Interview | Vassil Christov, CEO of Fibank: "We want to be the leading Bulgarian bank and the leading digital bank of the future"

Mr. Vassil Christov joined First Investment Bank AD (“Fibank”) in 2001 as a head of the "Mortgage loans” Division. From 2002 he was a director of the "Retail banking” Department, and from 2005 to 2010 he was a director of the "Branch network” Department.

In 2010 Mr. Christov was elected as a member of the Managing Board of First Investment Bank AD, and in beginning of 2011 was appointed as a Deputy Executive Director. Since the end of 2011 Mr. Christov has been an Executive Director of the Bank. At the end of 2015, he was elected as Chief Executive Officer (CEO) and Chairman of the Managing Board.

Previously, Mr. Christov had worked as a senior credit officer of "Large corporate customers" at United Bulgarian Bank AD. He holds a Master’s in Accounting and Control from the University of National and World Economy in Sofia.

In the bank, he is responsible for the Compliance, the Corporate Communications Department, the Human Capital Management Department, the Legal Department, the Marketing and Advertising Department, the Sales Department, the Branch Network Department, the Administrative Department, the Vault and the Protocol & Secretariat.

Besides his position in the Bank, Mr. Christov is also a Chairman of the Managing Board (Steering Council) of the First Investment Bank – Albania Sh.a. and a member of the Board of Directors of Diners Club Bulgaria AD. Mr. Christov is a member of the Board of Directors of Medical Centers FiHealth AD, Medical Centers FiHealth Plovdiv AD and a member of the Board of Directors of Balkan Financial Services EAD.

In 2012, Mr. Christov was granted the prestige “Banker of the Year” award of the Bulgarian financial weekly "Banker"

Q: On top of that, lower oil prices have had a positive effect on the economy of a country like yours. Furthermore, improvements in the labor market and the strong uptake of EU funds helped to improve that growth. All the signs and research shows that the economy is moving in the right direction, with Bulgaria being potentially one of the best performing countries in the EU. How does Fibank see the economy going forward? What are the drivers and how will they will position for this opportunity?

Indeed, lower oil prices have a positive effect on the EU economy, and the Bulgarian economy in particular as we are net importers of both gas and crude oil. Various estimates show that they contributed at least 0.5 percentage points to the GDP growth in 2015, boosting both household spending and exports. In 2015 real GDP growth reached 3%, a record rate since 2008, and one of the strongest in the EU. Latest data show that unemployment is going down at a fast rate as well, reaching 7.4% in February 2016, which is well below the EU average. In 2015, the economy added some 50 thousand jobs. Exports are growing despite the fall in commodity prices and the overall deflationary environment.

In fact, most of the new job creation is in manufacturing, IT development and business services outsourcing – and all of these are export-oriented sectors. Even though 2016 will probably be weaker due to the start of the new 2014-2020 framework, in the next several years, public investment will again be supplemented by EU funds. Foreign direct investment have also grown over the last three years, reaching about 3.6% of GDP in 2015 after a 20-percent growth during the year. In the coming years, the engines of growth are expected be exports, both manufacturing and business services, and tourism. After several years of stagnating credit environment, lending to businesses for investment will start to expand and this will add up to private sector investment. Also, the government is gradually reducing the budget deficit, mostly through improved collection of tax revenues, despite the deflationary impact on consumption taxes. The government forecasts GDP growth around 2.5-2.7% until 2019, but these numbers can be surpassed if foreign investment and banking sector lending grow faster than the baseline scenario.

Q: In very general terms, and talking about economic freedom, the western opinion seems to be that the country has greatly improved certain aspects of the economy such as trade liberalization in recent years, but not so much in terms of financial freedom. How does Fibank see the evolution of this aspect of the Bulgarian economy? Does Fibank itself face some of these challenges, and, if so, how does it successfully overcome them?

Bulgaria has made some progress in improving financial freedom, which is a measure of banking efficiency and financial sector independence.

Bulgaria has made some progress in improving financial freedom, which is a measure of banking efficiency and financial sector independence. Since the end of the privatization process more than a decade ago, the level of government interference in the financial sector has been limited. Currently banks provide an increasing variety of financial services. In 2015, banks’ assets exceeded the annual gross domestic product of Bulgaria, having grown nine fold since 2000. Nevertheless, there is still substantial room for increasing financial freedom via further capital market development.

