19.06.2023 Rosen Karadimov: While waiting for EU funds, businesses can first get them from BDB and move projects forward

The Chairman of the Bulgarian National Bank in an interview for the 24 Hours newspaper:

- Mr. Karadimov, the Bulgarian Development Bank has developed a bridge financing programme for businesses. What is it?

- The point of this programme is that if a small and medium-sized company wants to apply for funding under a grant programme under the recovery plan or the European funds, it must first secure the necessary resources for its project. The project must be implemented first and it is only then that the programme reimburses the grant, with such reimbursement varying between 50% and 100%.

This is where the Bank’s financial product comes in – it is concessional for businesses that have qualified or applied and are on the waiting list for approval. They receive financing to cover the cost of the project – up to 100% for those who are qualified, which under certain conditions means no deductible, and up to 85% for those waiting.

Loans are up to BGN 5 million, the repayment period is up to 6 years with a grace period of up to 2 years. Companies also have the option of an unsecured working capital loan of up to BGN 200,000 in addition to get the project up and running. The grant will then go directly towards repaying the loan. The programme is now open for applications.

At the same time as work on the recovery plan started, we began to develop financial instruments under each of the programmes – they are with different ministries and related to ecology, innovation, circular economy, digitalisation. In the course of work, however, it became clear that we had the opportunity to make not multiple programmes, but one unified and universal financial instrument.

From the outset, it has been developed together with the Bank’s advisory board. It has two main functions – to make a direct link between businesses and the Bank, and to provide public scrutiny. It includes the five nationally represented employers' organisations, the two trade unions and the National Association of Municipalities. About 90% of employers' proposals were included in the programme.

- Will the Bank also work with individuals, for example on the renewable energy programme for households?

- The Ministry of Regional Development is checking procedures for BGN 4.7 billion. We did a very serious analysis and decided that it is risky to cover this market, as the Bank does not have a branch network and own individual customers. Therefore, it was decided that the adequate solution was for the BDB to give targeted guarantees to commercial banks specifically under this programme – if you apply to your bank for a loan of up to BGN 25,000 to create your own RES, until you receive the grant from the European programme, the loan will be guaranteed by BDB, which will alleviate the collateral problem. This instrument is also already functional.

- What other new products are being worked on?

- A product is also being worked on for the EU renovation programme. However, it is a bit more specific, because the condominium applies to the Ministry of Regional Development through the mayor, who then has to award a public contract to companies to carry out the renovation. We would like to finance the contractor because it has to complete the renovation and then receive payment from the municipality.

We are also working on an instrument to serve the program under the recovery plan for the construction of industrial parks. But if allowed, the Bank can participate in the financing of such parks outside the EU programme, because this is a matter of politics, regional disproportions and economic development. Furthermore, the debate on where to build these parks cannot be conducted without trade unions, because unemployment and social inequality are concerned here. If the Bank is allowed to participate in the funding of such parks outside the EU programme – for which the limit can be loosened by a targeted decision of the Council of Ministers – the role of trade unions and

- It has been circulating in the public domain that Bulgartabac has stopped paying its loan to BDB and has proposed to transfer the collateral to the Bank. Will you agree to such swap?

- I have no legal right to talk about a specific loan. However, I can say that when the Supervisory Board stepped in, I asked for full information on all credit exposures over 5 million and the status of the 8 large loans that were succeeded from the previous management. Protocols were already developed at the beginning of the year for action on each of them in the event of problem – what to do on the 3rd, 5th, 10th day. At this stage, the Bank is strictly following these protocols, which are in full compliance with the legal framework, and no one is improvising. 

- How many loans have been disbursed since the beginning of the year and what is their average size?

- In the first quarter, 22 loans were granted, which is close to the limit of BGN 5 million, and this is commensurate with the period of last year. But I am convinced that the new product for EU programmes will increase the interest of businesses. Otherwise, the Bank’s budget is being successfully implemented. The profit for the first quarter is BGN 18 million.

