Is KTB Victim of its Success?

Business » FINANCE | September 23, 2014, Tuesday // 23:02
Bulgaria: Is KTB Victim of its Success?

Bulgaria’s Corpbank (KTB) has been among the most profitable ones in recent years, it has shown sustained growth and adequate investment of its funds, its suspended directors claim.

In an letter carrying the title “Why do they want to steal the bank?” they highlight that KTB has attracted funds mainly from the Bulgarian deposit market without relying on cheap borrowing from foreign-based parent banks.

Conducting a comparatively aggressive expansion by offering depositors innovative and attractive products over the past four years, it has succeeded in financing its business. 

Describing KTB as focused on innovative business strategy and lending to businesses, the authors of the letter ask who hasn't liked the bank's success, its scale and the approach it has been based upon.

They also ask why the bank has been left in limbo after the central bank seized it in June following a deposits run, suspending all of its operations and ordering a full audit of its books. 

A possible answer could lie in the structure of its assets, the letter says, highlighting that KTB has traditionally been focused on lending to key sectors of the Bulgarian economy such as heavy industry, energy, telecommunications, defence industry and large infrastructure projects.

Unlike other banks operating in Bulgaria, most of them foreign-owned, which have been focused on indirect financing of foreign industries such as production of consumer electronics and tourist services through widely advertised consumer loans for buying those goods and services, KTB’s lending has always been focused on stabilizing and expanding the operations of Bulgarian businesses producing goods and services, the letter said. 

KTB’s interest spread was 2.37% last year, or about one percentage point below the average level for Bulgaria’s banking system in which short-term financing predominated, reflecting the short-term nature of attracted deposits.

The bank has also kept administrative costs low to back its strategy for achieving sufficient profitability through maintaining stable inflow of long-term resources and investment-focused lending of these funds. The ratio of administrative expenses to KTB’s total assets has always been considerably lower than the figures for the banking system as a whole, the letter said.

It an apparent reference to claims that KTB had allegedly financed ill-considered business projects the letter says that with KTB focused on corporate lending, it has extended loans to Special Purpose Vehicles which have placed as loan collateral the only asset they had – the respective projects they had been created to implement.

For that reason a considerable part of the loan collateral held by KTB in relation to those projects represents debt owed to KTB and tied to the their implementation, the letter said, highlighting that such types of collateral are neither fictitious, nor illegal.

Looking at KTB’s loan portfolio, the letter says that over the past four years the quality of the portfolio has been particularly high despite sustained expansion of its lending operations in accordance with the rise in assets.

The Banker magazine ranked KTB seventh in its 2013 Top 10 ranking in terms of assets of 250 EU banks. The ranking showed a rise of 41.98% in KTB assets.

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Tags: KTB, assets, loan portfolio, Corpbank, business strategy, collateral, deposits, interest spread, administrative costs, foreign industries, corporate lending

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