“When a State steps in a Private Bank” – BNR, “Something more” interview

Date created: 12-Jun-2020

Mr. Christo Mihailovsky, Executive Director of BCRA - Credit Rating Agency AD gave an interview for Horizont channel of Bulgarian National Radio (BNR) on the 11 of June 2020. He commented on the Bulgarian state participation in raising the capital of the First Investment Bank (Fibank), by the amount of BGN 196 million. The capital increase is a precondition for Bulgaria to apply for the Eurozone waiting room – ERM II.

According to Christo Mihailovsky, the value of the shares might be increased with the intervention of the state:

"We have the historical experience, when the state steps in a bank, the assets value increase, and hence its value. The Fibank total assets account for about BGN 10 billion, which could accrue with the support of the state up to BGN 12-13 billion. Also, entering the ERM II is of a great positive strategic importance for the state as well as for the entire banking sector, which would increase the bank's shares value as well. The ECB will supervise the largest banks in Bulgaria, including Fibank, and hence the distrust of investors in the bank should decrease".

Mr. Mihailovsky commented in the "Something More" program that the condition for the capitalization of Fibank had had to be achieved:

“The bank’ shares were listed on the stock exchange, but no private investor appeared. The price was about BGN 2.5 per share while their issue value was BGN 5 per share. It is twice as high, i.e. there are reasons why any private investor is not interested", he explained and specified that the requested funds were BGN 196 million. This amount gave rights of about 26%, which was a minority stake and the influence on the bank's management would be negligible:

"In this situation, every private investor would also assess the liquidity of the shares although this should be a long-term investment. The investor would otherwise lose in case he/she intended to trade the shares on the stock exchange."

According to Mr. Mihailovsky, the bank's non-performing loans for 2019 were slightly over 23%, while in the banking system they were 9% on average. “There is a possibility that private investors might distrust in the bank.”

Mr. Mihailovsky commented on the statement of BSP MP, Rumen Gechev, that the state had acquired a stake in First Investment Bank through the Bulgarian Development Bank (BDB), specifying that in the subject of BDB's activity there was no such activity as buying shares or participation in another financial institution. "I'm not sure if BDB can participate," he said.

You can listen to the full interview of Lyudmila Jelezova and Marta Mladenova in Bulgarian at the following link on BNR site: https://bnr.bg/horizont/post/101291743/pib