- This year, a new strategy for the Bank’s work should be prepared. What will be its priorities?

- When the supervisory board took office, we requested a report on how the Bank’s objectives, as set out in the law, were being met. That report was quite unsatisfactory and quite far from the law, which sets some very good objectives – creating an environment for financing of small and medium-sized businesses, not direct funding and lending, overcoming regional disproportions, supporting public policies of the state – all things that were left out of the Bank’s focus. We are trying to bring that focus back.

We had a very fruitful meeting with the new Minister of Innovation, Milena Stoycheva. She is very committed to the topic of innovation and has an ambition to catch up with other countries. If this is the policy, the strategy has to be in line with this policy and it has to be drawn up together with the state. We will rely a lot on the advisory council. Trade unions will also have a key role, because we are talking about public policies and employment here.

- For example, what public policies can BDB implement?

- Wherever the state cannot or should not be involved, it should have a market instrument like the bank. For example, the state has a limit on the spending it can do on an annual basis. The big debate now is how much the budget deficit should be and whether it should be trimmed by cutting public spending on infrastructure, construction, capital spending. The question then is, can’t the bank cover these expenses and can’t they be offset against a debt of the state or late payments by municipalities and the state? Bulgaria has no new budget. There are a number of current payments that cannot be made because they are not budgeted for. There is tension. There are contractors who have done their work but cannot be paid. Why can't BDB pay in exchange for a commitment by the state to repay the funds? Why shouldn't BDB be involved in major infrastructure projects and carry out economic expansion outwards?

Besides, the BDB Act was adopted a long time ago – in 2008 – and perhaps the time has come to reconsider the legal framework, the set objectives and the status of BDB.  Currently, the Bank is a peculiar hybrid because it is a full-fledged lending institution and has to comply with all regulations, at the same time it is expected to make expansion in certain sectors. Therefore, it should be able to make exceptions in terms of lending limitations but stick to priorities.

- You celebrated a 60-year anniversary. From the experience you have, what do you think of what is happening in Bulgaria – the Attorney General has been ousted, constitutional amendments are being prepared. Are positions being rearranged and is this for the better?

- I should clarify that I am now speaking from a personal capacity. In any case, the processes that are underway should be good. The point is that they are the beginning of a very big public debate. That is what is needed to change the constitution to achieve the effect that is being sought. It is a dangerous thing to assume that the constitution can be amended on a circumstantial basis. In my opinion, a euphemism is being tossed around – ‘constitutional reform’, but so far it is not very clear what such reform is. It will become clear when someone puts together a comprehensive draft amendment. The judiciary part has been amended several times but it has not led to anything.

- Two parties, until recently rivals, have come together, so that a regular government could be formed. From your experience as an adviser to Sergey Stanishev during the Triple Coalition, when three different parties managed to compromise, what would you advise the current government?

- What was key in the Triple Coalition was the way the coalition partners communicated. There was a Coalition Council of the three leaders, Simeon Saxe-Coburg-Gotha, Sergey Stanishev and Ahmed Dogan, and their teams, which met at least once a month. These were 10 to 12-hour meetings followed by press conferences for the media. It was a transparent process where all of society could see what decisions and ideological compromises were being made. In my opinion, what can guarantee stability now is to quickly find a publicly defensible formula for the way decisions are made and to take into account the fact that there are different parties in government with different priorities. Although they largely stand on common ground, there are no severe contradictions. It is therefore crucial to reassure the public about the decision-making mechanism, its transparency and the participation of both formations

CV

Lecturer at the Faculty of Law of the St. Kliment Ohridski University of Sofia since 1991.

Chairman of the Board of the Institute for New Economic Progress

Member of the Seventh Grand National Assembly, participated in the adoption of the 1991 Constitution of the Republic of Bulgaria, the BNB Act, the Banking and Credit Act, the Companies Act

He has been a legal adviser and litigator for a number of lending institutions, including BDB.