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MODELING OF STRUCTURAL MODELING OF STRUCTURAL CHANGES IN THE BANKING SECTOR CHANGES IN THE BANKING SECTOR
IN THE REPUBLIC OF BULGARIA IN THE REPUBLIC OF BULGARIA
Stavrova Elena, Assistant Professor, Stavrova Elena, Assistant Professor, SWU “N.Rilski”-Blagoevgrad SWU “N.Rilski”-Blagoevgrad
BulgariaBulgaria
Characteristics of transition 20 years ago:Characteristics of transition 20 years ago:- Double change of regime: political and Double change of regime: political and
economics;economics;- Financial crises of enterprises.Financial crises of enterprises.
Major factors of market structure changes:Major factors of market structure changes:- privatization;privatization;- Bankruptcies, liquidation, consolidation;Bankruptcies, liquidation, consolidation;- Foreign direct investments in the financial sectorForeign direct investments in the financial sector
The financial system in the Bulgaria is The financial system in the Bulgaria is “bank based”“bank based”
Dominant role of the banking sector since the Dominant role of the banking sector since the start of the transition from the centrally planed start of the transition from the centrally planed economy in 1989;economy in 1989;
Over the past 20 years the banking sector has Over the past 20 years the banking sector has undergone a fundamental restructuringundergone a fundamental restructuring;;
The sector is now stabilized, shows healthy The sector is now stabilized, shows healthy financial results, has sufficient equity to cover its financial results, has sufficient equity to cover its risks and is resilient to potential shocks.risks and is resilient to potential shocks.
Banking reform and transformation to a Banking reform and transformation to a market type economymarket type economy
Banking reform has been integral part of the Banking reform has been integral part of the transformation from a centrally planned to transformation from a centrally planned to market economy;market economy;
The issues were not only technical (types of The issues were not only technical (types of banks, licensees and conditions of entry and banks, licensees and conditions of entry and exit, regulation and supervision) but primary of a exit, regulation and supervision) but primary of a political economy character;political economy character;
The process of banking restructuring interacted The process of banking restructuring interacted with the type and pace of reform in the national with the type and pace of reform in the national economy, legal and institutional environment;economy, legal and institutional environment;
Entry of small private banks and their Entry of small private banks and their challengeschallenges
Impressive increase in new entries of Impressive increase in new entries of small private banks in the early 1990s;small private banks in the early 1990s;
Liberal approach towards new start-ups;Liberal approach towards new start-ups;Loose (benevolent) licensing policy;Loose (benevolent) licensing policy;Banks mostly undercapitalized, access to Banks mostly undercapitalized, access to
funds limited by their small size and small funds limited by their small size and small number of branches;number of branches;
Defective legal framework and loose Defective legal framework and loose institutional supervision.institutional supervision.
The dynamics of existing banks and branches of The dynamics of existing banks and branches of foreign banks to the financial crisis 1996-2009foreign banks to the financial crisis 1996-2009
Types banks 1990 1991 1992 1993 1994 1995 1996 2007 2009
Total 70 78 59 41 45 47 35 32 30
Foreign - - - 1 3 5 7 7 26
Licensed by the year
…Foreign
61
0
8
8
2
0
7
1
10
2
4
1
2
2
- 2
Consolidated 0 0 22 29 9 3 0 2 3
Banks after consolidation 0 0 1 4 3 1 0 - 1
Revokedlicense 0 0 1 0 0 0 14 1 -
Market share of public banksMarket share of public banks
№ Banks Bank
assests
(in mln)
Market share
(% of the bank
sistem,assest)
1. C C B 1 651 000 2,38
2. B A K B 829 000 1,19
3. F I B 4 223 000 6,08
4. Corporate bank 1 820 000 2,62
The main factors stimulating the direct The main factors stimulating the direct financial investment in the Bulgarian financial investment in the Bulgarian
banking sectorbanking sector
1. Increased attractiveness of Bulgaria. 1. Increased attractiveness of Bulgaria. 2. Sharply increased volumes and 2. Sharply increased volumes and profitability of credit operations in the profitability of credit operations in the Bulgarian banking sector. Bulgarian banking sector. 3. Currency comfort provided by the 3. Currency comfort provided by the currency board system. currency board system. 4.4.GrowthGrowth the prices of securities on the the prices of securities on the Bulgarian Stock Exchange, including Bulgarian Stock Exchange, including public banks.public banks.
