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Aldo AndreoniHead of International Department @Unicredit Bulbank

Italian Festival in Bulgaria 2010
Forum economico “Bulgaria-Italia: insieme per uscire dalla crisi”

Sofia, 7 giugno 2010

Published in: Economy & Finance, Business
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  1. 1. IL SISTEMA BANCARIO BULGARO E UNICREDIT BULBANK Sofia, 07 June 2010 Aldo Andreoni Head of International Department CIB & PB Forum Economico “ Bulgaria-Italia: insieme per uscire della crisi” Panel tecnico. “ I protagonisti della ripresa: mezzi e strumenti per il rilancio degli investimenti
  2. 2. Credit growth has stalled Bulgarian banking sector: Loans growth (Jun`2006 – Mar`2010, yoy) <ul><li>Weak credit growth reflects above all sharp contraction in domestic demand </li></ul><ul><li>Credit growth will normalize in 2011 and looking forward, starting from mortgage lending and working capital loans to export oriented companies which will pick up in line with solid rate of export expansion and stabilization of housing prices. </li></ul>Source: BNB Bulgarian banking sector: Loans growth forecast (2007- 2015 f, yoy ) Source : BNB, UniCredit Bulbank forecast
  3. 3. Deposit growth remains more resilient, despite recession <ul><li>Deposits growth slowed down significantly in the course of 2009 in response to deepening recession. </li></ul><ul><li>Contraction of corporate deposits reflects deteriorated liquidity conditions and pressure on some companies to deleverage. </li></ul>Bulgarian banking sector: Deposit grwoth (Jun`2006 – Mar`2010, yoy) Bulgarian banking sector: Deposits growth forecast (2007- 2015 f, yoy ) Source: BNB Source : BNB, UniCredit Bulbank forecast
  4. 4. Although indebtedness remain moderate for the economy as a whole, some deleveraging pressure is likely in the most overheated sectors such as real estate and construction. Source: NSI, UniCredit Bulbank Economic Research
  5. 5. <ul><li>Reliance on external funding peaked in Sept 2008, when external liabilities to total assets ratio reached 27%. </li></ul><ul><li>After 1Q2009 the pressure on local banks to rebalance their external positions eased significantly. </li></ul><ul><li>In the after-crises period, banking sector will continue to rely on external funding – in the context of the convergence process – but not in the proportions observed during the years of consumption and investment boom. </li></ul>In early 2010, free liquidity was used to reduce some of the most expensive sources of foreign funding Bulgarian banking sector: External position (Dec`07 – Mar`10) Source : BNB, UniCredit Bulbank forecast Note: Forecasts are draft-projections agreed with Strategic Research Team in Vienna for the 5Y Pan in March 2009 Bulgarian banking sector: Liquidity indicators (Dec`07 – Mar`10)
  6. 6. Despite challenging profitability backdrop banks in Bulgaria continued cutting loan-to-deposit interest rate spread Loan-to-deposit interest rate spread (Feb 2004 – Mar 2010) Source: BNB, UniCredit Bulbank Economic Research Retail loan-to-deposit interest rate spread Corporate loan-to-deposit interest rate spread
  7. 7. Bulgarian banking sector looks well positioned to deal with the implications of recession Source: BNB * Bad and restructured loans – the total amount of balance sheet loans exposures, which are classified as “substandard exposures” (the principal or interest arrears payments have been past-due 61 to 90 days), “non-performing exposures” (the principal or interest arrears payments have been past-due over 90 days) and restructured loans (regardless of the group they are classified in) as per Ordinance No. 9 of BNB, is included. <ul><li>In 1Q2010, quality of loans has not reached the turning point yet. Nevertheless, the sector remains well equipped with provisions and capital to deal with the impact of recession on its lending books. </li></ul><ul><li>We forecast NPL’s to peak at between 10% and 11% of total outstanding loans in early 2011. The total recession related credit losses are estimated to reach BGN 3.7bn or circa 6% of 2008 GDP. Losses will be absorbed at the expense of the current profits for a period of three consecutive years starting from 2009. </li></ul>Bulgarian banking sector: NPL’s (1Q 2007 – 1Q 2010) Bulgarian banking sector: Bad and restructured loans (Dec 2007 – Mar 2010)
