Published: July 26, 2014
The country's outgoing finance minister on the recent eurobond, the banking crisis and the future of the economy.
Bulgaria's financial markets have seen highs and lows recently – often within days of each other. In late June the sovereign raised €1.5bn (US$2bn) in a eurobond issuance that attracted about €3.7bn in orders, its first international deal since 2012. And yet the deal happened at the same time the central bank was working out a rescue plan for Corporate Commercial Bank (Corpbank), one of the country's largest, which had suffered a run on deposits. The central bank said this was "an isolated case" and yet within days another big bank, First Investment Bank, also saw depositors rush to withdraw their cash, leading to emergency negotiations with the European Commission to tap BGN3.3bn (US$2.2bn) in aid for the sector.
EMEA Finance contacted the Bulgarian ministry of finance to discuss the eurobond, banking crisis and wider economic outlook for the country for a report in our forthcoming edition. Between that request and our call with finance minister Petar Chobanov on Friday July 25, prime minister Plamen Oresharski and his Socialist government resigned. The news wasn't entirely unexpected given the criticism the government had faced following poor results in May's European elections. With a snap election already agreed for October, a caretaker government will now take over.
Here, ahead of our August-September edition's country report, we bring you our Q&A with minister Chobanov.
EMEA Finance: Even with concerns about events in the banking sector, June's eurobond was an impressive deal with almost €4bn of orders. What do you think were the success factors?
Chobanov: It was really not an easy situation, however we managed to convince [investors] that the long term perspective for Bulgaria is quite good. We have a low budget deficit and also the second lowest debt-to-GDP ratio in the European Union. The growth potential for our economy is big and the expectations of international financial institutions like the IMF and the European Commission show that our potential will accelerate in the near future.
We also have good developments in terms of economic indicators – for two consecutive quarters we have big growth in our domestic investment, at 4.6%. We've had growth in business climate indicators for 10 consecutive months and the indicator now is around its long-term average and its pre-crisis levels... We have strong macroeconomic fundamentals as well as a consensus in the country for fiscal discipline – it doesn't matter what type of government is in power, right or left, all stand for this fiscal discipline and our medium term fiscal strategy. This all helped us to convince investors that this is a very good deal.
EMEA Finance: Does this take care of international borrowing for the year?
Chobanov: This will be the only international issuance. We're a rare issuer on the international market and the purpose of this issuance was to refinance our issuance which matures in the beginning of 2015.
EMEA Finance: There have been particular difficulties in two banks. But analysts we've spoken with say the rest of the sector is in better shape, and that the runs on two firms aren't a signal of a wider crisis. What's your perception?
Chobanov: My perception continues to be that we have a stable banking system with very good indicators – decreasing non-performing loans and banks that are very well capitalised and very liquid. The indicators are much above international averages and standards, and this helped us to go smoothly through the international financial crisis.
The two banking [run] cases are different in their nature. In the second one the consensus was that all of society is behind the stability of the banking system, which was the most important fact – the central bank, the government and all important political parties as well as bankers in the system. The European Commission allowed us to use this state aid scheme for liquidity support for the banking system immediately.
EMEA Finance: Can you talk about your discussions with the Omani sovereign fund [a 30% stakeholder in Corpbank]?
Chobanov: The idea of the Omanis is that being a shareholder they should be part of the decisions in this issue, and I support this. We are waiting for the decision of the central bank, to show what the capital gap is and then what will be implemented. That's the conversation I'm having with the Omani fund. They really stand for protecting their investment and want to be a part of decisions.
EMEA Finance: You'll continue to hold the role of finance minister until early August. What tasks do you want to see your successor focus on?
Chobanov: We'll have a caretaker government, but after the elections in early October the main tasks for the new government will be to improve the efficiency of public spending – in education, in healthcare, to reform somehow the administration, and to decide what the pension reforms should look like. This will be the main task of the next parliament and government – they should focus on this.