all through 2021, so that those companies would be able to withstand and get back the fastest as possible to the recovery of their economic activity, as soon as the measures blocking their business are relieved and lifted.
What does that mean for BDB’s operations and profit in 2021? What will be the impact of the pandemic on your results?

- In 2020 we have been concentrated on the performance of the mandates delegated to us by the government for guaranteeing an uninterrupted access to financing for the business and the people who have temporarily lost their income. The Bank has worked at full speed to perform the assigned anti-crisis programmes for the business and the households. The most important for us has been that in 2020 we succeeded to put in action as quickly as possible the mandates delegated to us by the government and offer working solutions for the banking market.
Until present no penny has been paid under the guarantees undertaken because of the pandemics; however, according to the applicable international financial reporting standards the future payments under them should be assessed as early as at the time of issue of the guarantees. BDB has made such assessments, adhering to the principle of conservativeness and has set aside the requisite provisions. This has found its natural representation in the annual financial statements of the Bank for 2020 and will have its impact on the result for 2021, as well.

The topic for the green economy is becoming increasingly important, especially with the start of the new programming period of the European Funds and the EU recovery instruments.

- The green transition is a strong business and an investment case. BDB will make use of its full set of instruments and sources of financing that the European Green Deal and the Invest EU Programme provide in order to finance the adaptation of the Bulgarian business. The transition, however, requires the business and the state to work in partnership. Given the record low interest rates, the monetary and fiscal incentives, we could say in a popular language that “there is money”. The question is whether there would be enough effective projects to utilize these funds which would not be grants in their major part and would require return generated in a market environment.