Ways for expansion of foreign banks in Ways for expansion of foreign banks in the Bulgarian banking sectorthe Bulgarian banking sector
1. Opening of the subsidiary banks - 1. Opening of the subsidiary banks - branches of non-banks.branches of non-banks.2. Purchase of Bulgarian banks 2. Purchase of Bulgarian banks with thewith the right to participate in the market.right to participate in the market.3. Purchase of significant blocks of shares 3. Purchase of significant blocks of shares entitled to participate in the managemententitled to participate in the management
Systemically important banking Systemically important banking institutionsinstitutions
UNICREDIT-BULBANKUNICREDIT-BULBANK
DDSK BANKSK BANK
UNITED BULGARIAN BANKUNITED BULGARIAN BANK
RAIFFEISENBANK (BULGARIA)RAIFFEISENBANK (BULGARIA)
EUROBANK EFG - BULGARIAEUROBANK EFG - BULGARIA
Concentration of risk in the first Concentration of risk in the first group of banksgroup of banks
Concentration of credit risk in the First Banking Group
42.2%
57,80%
HerfindahlHerfindahl--Hirschman IndexHirschman Index
NN H H == ∑ ∑ S iS i22 ii=1=1H H = = SS11 58,7 2 58,7 2 + + SS2 36,28 2 + 2 36,28 2 + SS35,02235,022,, H H = 4 787,12= 4 787,12 HH > 1 > 1 800800
HerfindahlHerfindahl--Hirschman Index for a sevenHirschman Index for a sevenbiggest banksbiggest banks
Н = Н = S1S122,042 +22,042 +S2S218,52 + 18,52 + S3S316,3 2 + 16,3 2 + S4S414,742 +14,742 +S5S511,412 + 11,412 + S6S68,732 +8,732 +
S7S7 8,69 2 8,69 2
CR CR 7= 1567,68,7= 1567,68, CR CR < 1800< 1800
HerfindahlHerfindahl--Hirschman Index for a Hirschman Index for a
seven biggest banks seven biggest banks in the amountin the amount of of depositsdeposits
CRCR77 = = S1 18,86 2 + S2S1 18,86 2 + S214,86 214,86 2 + S3 + S3 21,40 21,40 22+ S4 + S4 14,70 214,70 2+ S5 + S5 10,78 210,78 2+ S6 + S6 10,70 210,70 2+ + S7S7 8,70 2 8,70 2
CR CR 7= 1556,967= 1556,96
CCountry risk as an effect of ountry risk as an effect of increased level of concentration increased level of concentration
Conclusions:Conclusions:
1. Regarding the role of the Monetary 1. Regarding the role of the Monetary Board for the stability of financial and Board for the stability of financial and credit system.credit system.2. Domination of foreign capital put the 2. Domination of foreign capital put the banking sector, depending on the status of banking sector, depending on the status of foreign financial sectors.foreign financial sectors.3. The positive effect of state intervention 3. The positive effect of state intervention for the stability of the banking sectorfor the stability of the banking sector
CONCLUSIONS: CONCLUSIONS:
1. Regarding the role of the Monetary 1. Regarding the role of the Monetary Board for the stability of financial and Board for the stability of financial and credit system.credit system.2. Domination of foreign capital put the 2. Domination of foreign capital put the banking sector, depending on the status of banking sector, depending on the status of foreign financial sectors.foreign financial sectors.3. The positive effect of state intervention 3. The positive effect of state intervention for the stability of the banking sectorfor the stability of the banking sector
