Interview: Dimitar Bogov, Governor of the NBRM, for the Electronic Portal "Leader", March 2013
Bisev’s transfer will increase stability and competition in the banking sector!
Reporter Biljana Vasileva Trendafilova
Governor Dimitar Bogov in an interview for "Leader" talks about the crisis in Cyprus and the possibility of extending the debt crisis, the risks of the Macedonian economy, and the situation in the banking sector. The Governor regards the transfer of Gligor Bisev from Stopanska Banka to Sparkasse Bank, as positive and believes that in the future banks should work together for consolidation of the banking sector.
LEADER: What are the National Bank’s perceptions and expectations for economic growth?
BOGOV: Recent projections from January this year point to a gradual economic recovery. It is expected that the global environment will be stimulating enough for the gradual revitalization of the export sector and for further increase of the utilization of the potential of new export capacities which will lead to higher export activity. Such environment would be stimulating for domestic investors to take risks, which along with the expected momentum of public and foreign investment would lead to amplification of the investment cycle and its maintenance during the period of projections. It is estimated that the recovery of corporate sector and the improved environment will have positive transmission effects on the labor market and consumer confidence, which will lead to increased consumption. Under these assumptions, in 2013 and in 2014, GDP is expected to increase by 2.2% and 3%, respectively. Certainly, this estimate is sensitive to the input assumptions primarily for the growth of European economies that are our major trading partners. They experience the necessary adjustment in the economies and reduction of existing imbalances that led to debt and banking crisis in many European economies. Risks that could derail the European economies from the path of recovery are still present. These days, the developments in Cyprus increase uncertainty, and the regular Troika's assessment of the assistance program for Greece, which is underway, can either reduce or further increase uncertainty about the euro area debt crisis. All this has an impact on the expected pace of recovery of our major trading partners and accordingly on the demand for our exports.
LEADER: What is the reason behind the anemic credit activity. The National Bank cut the reference interest rate, in order to motivate banks to increase lending, but they still invest their available funds in CB bills?
BOGOV: The National Bank adopted several measures in the previous and earlier this year that improved the conditions for growth of credit activity. CB bill level is carefully determined at a level that leaves banks sufficient available lending resources. The measure reducing the reserve requirement for the amount of loans to net electricity exporters and producers already delivers the first results. However, the rate of credit growth is still low. Excess liquidity that banks failed to invest in CB bills and treasury bills is deposited as seven-day deposits in the National Bank at a symbolic interest rate rather than in loans to the private sector. Thus banks refrain from lending. This is not typical only for Macedonia. At the beginning of last year, the European Central Bank injected one trillion euros in the banking sector, but the lending rate is still negative. The Bank of England and the UK government took several non-standard measures directly aimed at encouraging lending to the private sector, but the rate of credit growth remained negative. Why is this so? Probably, a very important reason is the great uncertainty about the future development of the euro area debt crisis and the pace of recovery of the European economy. Therefore, banks are very careful when assessing the risk to their real sector investments. Second very important reason is probably the so-called European bank deleverage process and adjustment to new risk management standards imposed by Basel III, because they reduce their risky loan portfolio. According to our analysis, the first reason significantly determines the behavior of the Macedonian banks, while the second has much less impact.
LEADER: Last year, the lending growth equaled 5.4%. In your projections, do you expect credit growth to accelerate by 7% this year. Do you believe that this percentage is solid in times of crisis?
BOGOV: There is an informal rule that credit growth should be twice as high than nominal GDP growth. If so, these rates are fine. However, we should bear in mind that GDP depends on credit growth, and therefore, higher credit growth rates would trigger higher GDP growth. Thus, in the last fifteen months, monetary policy has been sending signals that, from a macroeconomic viewpoint, there are no risks for slightly higher credit growth than what we currently have. But banks have the best picture of the risks from micro aspect, i.e. at a company level. Growing trend of nonperforming loans shows that these risks are high. Therefore, it is difficult to expect substantial change in credit activity before the share of nonperforming loans in banks' portfolios begins to decrease.
LEADER: Nonperforming loans, the banks being unable to collect in the past, have increased. Why?
BOGOV: For a long time, weak performance in European economies have contributed to the deterioration of liquidity, and in some cases, of solvency of the companies. Not accidentally, the upward trend of non-performing loans is ubiquitous in European economies. In the region from Slovenia to Greece, nonperforming loans reach 20%. Macedonian banking sector, with a rate of 11%, is in the best position. Certainly, it is mostly due to the fact that before 2008 the bubble in Macedonia was much smaller than in other economies of the region.
LEADER: These days we have witnessed bank shifts. Gligor Bisev, from Stopanska Banka, one of the most powerful banks, went into Sparkasse. However, the official transfer to the new post requires an approval from the National Bank. How do you, as a Governor, perceive these bank transfers?
BOGOV: This is something that is quite normal in the developed economies. It is important that high-quality bankers remain in the banking sector. In the past twelve years, Gligor Bisev has done a great job in Stopanska Banka AD Skopje. With the support of the strategic shareholder - National Bank of Greece, he transformed the bank, which was on the brink of collapse in 2000, into a modern European bank with the largest capital power in Macedonia. Today, Stopanska Banka AD Skopje has high-quality corporate governance and risk management systems in place, a Management Board of five excellent bankers with many years' experience, a capital adequacy ratio of 18%, very high liquidity and leading positions in many market segments. It is a stable system that will continue to function without distress. On the other hand, Sparkasse gets a leader who enjoys high authority and credibility in the Macedonian public. This move of the Austrian bank just confirms their long-term orientation in the Macedonian market and ambitious plans for their market positioning. Observing from the perspective of the overall banking sector, this is a positive event which in medium run will increase the stability and competition in the banking sector.
LEADER: You announced consolidation of the banking sector in Macedonia. When could we expect the changes?
BOGOV: In Macedonia, there are sixteen banks, which is too much for this market. On average, Macedonian banks operate with far less assets per employee than banks in the region, not to compare with the more developed economies. That means they have to impose higher spreads to cover higher costs per unit of assets they manage. Therefore, in all my public appearances and in direct communication with the banks, I encourage them to work for consolidation of the banking sector. Last year, Halk and Ziraat merged. I hope that this year we will experience yet another merger or acquisition of small- and medium-sized banks. However, the shareholders will have to make the final decision. This process will continue in the coming years. Our banking system would have been more robust and competitive with seven or eight powerful universal banks and two or three specialized banks.
LEADER: Net exporters were given new facilities. What is the purpose?
BOGOV: The main goal is to provide lower interest rate loans to net electricity exporters and producers. Since banks are allowed to reduce the reserve requirement for the amount of loans to such companies, they need to transmit such reduction to the companies and cut interest rate by half a percentage point, depending on the currency and the price of the loan.
LEADER: You vigorously defend the Denar. Do citizens still trust and save in Denars?
BOGOV: Yes, the confidence in Denar is still the highest. The fact that the Denar has remained stable over the last fifteen years should be an encouragement to think about how much interest have we lost as savers, while saving money in euros rather than in Denars. Though interest rates are lower, interest rates on Denar saving are still at least twice higher than those of foreign exchange savings. I am glad that many citizens are aware of this and Denar savings continues to grow faster than the foreign exchange savings.