11.06.2024 If the criterion is that the Bulgarian Development Bank makes profits, how will it differ?

The Interim Minister of Economy and Growth, Rosen Karadimov, is also the principal of the only state-owned bank in our country – Bulgarian Development Bank. Before taking the position of minister, Karadimov was the Chairman of BDB’s Supervisory Board, where he was appointed in the autumn of 2022.

Mr. Karadimov, why did the Caretaker Government hurry to adopt a new 3-year strategy for the Bulgarian Development Bank /BDB/, given that it has a rather short mandate and should not set long-term goals? 

The previous strategy expired in December 2023. And the bank operates, except under the special law about BDB, also on the basis of a strategy adopted by the Council of Minister. Work on the new strategy began already in June last year and I, as you know, was the Chairman of BDB’s Supervisory Board until recently. An active role was also played by the bank’s Advisory Board, which includes the five employers’ organizations, the two trade unions and the association of municipalities. This Board was created on my initiative immediately after I took over the supervision in November 2022, because then there were, to put it mildly, a lot of overlays around the BDB, which led to mistrust and to questions of whether such a bank was necessary at all and why not close it. The other extreme was “let’s privatize it”. 

The question of whether there should be such a state-owned bank has been raised not without a reason ...

There was probably a reason then, but I am convinced of the potential of the Bulgarian Development Bank. So, when I headed the Supervisory Board, the first task was to go through the purgatory – through a period in which the trust and image of the bank, as well as the meaning of its existence, would be restored. That is why we created the Advisory Board: firstly, to be the obvious transmission between the bank and business, in which we jointly developed the bank’s programs for business, and secondly, to be a form of public control.

Do you think that trust has already been restored?

I shall point out two more facts. Four or five months ago “Transparency International” issued a report that verified all the procedures in the bank from the point of view of preventing corrupt practices. In addition, the Bulgarian Development Bank became a partner of the European Commission under one key program - InvestEU, for EUR 165 million, which the bank can grant to small and medium-sized enterprises as guarantees and assume a significant part of the loan collateral. This is a sign of trust of the European Commission in the Bulgarian Development Bank.

I think that within a year and a half the bank looks quite different from before – as trust, as lack of scandals and as transparency of procedures. So the time has come to state even higher claims in the new strategy. Because without going through the purgatory, it would seem inadequate. 

What does this strategy envisage, what will be new in the bank’s activities?

The BDB has already compacted almost to the maximum the activity of supporting small and medium-sized businesses. There are numerous programs, bridge financing, various financial instruments. They are not so visible as the BDB works through the other commercial banks, because it does not have a branch network, and its purpose is not to compete with the commercial banks. In addition, small and medium-sized businesses are the most competitive segment and all banks are willing to finance them.

However, the Law about BDB assigns the bank two more goals: supporting the public policies of the state and supporting the policies to overcome regional imbalances. It has not been worked on them at all. I was tempted to do it through the new strategy and for a year and a half as a Chairman of the Supervisory Board I tried to convince the management of the Ministry of Innovation and Growth and the politicians that the state had a powerful market instrument in its hands and it was not using it. That was what I meant when I said: “having a gun, but using it to hunt quail”. I do not underestimate small and medium-sized businesses. They remain a key aspect in the bank’s activities and in the new strategy. But in order to fully fulfill the other two goals, I asked the Prime Minister to form a working group, in which eight ministries were involved at the level of deputy ministers, alongside with the employers’ organizations, the two trade unions and the association of municipalities.

This working group defined the priority sectors in which the bank can be used as a market instrument: infrastructure - transport, social, health and educational, agriculture, healthcare, еnergy, defense and military-industrial complex, water supply and sewerage sector.

Are these the priority sectors for lending by the BDB?

Not only for lending, but also for public-private partnership. The bank could participate in infrastructure projects, finance them. Imagine a big infrastructure project, a gas project. Does anything prevent the state from involving in this project with its state bank?

Apparently, the ceiling of BGN 5 million for the amount of loans is an obstacle. Is that why you suggested it be removed?

The strategy does not provide for the limit to be removed in the general case of financing small and medium-sized enterprises. But I will give you two absurd examples. “Bulgartransgas” announced a tender for banking services for BGN 50 million. The tender is secured by a state guarantee. The Bulgarian Development Bank cannot participate because it has a limit of BGN 5 million. Do you understand? The state-owned bank cannot participate in the financial services of a state-owned enterprise!

The military-industrial complex – a driver of the economic development for better or for worse. The Bulgarian Development Bank cannot service the military-industrial complex, cannot grant loans because of the ceiling, and the other banks refuse because their overseas parents don’t want to be involved in that type of business for various reasons. 

The Bulgarian Development Bank is the market mechanism by which the state can enter such spheres. In every developed European country where there is a development bank or an encouragement bank, they are an instrument of the state in certain spheres. Instead of relying only on budget funds.

Another examples from the last meeting of the Council of Ministers – a state guarantee that should be provided in the budget for 2025 again for “Bulgartransgas” for the construction of the vertical gas corridor, which is at the amount of BGN 650 million. The BDB could participate in this process. If you were a manager and you had such an instrument, wouldn’t you use it?

Another example – hospitals that are on the verge of bankruptcy due to liabilities to suppliers and moratory interest is flowing to them. Can the state situate points that are critical and the Bulgarian Development Bank finances and manages the debts of these hospitals?

Didn’t the Bulgarian Development Bank draw up a special program two years ago specifically for the healthcare facilities in trouble?

