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The role of Banks in assisting the food
processing sector on the way to EU accession
Presenter:
Athanassios Petropoulos
Executive Director and Member
of the MB of PostBank AD
The road towards EU
Although Maastricht set very particular “technical” indicators for
accession, more candidate countries come to realize that nominal
compliance must be backed by real economic compliance through:
 Sustainable economic growth, backed by strong fundamentals;
 Building competitive advantages of local business, esp.
companies working in the primary need food commodities;
 Setting business standards and practices that facilitate growth;
 Develop strong infrastructure, working legal system and
liberalized capital and secondary markets to support the business.
Macroeconomic stability
towards growth
GDP growth has entered a sustained pattern of around 4% p.a.:
Consumption has stabilized in a growth trend of around 7% p.a.:
Macroeconomic stability
underlying fundamentals
Inflation has been contained below 6%, resulting in below 5% CPI yoy:
Unemployment has been decreasing, and will likely be contained below 13%:
Recognition of these trends:
Bulgaria’s sovereign ratings upgraded
Supported by:

Decreasing effective debt burden as
measured by Foreign Debt to GDP ratio;

Increased liquidity in the markets,
easing
inflationary
pressure
and
increasing accessibility of funding for the
local business;
But endangered by:

Privatization progressing much slower than
expected, with failure of big deals creating
uncertainty among foreign investors;

Inefficient legal system, with substantial
problems and delays in courts;

Corruption
at
different
levels
of
administration and difficult to contain level
of criminal activity;

Political stability, with political consensus
towards NATO and EU integration;

Very stable financial system;

Lack of infrastructure development;

Substantial FC reserves guarantee the
stability of the Currency Board.

Higher accounting transparency, better
medium and long-term planning, export
markets expansion is necessary for local
companies (esp. SMEs) to achieve real
“market maturity”.
The Role of Banks in creating investment
and demand-driven economy prior to EU accession
•
GDP growth: As major provider of funding for the business, the Banking System has the role of
evaluating the business and moving funds towards more efficient ventures, and stimulating
investments in quality and productivity, which create future competitive advantage.
BGN 'M
GDP
Loans to nonfinancial sector
Loans / GDP
9 mths '2002
23,645.1
9 mths '2003
24,868.7
Growth
5.17%
5,414.8
8,291.0
53.12%
22.9%
33.3%
45.58%
•
Consumption growth: As provider of financing for individuals, Banks enhance consumption
(growing at 7% p.a. vs. 3-5% GDP growth), assisting especially in the development of investment
goods demand through scheme loans for vehicles, furniture, household appliances, and mortgage
loans for housing.
•
Inflation contention: Through increasing efficiency, in the last 2 years, Banks have for lowered
tangibly interest rates, decreasing inlfationary pressure, and helping BIR to move closer to Libor and
thus enhancing the profitability of borrowers:
•
Decreasing unemployment: With the development of new, more aggressive products targeting
Small and Medium businesses, Banks have increased the accessibility to capital for start-up
businesses, helping new business to expand faster.
The Role of Banks in creating
sustainable business growth
•
Funding Provider: Accounting for the undeveloped Capital Market, Banks bear the
full burden of providing funding for all stages of development of the business, as well
as developing the money and secondary markets.
•
Accession / Foreign Aid Programs: On the majority of EU accession funds (like
SAPARD) and foreign financial assistance programs (like USAID), the Banks serve
not only as intermediaries in the funding process, but also as provider of additional
funding, bridge financing and often direct know-how assistance in the business
planning and investment process.
•
Business Discipline and Transparency: Being among the most strictly regulated
sectors in the economy, the Banking System is a major promoter of financial
discipline and reporting transparency in the corporate clients, which is among the
major requirements to be adopted during EU accession.
•
Expertise / Advisory: Accounting for their ownership, the leading Banks in Bulgaria
have extensive international contacts and expertise, which they are capable and
have started sharing them with clients, facilitating the development not only of
foreign trade, but also introduction of best business practices, which are key to
survival of local businesses after accession.
The food processing sector in focus:
Major role of Banks
•
The Quality Problem: A major problem facing companies in this sector is lagging behind on
EU quality compliance. Substantial funds are required for modernizing the production process,
enhancing product control systems, new equipment and technology implementation. These
investments are only partially covered and supported by EU aid programs. The key role of
Banks is to assist the companies in their complete investment program, and with supportive
working capital lending..
•
Market Diversification: Another problem is high dependence on the local market and a
limited product range, often with seasonality in sales. To help companies enhance their
product range and market access, Banks provide specialized Trade Finance and Factoring
products.
•
Attracting Foreign Investment: In seeking equity or joint-venture partners in order to
strengthen their local and international market positions, companies in the sector increasingly
seek the expertise of foreign-owned big banks in assisting them to establish the most efficient
form of partnership and access a reliable foreign partner.
•
Business Optimization: Companies using more actively banking service have introduced
faster accounting transparency, helping them identify potential weaknesses, and using
advisory services from their servicing Banks have built a comprehensive growth strategy that
does not overburden them. Moreover, companies increasingly use Bank advisory for cashflow optimization and funds management services, decreasing the seasonality impact.
The challenges of the future
 EU Integration: As intermediary and direct lender on pre- and post-accession
programs, the Banking sector will continue to have a key role, especially accounting for
its role in advising the entrepreneur on the projects.
 Business Expansion: The financing activity of Banks has been growing ten times
faster than GDP, which has supported greatly the economy. A major challenge will be
translating lending growth into sustainable business growth, supported fully by the legal
framework, increased efficiency of the juridical system and infrastructure renovation, as
well as entrepreneurial focus on business growth, especially in the key economic
sectors – food processing, construction, energy and fuels, tourism.
 Investment Activity: Project finance for infrastructure has been practically non-existent
and its appearance and development will depend on successful blending of public and
bank financing. Postbank actively participates in EBRD, USAID and SAPARD financing
programs.
 Support Small and Medium Businesses: SMEs, and especially those in the food
processing sector, are key to low unemployment and sustained macroeconomic growth,
and they depend very strongly on increasingly active Bank support for their future.
 Promote Bulgaria: Banks have to more actively participate in the marketing and
promotion of Bulgaria among EU investors.