The market and not the legislative changes give the best solutions.

The general picture for banks is that of a sector solving the problems which came along with the crisis. In the short term, the environment in which the banking sector operates remains difficult due to the feeble growth in the economic activity, the limited demand for loans, the high unemployment rate, the level of non-performing loans, which also has some impact. All those cyclical challenges will be gradually fading away. The liquidity in the system continues to increase, the cost of funds and loans will depend more and more on what is happening on the Bulgaria market, which is very positive.

This was said by Kristofor Pavlov, chief economist of UniCredit Bulbank, during the banking panel at the Sound of Money Forum hosted by profit.bg. Moderator of the panel was Tihomir Toshev, executive director of Credit Center and Credit Point.

The low inflation rates and the increasing geopolitical instability are some of the rather long-term challenges to the banking sector in Bulgaria, said Kristofor Pavlov. Among the other factors which have impact on the system is also the increased regulatory activism. "It is important to know that some very repressive regulatory changes can lead to a structural decrease in the system. There must be market mechanisms which can ensure banks sufficient flexibility to manage assets in a professional way", Kristofor Pavlov further said. Despite the recent regulatory activism he thinks that it will not come to utterly repressive measures and the scenario of a favorable development of the system in favor of the economy remains optimistic.

His personal opinion is that the right solution regarding the changes to the consumer loan act would be for the banks to be given an opportunity for greater flexibility in the management of product prices along with creating conditions for a control mechanism as well, so that there is clarity and transparency that this would not lead to abuse.

According to Pavlov the price of loans is burdened by the slow-moving and not good process of enforced collection of loans from companies acting in bad faith. "An effort needs to be made for this process to be improved», he thinks.

"It is time to quit discussing whether the crisis is over or not, but rather what we should do to quit faster with the crisis. In banks we are trying not only to provide loans but also to give confidence in the projects which are worth it, which are planned in the right way and with realistic objectives. In our observations for the last 5 years the companies with well structured businesses not only have not suffered too much from the crisis but have grown and expanded. If you have a good idea, work hard, have a good business model, have gathered a team, then your projects are successful", said Margarita Petrova-Karidi, executive director and member of the Board of Directors of Piraeus Bank Bulgaria during the discussion. She gave an example with a company which took a loan of 150 million two months before the start of the crisis. "And because the company had a good model, now its loan is only 15 million and liquidity is in place", she said. "We have funds available for lending; it is important to see maturity in both parties and to structure a successful transaction both for the business and for the economy. Only in this way will economic growth increase. The bank must act as a professional consultant, giving competent advice, it cannot be seen only as an institution which gives the money", added Petrova-Karidi. According to her observations, the inefficient judicial system is not helping the process of increasing the lending.

"The best solutions come from the market. If you allow it to work, it will find a better solution than any law-maker", Petar Andronov, CEO and MB Chairman of CIBANK commented with regard to the consumer loan act. He reminded that a year ago one now former minister of finance defended with conviction a similar fast solution which introduced a tax on deposit interests. "This act turned out to be ineffective very soon. The collected money changed the structure of deposits and instead of the expected 160 million there were collected less than 70 million. Therefore experiments should not be allowed, nor submitting bills three minutes before voting. The conclusion is that no one is smarter than the market. Second, before adopting legislative decisions it is important to make the required measurements first and then to make decisions. Only in this way can transparency work in favor of consumers", Andronov said.

According to him it is a positive thing to have the early repayment fee removed. He underlined that many banks have removed it as a special offer in the last few years even without legislative changes but somewhere it has remained higher and it may have been a setback for the market. "But it is also important that the consumer knows what the consequences of the law would be, namely that it would probably not make market sense to offer consumers good prices for the first years of the loan or an interest-free first year. Our goal is to ensure transparency in favor of consumers", Andronov emphasized. However, according to him this for example with regard to the forming of interest rates is not achieved with foreign indexes. "Even the members of parliament in the course of the deliberations spoke about Eurobor (and the right way to say it is Euribor), so this would barely make consumers feel more secure using indexes from markets in London and Frankfurt, which have their own rules." According to him it must be clear that the external indexes are not an adequate measurement of the attracted funds of banks which are local. He said that one solution would be to use official indicators such as data provided by the Bulgarian National Bank, in order to have a representative public index which can create a correlation between the attracted funds and the loans. In this way there can be an adequate calculation of the value of the loan.

"From what I see, Bulgaria is changing for the better, but what is missing will be a strategy for education, for enhancement of the financial literacy. This is much more important then legislation and this is why we are also investing in this direction", added Stepan Popelka, COO of Provident Financial Bulgaria.

The panel's moderator, Tihomir Toshev posed the question of the individuals bankruptcy act and whether such an act would be beneficial to consumers. "2010, on a European level, was the year of social integration. Alienation in this context exists when large groups of people cannot participate in the ordinary ways of society because of their indebtedness. It is good to follow the good practices in place, and it is also important to evaluate the impact and the price of applying a certain regulation. For example it must be traced down whether a phenomenon such as social alienation exists in Bulgaria in order to adopt such an act to provide a solution; whether the reasons, if any, are economic, cultural, etc. If the reasons are high unemployment rates, then the passing of an individuals bankruptcy act would not solve the problems of these people for example. This matter cannot be solved in a legislative way with the unemployment in place. For now, no one has seen such an analysis to have been made. Yet, indebtedness is related not only to banks, there is such for electricity bills, communications, other utilities, housing, rents. If an analysis is made and an adequate range of measures is offered, there is no reason for us to not join this dialog. The price to be paid for the enforcement of a certain act should also be one that is acceptable for society. Furthermore let's keep in mind that for thousands of years contracts have had to be treated as equal to a law. The idea of liberating ourselves from the power of a contract is revolutionary and the risk of creating conditions for irresponsible behavior should also be evaluated. Fast loans yes, but fast laws - no. ", summed up Daniela Hristova, member of the MB and procurator of Societe General Expressbank.

In the interests of the comprehensive presentation of the discussion which took place during the Sound of Money Forum of profit.bg, the press release features public quotes of managers of other banks as well. For complete accuracy of their use, please confirm with the respective managers.