Privatisation of the Largest Bulgarian Bank

Is the largest Bulgarian bank cheap or expensive?

AIM Sofia, July 4, 2000

The sale of the largest Bulgarian bank - "Bulbank" - has raised a new in a series of privatisation scandals. Its proportions and participants can be explained by the fact that "Bulbank" is not just any financial institution. It is something between the national and commercial bank. It was granted such status because of excellent indicators it has registered in the last couple of years. The Bulbank's management team has made it clear that it will not cooperate with the new owner and has gone over and joined the team of the opponents of the Bulgarian Government.

Last year, the Banking Consolidation Company (BKK), whose president is Minister of the Economy, Petar Zotev, approved the contract on the sale of Bulbank to the consortium "UniCredito-Alliance". The price of 98 percent of shares was set at 360 million Euros. "UniCredito" would get 93 percent of shares, while the remaining 5 percent would be left to the insurance company "Alliance". The Italian bank won the bid against the consortium "Kanvas", in which the Greek billionaire Vardinojanis also participated.

Irrespective of the accusations against BKK for unfair treatment of "Kanvas", the basic question remains whether the Bulbank's price is real. According to its Executive Director, Cavdar Kncev, the state is selling the best bank for a pittance. Its price should range between 30 and 50 percent of its net assets, which are estimated at 650 million leva. This means that BKK will get the price, which is only 7.5 percent above the value of its assets. Its operations is two times larger than that of the second and third largest Bulgarian bank - DSK bank and the United Bank of Bulgaria (OBB). "Bulbank is not just any bank. It is a strategic investor in the country's banking sector", Cavdar Kncev likes to point out. As a comparison, the European Bank for Reconstruction and Development (EBRD) has recently sold the third largest national bank - OBB Bank - to the National Bank of Greece for 230 million Euros. Only three years earlier EBRD bought that same bank for US$ 3 million.

In the last two months, Cavdar Kncev seriously quarrelled with the Government, and not only because of the Bulbank's low price. According to a preliminary agreement, a team of managers was to get 9.5 percent of shares. "The Informative Memorandum stipulated that BKK would demand 88.5 percent of shares for the buyer", says Kncev.

In early May, "Bulbank" registered a record annual profit of 101.5 million leva. Also, the bank paid the tax of 53.5 million leva. The first skirmishes between BKK and Kncev broke out at the time when annual bonuses for the leading team were being determined. Instead of 1.5 million leva, as they asked, the bosses got only 450 thousand leva, which is two times less then in the last two years. But, at that time the financial results were much below than those achieved this year. The Government did not keep its promise given to the management that it would give them shares, after which the relations between the Government and Cavdar Kncev were finally broken.

"In Europe we are trying to join, the rule is that the staff of an institution of such proportions as "Bulbank" is rewarded according to the efforts they make. That is the rule. In Bulgaria that would be an exception to the rule", says the banker. Same as Bulbank is not just any bank, Cavdar Kncev is not just any Bulgarian banker. He is a charismatic personality in the country's economy which is in transition for the last 10 years.

Kncev is the only banker who has kept his position under the last seven Governments. In 1991 he was the chief of the then Bulgarian Foreign-Trade Bank - an institution which during communist times represented the state in negotiations with foreign creditors. Kncev's star was in the ascendant during negotiations with the London and Paris Club on the rescheduling of Bulgaria's foreign debt.

Since then, under the new name "Bulbank", the bank started along an ascending path thanks to its management which was rather unusual for the Bulgarian conditions. Cavdar Kncev never followed the lead of the political nomenclature, showed independence which was greatly reflected in the financial results of this institution. He reasoned according to the economic rules. He did not yield to large-scale psychosis of credit granting in 1994 and 1995, which brought about the banking crisis in

1. Kncev always denied charges that he had no credit policy and had turned "Bulbank" into a money storehouse, but he never risked having unfair creditors deplete his bank's assets. Sometimes he made enemies in the top political circles because of his independence. In 1996 he was attacked because of for his unwillingness to vouch a Government's deal for the purchase of American wheat which he thought unfavourable. Now he is undesirable even for Ivan Kostov's Cabinet.

Good and stable results made it possible for "Bulbank" to participate in the financial rehabilitation of the banking system under Zan Videnov's Government. However, these actions never jeopardised the bank's security which has turned into a lifeline for thousands of depositors who had "burned their fingers" in a series of banking bankruptcies declared in late 1995 and during 1996. "We have invented what is called today "Zotev's sale", says Kncev and is absolutely right.

What will be the future of this banker outside the Bulbank system, remains to be seen. For years, his name was frequently mentioned among candidates for Prime Minister, head of the Bulgarian National Bank, Minister of Finance, etc. However, he never succumbed to political temptation and stayed in the field of real economy. Moreover, he could easily turn into a catalyst of change of the political status quo, if he thinks it fit. He knows very well what to do and when to do it, how to protect his personal interest and the interests of Bulbank, as in most cases these were also national interests. It is not by chance that many political programmes link his name to the Prime Minister's position.

Georgi Filipov

(AIM)