As in most other Central and Eastern European countries, the local stock exchange plays a secondary role in allocating financial resources. For instance, banks’ total assets are 10 times larger than the market capitalization of the national stock exchange.
Financial freedom can be seen in the growing number of new businesses in our customer base and in the growth of home ownership in our loan book. Of course we would like to see more of this and in other countries, notably Western European countries, the enviroment may be more liberal. But within existing constraints there have been very positive trends which as a bank we try to actively assist.

Q: The banking industry is at the very heart of a prospering and developed country. Bearing this in mind, what is the situation of the banking sector in Bulgaria in your opinion? How is it reacting to new regulations and global demands by the market?

The banking sector always reflects the health of the economy. The banks are the financial backbone of economy and of the county as whole. In that sense the banking sector is in good shape and is showing sustainable development and capacity for generating profit. In 2015 the net profit of the banks grew by 20% to EUR 460m with ROE at 9.53%. The sector is very liquid with the liquid assets ratio at 36.7%. Retail deposits grew by 8% while corporate increased by 10% in the last year. The banking system is sufficiently capitalized with Tier 1 capital ratio well above the requirements. Despite the overall positive signals from the economy and the banks, loans growth has been weak for the past three years but demand is increasing. The loan to deposit rate went below 70% from 115% in 2008 and is already fit for growth. Both deposit and loan rates fell which I expect to boost investments and consumption. We, as bankers, love regulations - we sell trust and stability. We are expected to be transparent and predictable and all these things are synonyms of regulations, which doesn’t mean restrictions.

We are expected to be transparent and predictable and all these things are synonyms of regulations, which doesn’t mean restrictions.

Q: Fibank is one of the most important players in Bulgarian banking ecosystem. Your bank has expanded and has ties not just in Bulgaria, but also in countries like Albania and Cyprus. What are the next steps in order to grow in your own country? Are your foreign operations parts of a strategy to expand and grow outside of the country or are they more to support Fibank’s existing Bulgarian operations?

Fibank has one of the most efficient multichannel distribution platforms consisting of 162 branches network in Bulgaria, one branch in Cyprus and a daughter bank with 10 branches in Albania, a virtual banking branch (e-Fibank), a call center, mobile banking and other digital services. For the time being, we have been growing organically with one supplementary acquisition of MKB Unionbank (part of Bayerische Landesbank’s group), which we acquired in 2014. We service more than 1.1 m individual clients and almost 100k companies which for Bulgaria is a really enormous customer base. Having this developed multichannel infrastructure, strong brand and broad client base are conditions for our future growth. We have been developing next generation “FinTech” products for our customers. They are very active and they love to transact with us, we offer first class service and cutting edge products 24/7 and this is proven by the many awards we have been constantly receiving.

Being the third largest bank, we see room for further growth in Bulgaria in the consolidation process for the next couple of years. We estimate 20%-22% of the total banking assets may change hands by 2018. We hope to play a role in this consolidation and have demonstrated our capabilities through the quick and efficient merger of MKB Unionbank, completed in five months and obtaining signification synergies. We have a great understanding of the banking sector and the business environment in Bulgaria and the neighboring countries. Our subsidiary bank in Albania is a good example of our ability to operate outside of Bulgaria. We want to position the bank to be a top regional player.

We aim to be perceived as the leading digital bank of the future in the country.

Q: Experts agree that "traditional" banking is dramatically changing (especially those involving digitalization and the competition by new "Fintech" challenger). Are you ready for that competition? What are your plans in order to face the digital challenges ahead? Do you feel that, because of your background, you are more prepared to achieve your goals?

Sure we believe we are much more prepared for the upcoming digital financial revolution then our competitors. To be innovative is in our DNA. Most of the revolutionary financial products in our market were launched firstly by Fibank. That is why we are called “The Fintech Bank” and I will mention some of our recent digital developments.

Fibank has successfully completed a transformation project of bank's Systems architecture that basically provides generic building blocks for integration with third parties, white labeling of applications, and provision of Software as a service, with Public Application Programmable Interfaces (APIs) to the core banking solution and the Card Management Suite, Integrated Development Environment for User Interface and workflows design - for rapid development of transition specific web based end-user interfaces for capturing of financial transactions for partners that do not have their own platforms and native application containers for iOS and Android which allow for deployment of screens for capturing of financial transactions for partners that do not have their own platforms.