But do you know how it was constructed? The Ministry of Health lends money to the hospitals to pay off their debt, and the BDB adds another BGN 5 million, because this is the ceiling of its participation.

Is this the solution to the development of the Bulgarian Development Bank – to remove this ceiling?

No, it isn’t. We start from a new philosophy – the bank is an instrument for the public policies of the state through a market resource, not a budget resource. Not using the state bank in such projects is political short-sightedness.

The limit on loans was introduced in a period of many overlays. I am not a supporter and I will not allow the general limit for the amount of a loan of BGN 5 million for small and medium-sized companies to be removed. The strategy does not envisage it.

But in certain priority sectors, when servicing public policies of the state, under certain hypotheses and very clearly written rules, this limit may not apply. Because there is no way that the BDB takes over the debts of a state hospital – the amount of 5 million will not be enough in this case. Or what is the point of this limit, when you have an amount receivable from the state or a grant that the client receives under a European or national program? An example of this are industrial parks. For the construction of an industrial park, you can apply for a grant of up to BGN 40 million under the Recovery and Resilience Plan, where BGN 212 million have been allocated. The approved projects can receive the funds after the industrial park is built. But to build it, you need funding. In the meantime, is it possible for the Bulgarian Development Bank to help with bridge financing? Not right now, because of the limit. 

These projects may, of course, seek a loan from a commercial bank. But when you have a bank under the umbrella of the Ministry of Innovation and Growth, which has announced the procedures and approved a project, and you deprive this bank of participation – I don’t understand this. Reindustrialization is a state policy and there is nothing more natural than the state bank being able to participate in bridge financing of industrial parks.

Such bridge financing within the limit of BGN 5 million was developed by the BDB a year ago in a universal program for all small and medium-sized companies. This mechanism works perfectly for projects under Operational Programme “Innovations and Competitiveness” and enjoys huge interest. We are now launching the program for family businesses and creative industries on the same principle. 

The logic of the ceiling of BGN 5 million was to put a restrictor on the bank’s management to prevent bad practices. I don’t want this restrictor to be removed, but I would like to be clear that when you have absolute guarantees that there is no way of damage to be done, but there is simply economic expediency, there is no point of tying the hands of your state bank.

Isn’t there a risk that the BDB’s resource is directed mainly to large projects, while small and medium-sized businesses remain in the corner?

The bank has sufficient resource, it is capitalized. There are mechanisms for continuously attracting an external resource. By the way, it is not quite correct to say that the BDB operates with state funds, because the bank also attracts a large resource as a debtor from other banks, at very acceptable interest rates.

You say that the Bulgarian Development Bank can also perform social functions. What do you mean?

I have never said this thing in this way. I have said that the bank can intervene in social infrastructure. This is different. A classic example of this is social enterprise funding. It has yet to be decided which are the appropriate forms to intervene in social infrastructure. As well as in health and educational infrastructure.

What about the example of interest-free loans for civil servants?

It’s not just civil servants. In Bulgaria, there are many people who, by virtue of the law, receive compensation upon retirement: 6 or 10 or 20 salaries. These are policemen, firefighters, military men, teachers... This compensation is paid to them in order that a person who retires earlier is able to organize his life in the future. And now the question is: if suitable financial instruments are found, is it possible to stimulate this process earlier. I mean that the person who is entitled to this compensation can use this resource a little earlier to start rebuilding his life – he can start a family business, his children can start some small business ...

But this is not a topic of the strategy at all. This is a topic for a regular government.

Did the trade unions propose these interest-free loans?

No, the topic has not even been opened. This is my idea. The question is, do we want to further strengthen the personnel in segments critical to the state? If you have a shortage of teachers in North-West Bulgaria and no one wants to go there, or there are areas where there are no willing ones – firefighters for example, is it logical to use market mechanisms to implement a policy that motivates people?

If this ever happens at all, it should be through mutual funds. If a mutual fund is created within a department, there is no obstacle to the BDB to lend to a mutual fund on a market basis. And the employees will take a loan not from the BDB, but from the mutual fund. 

If the BDB embarks on financing risky projects, such as indebted hospitals, won’t its financial situation deteriorate? How will it make a profit?

The BDB’s goal is not to make profits, it has no right to compete with the other commercial banks. Just one fragment – the profit of the banking system for last year was BGN 3.4 billion – the profit of the BDB was BGN 31 million. Profit is given as a criterion for good work very speculatively. The criterion for good work is what efficiency you have produced, what economic growth, not how much money you have earned. If the criterion is to make money, what makes us different from the other commercial banks?

Well, yes. That’s why the BDB gave out large loans to businessmen close to the government without any collateral. What happened to these loans?

When the new Supervisory Board took office, there were 8 large loans for a total of BGN 1 billion. We demanded from the Board of Directors to prepare detailed action protocols for each loan in the event of unfavorable development. To date, one of these loans was fully repaid – BGN 260 million. Five loans are regularly serviced and bring profitability to the bank. There are two loans that are not serviced, but I cannot quote names. For one of the loans, after many consultations and analyses, we came to the idea of ​​voluntary implementation of the collateral. It is almost twice the amount of the loan. The other loan has no collateral. By this time, the BDB had appointed a manager there under the Special Pledgees Act, and the result was that some information had been collected, but no actual receipts. The approach will be changed, most likely the bank will move to a more direct and more extreme execution in the hope that something will still be collected.

The interview for “Sega” newspaper was made by Mila Kisyova.

Photo: Iliana Dimitrova