  8. 8. In early 2010, the profitability of Bulgarian banking sector remains under pressure <ul><li>In 1Q2010, profit before taxes was down 37% yoy; reflecting above all the combination of falling business volumes and rise in provisions for bad loans. </li></ul><ul><li>We forecast FY 2010 profit before taxes and extraordinary items to slide 53% yoy as banks are anticipated to absorb the largest portion of recession related losses this year. </li></ul>P&L of the banking system (2007 – 2010f*) Source: BNB, UniCredit Bulbank Economic Research
  9. 9. Despite the crisis Bulgaria will remain an attractive market looking forward… Bulgaria : Return on assets ( ROA ), before tax Bulgaria : Return on capital ( ROE ), before tax Bulgarian : Cost to Income ratio <ul><li>In the long run profitability of Bulgarian banking sector will have to adapt to : </li></ul><ul><ul><li>Structurally higher cost of risk; </li></ul></ul><ul><ul><li>More balanced pace of banking penetration (as looking forward growth rates of domestic demand will be less pronounced when compared with the years of investment and consumption boom); </li></ul></ul><ul><ul><li>Higher price of capital; </li></ul></ul><ul><ul><li>More complex and possible more expensive regulations; </li></ul></ul><ul><ul><li>More expensive funding structure, to reduce dependence on external funding; </li></ul></ul><ul><ul><li>convergence in interest rates </li></ul></ul><ul><ul><li>Convergence in regulatory standards (particularly liquidity and capital adequacy standards). </li></ul></ul>Source : BNB, UniCredit Bulbank 5Y Plan draft forecast
  10. 10. Position of UniCredit Bulbank
  11. 11. MARKET POSITIONING UniCredit Bulbank is the market leader in the Bulgarian banking system, with 16% market share in assets … <ul><li>Market share in total assets is stable - at 16.1%. </li></ul><ul><li>Market share in revenues at 14.7%, down by 153 bps, mainly in net interest revenues. </li></ul><ul><li>Market share in net profit at 22.4%, up by 72 bps. </li></ul><ul><li>Market share in loans at 14.9%, down by 27 bps. Adjusting for the effect of re-imported loans the market share is up by 14 bps. </li></ul><ul><li>Market share in deposits at 15%, up by 101 bps. </li></ul>* Adjusted with the effect of re-imported loans
  12. 12. MARKET POSITIONING … with profitability, efficiency, asset quality and balance sheet structure better than banking system levels * Source: Regulatory financial statements for both the banking system and UniCredit Bulbank as of 31.03.2010. -0.9 pp - 5.2pp - 3.3 pp 0.3 pp 2.1 pp <ul><li>The better loan quality of UCB is a major determinant in the maintenance of lower provision levels. This also allows for higher returns on both assets and equity. </li></ul><ul><li>UCB overperforms the market in terms of operating efficiency as well. </li></ul>
  13. 13. PROFIT AND LOSS (consolidated*) Strong performance with Net Profit at BGN 39 mln, which is about ¼ of the total banking system net profit * Consolidated financial statements of UCI Bulbank include HVI and UniCredit Factoring <ul><li>Revenues amount to BGN 137 Mio, decreasing with 7.2% y/y. </li></ul><ul><ul><li>Net interest revenues decrease by 7.4% y/y to BGN 98 Mio, due to narrowed spread between customer rates on loans and deposits, coming from the external pressure on market interest rates. </li></ul></ul><ul><ul><li>Fees and commissions and FX decrease by 8.7% y/y to BGN 36 Mio. </li></ul></ul><ul><ul><li>Trading result is positive at TBGN 2 590 . </li></ul></ul><ul><li>Total operating expenses at BGN 59 Mio, down by 4% y/y, due to strict cost contingency measures. </li></ul><ul><li>Impairment losses on loans amount to BGN 34 Mio, up by 23.7% (BGN 6 Mio) y/y, due to the economic crisis and related deterioration of the loan portfolio. </li></ul>
  14. 14. * Consolidated financial statements of UCI Bulbank include HVI and UniCredit Factoring BALANCE SHEET (consolidated*) Balance sheet re-positioned in line with the strategic focus on customer business; Securities down by 15.5%; Net Loan/Deposits ratio improved by 165 bps <ul><li>Total assets grow by 2.9% y/y to BGN 11 bn. </li></ul><ul><li>Gross loans grow by 1.2% y/y to 7.8 bn. </li></ul><ul><li>Customer deposits grow by 14.4% y/y to 7 bn. </li></ul><ul><li>Securities Portfolio (Trading and Financial Assets) decrease by 15.5% y/y. </li></ul>
  15. 15. AWARDS OF UNICREDIT BULBANK 2009 Best Bank in BG Bank of the year in BG Best Bank in BG Best Custodian in BG CSR Award CSR Award