“The trend is clear”: Bank mergers in Bulgaria will continue

The topic of banking consolidation in Bulgaria came up again last month with unofficial information about the sale of First Investment Bank (PIB). Subsequently, the fifth largest bank in Bulgaria denied having activated due diligence. At the same time, a deal is currently underway to merge two smaller banks - the Bulgarian American Credit Bank (BACB), owned by Tzvetelina Borislavova, and the Japanese Tokuda Bank.

Thus, it seems that the consolidation of the Bulgarian banking market that began years ago has not ended, and the trend is more than clear - the consolidation of the sector, albeit with smaller transactions, continues. The main reasons behind this are the increasing regulations in the sector and investments in new technologies.

Once the Commission for Protection on Competition and the Bulgarian National Bank greenlight the acquisition of Tokuda Bank from BACB, 16 banks and 6 branches of foreign institutions will remain on the Bulgarian market.

After the consolidation in recent years, in which both UBB, DSK Bank and Postbank made acquisitions, in the end, according to BNB data as of the first quarter of 2024, the five largest banks in Bulgaria hold about 77% of the assets in the system.

Of these, only PIB has Bulgarian owners, while the rest are subsidiaries of large European banking groups - the Belgian KBC Group in the case of UBB, the Hungarian OTP Bank with DSK Bank, the Italian UniCredit and the Greek Eurobank Group, which owns Postbank.

The consolidation trend is clear. Consolidation is a process that moves along the lines of rather strengthened regulations in the sector, which make it too expensive to do banking. On the other hand, larger players can afford to buy fintech companies or technologies from them to apply in their operations. That’s because constant investments in new software is a very expensive undertaking," commented Postbank’s Deputy CEO Asen Yagodin during "The Sound of Money" annual conference, which took place on 4 June in Sofia.

Ekaterina Panayotova, deputy manager of Retail Banking at UniCredit Bulbank, is of a similar opinion. According to her banking is already a "costly exercise" because of all the required investments.

Banks in Bulgaria continue to pay attention to their costs related to the expected currency change from lev to euro in the country. According to their calculations, this will cost 200-250 million euros, and any postponement of the target date means adding more costs. According to a breakdown by the Bulgarian Ministry of Finance, the banking sector will experience the largest expenses in connection with the change of national currency.

Consolidation is a process that cannot be stopped. The big consolidation deals are behind us – about 80% of the assets of the banking system are already owned by the top 5 banks. This process will probably continue, but the question is not how many banks there will be, but what value they will provide to society," added Yagodin.

The CEO of BACB, Ilian Georgiev, also declared himself "in favor" of the consolidation of the Bulgarian banking market, but believes that

it is better to have more medium-sized banks'.

In Europe

The process of bank consolidation is also happening in the rest of Europe. In Spain, for example, the second largest bank BBVA has asked for permission to buy its smaller rival Sabadell, which would create a credit giant with more than 1 trillion euros in assets. Yet, at the moment, among the top 10 banks in the world by assets, there is not a single European one.

According to the executive director of tbi bank Nikolay Spasov,

the trend is clear – [the consolidation process] comes from Europe, and what's about to happen, will happen."

In the Central and Eastern Europe region, consolidation has also increased, with the latest deal occurring a few days ago in Romania, where the Italian Sanpaolo acquired First Bank and thus doubled its share of the Romanian banking market.

Translated by Tzvetozar Vincent Iolov