As a result of the transformation Fibank is almost prepared to go live with a project for bank cards BIN sponsorship for a big vendor for mobile payment solutions and also we are in the implementation phase of a project for white-labeling of mobile application for banking services (digital card with HCE, current account and overdraft facility) for big Bulgarian MNO.

Q: Ivan Iskrov, the former governor of the Central Bank recently stated that "Currently, we have a stable Bulgarian banking, but struggling to grow by itself". In your opinion, which are the major obstacles in order to grow the Bulgarian banking system? Considering that Fibank has been very successful in growing over the past few years, what has the bank done to overcome these obstacles? In 2014 the bank received €600 million funding from the state with the aim of replacing lost liquidity from the run on deposits and you managed to return the money in a very short period, with the last payment expected to be made this month. How did you manage and what was the road map in order to successful achieve that target? Were there any important restructuration or changes to the bank in order to deal with that goal?

The European Commission has approved a restructuring plan and Fibank has been implementing it strictly. The truth, however, is that the plan was just one of the pillars of our fast recovery. The Commission support triggered the restoration of the market confidence in the bank. This was actually the milestone to achieve the goal but the main reason of the quick recovery was underpinned by restoration of our loyal customers. We almost recovered in full the lost liquidity by the end of 2014 and repaid EUR 150m from the state aid by the end of same year.

In this month, May 2016, we will make our final payment to the state of EUR 50 million according to schedule and will have repaid in full the total amount provided by the state of EUR 600 million in 2014.

I will comment the statement of the former governor of the Central Bank in the prospective of Fibank. The bank has sufficient capital and liquidity ratios well above the requirements of the Central Bank and much higher than the EU average. After all examinations done by the Commission, monitoring trustee, Central Bank Supervision, our new independent auditor BDO, we do believe we are well prepared for the AQR and the upcoming stress-tests. We operate in a growing economy, and we, as a country, grow faster then EU average. Bulgarian market is still undeveloped in terms of banking penetration. In that sense we see a huge room for further growth both organically and through M&A.

Q: Finally, and on a more global perspective, Federal Reserve is delaying its plan of interest rate rises and Eurozone set negative rates on deposits. Are you afraid that the Central Bank of Bulgaria follow this line and keep rates low? Are you ready for this possibility and how do you think it will affect to your bank –as well as the whole Bulgarian economy?

The Central Bank of Bulgaria, the Bulgarian National Bank, operates under a currency board arrangement which specifies that the Bulgarian national currency (the Bulgarian lev) is pegged to the euro. The currency board means that the Bulgarian National Bank essentially follows the monetary policy path set by the European Central Bank. The currency board system, which has been in place in Bulgaria for almost 20 years now, has had a positive impact on the national economy, keeping inflation low, stimulating economic growth, providing financial stability and attracting foreign investors.

On the other hand, the Bulgarian banking system is interlinked with the European financial sector, as many Bulgarian banks are owned by European financial institutions. These are the reasons why the Bulgarian economy is indirectly affected by ECB’s monetary policy decisions, although Bulgaria is not yet a member of the euro area.

However, the adverse impact of negative interbank interest rates on the national economy and the financial system will be limited for a few reasons. Bulgarian banks have built substantial capital buffers and maintain ample liquidity, which makes domestic banks resilient to potential external shocks. The Tier I Capital Adequacy Ratio of Bulgarian banks exceeded 22% as of end-2015, almost double the ratio of Eurozone banks. Meanwhile, the liquid assets ratio of Bulgarian banks rose further in 2015. Despite falling interest rates, banks in Bulgaria remained profitable, maintain healthy net interest margins, and have accumulated significant reserves. Banks’ reserves (including retained earnings) rose by 8% in 2015.

Furthermore, falling interest rates allowed business and households to service their obligations more easily, as the share of non-performing loans declined and new lending to the real sector expanded in 2015. The improving quality of banks’ assets and the renewed credit activity will help raise Bulgaria’s economic growth rate over the short and medium term.