Nikolay BORISSOV: “Acquisition of Moldindconbank is the best procurement in the Moldovan market, albeit the most risky one”
Interview by InfoMarket Agency
A year ago, in February 2020, the National Bank of Moldova canceled the external management regime in Moldindconbank, thereby completely transferring it to the new majority shareholder - Doverie United Holding AD (Bulgaria). Moldindconbank (MICB) was under external management for more than three years: in October 2016, the NBM revealed the concerted actions of the owners of 63.89% of the shares. This package was bought by the government for 760 million lei and sold to a Bulgarian investor for 764 million lei. Interestingly, at the end of 2019, the bank's net profit amounted to 678 million lei, in 2020 - 432 million lei. According to this indicator, MICB ranks second in the banking system of Moldova. To ask questions about dividends, shareholders, development, the current situation and prospects, the editor-in-chief of InfoMarket Agency, Alexandru Burdeinii, met with the Chairman of the Managing Board of Moldindconbank, Nikolay Borissov.
InfoMarket: Will shareholders receive dividends for the past years?
Nikolay BORISSOV: This decision is up to the shareholders. The bank has not paid dividends since 2014. We have got a request for dividend payments (not from Doverie Holding) and we have to put the matter to a vote at the general annual meeting of MICB shareholders. Last year, as you remember, the National Bank did not recommend paying dividends to commercial banks in connection with the pandemic.
InfoMarket: When the deal became known, Doverie was presented as a holding company that manages a number of companies, including insurance companies, but without a bank.
Nikolay BORISSOV: Doverie has long wanted to buy a bank into the holding, and has been looking closely at banks in Bulgaria, Greece, Hungary, and Cyprus. In 2015, a preliminary agreement was signed to purchase Tokuda Bank, but the deal did not take place. Considering this experience, we saw the opportunity to acquire a bank in Moldova; we have conducted due diligence in three banks: Victoriabank, Moldova Agroindbank and Moldindconbank, and received permission to purchase a large block of shares.
InfoMarket: But did the EBRD dissuade you from purchasing the first two?
Nikolay BORISSOV: No. When we were considering buying one of these two banks, we discussed with the EBRD the possibility of a partnership with a certain stake. Ultimately, I consider that the acquisition of Moldindconbank is the best procurement in the Moldovan market, albeit the most risky one. Any bank with an international presence could have shown interest in acquiring MICB, and we would not have been able to compete with them: the NBM would probably prefer the one with an international network, and we might have been bypassed in terms of money as well.
InfoMarket: Could it be that your rights to own a controlling stake in the bank will be challenged and the new shareholders will lose the bank?
Nikolay BORISSOV: We bought the bank from the state - this is important. And if the former shareholders have any claims to the law or to the value of the shares, they should present them to the state, and not to the new shareholders.
InfoMarket: Doverie grew out of a privatization fund, but it doesn’t enjoy a positive image in the countries of the former USSR and Eastern Europe.
Nikolay BORISSOV: In Bulgaria, as well, during the privatization process, much was sold for a pittance, for the sake of momentary profit. But Doverie has been operating for over 20 years, the holding's assets are growing, and we have proven that we are a serious investor and we have a reputation. The main shareholder of the holding is the largest Bulgarian group of companies Sopharma, which includes 50 legal entities. Sopharma's shares are the most attractive on the Sofia Stock Exchange; however, this year the shares of the Doverie holding outstripped them in terms of attractiveness, which is associated with the acquisition of Moldindconbank.
InfoMarket: How has the Moldovan banking environment received you?
Nikolay BORISSOV: Very positive. We have established normal communication. The banks have common goals and we strive to consolidate them; for example: how to use IT innovations of other companies to verify our clients by photography, passport, and biometrics. This is a program that we are promoting together with MasterCard, coordinating it with the National Bank. The market needs new laws to expand the applicability of IT.
InfoMarket: What did you manage to achieve during the first year of independent bank management?
Nikolay BORISSOV: We have created our own team and adopted a development strategy, adopted a number of decisions that have been postponed for years.
InfoMarket: Hasn't the strategic development of Moldindconbank been carried out under the NBM?
Nikolay BORISSOV: Strategic - no, and I can confirm this. We could only adopt certain decisions after the National Bank's administration was removed.
InfoMarket: What strategic changes are to be expected in your bank?
Nikolay BORISSOV: In the next two years, we will invest over 10 million euros in IT, while focusing on digital banking technologies. At the end of February 2021, we purchased equipment and licensed software worth more than a million euros; the matter concerns the contract with Oracle. We have begun to change core banking, include additional modules for lending and deposits, and improve web banking along with a mobile application. The data migration process is very long, so we will most likely launch the new automated system in the second half of the next year.
InfoMarket: Returning to the issue regarding the results of the year, you met with the bank in November 2018, and external management was canceled only in February 2020, during this time has the number of clients and the turnover on their accounts in your bank decreased?
Nikolay BORISSOV: I did not notice any growth or decrease in legal entities; and in physical terms - we have registered growth. We have retained our leadership in the bank card market - we have more than 500,000 active cards. Due to the fact that we are the first to install cash-in ATMs in the market, as well as ATMs with several currencies, customers actively use this. MICB accounts for 21.1% of the total number of ATMs in Moldova, while the share of transactions is 37.6%. We have 25.3% of all POS terminals, and the share of transactions with them is 29.4%. The pandemic has contributed to the growth of digital banking, in our case by 70%, compared to 2019. By the way, our ATMs are often used for currency exchange, although there are limits. We are among the first in Moldova to install ATMs of a new generation - recyclers. These are ATMs of a closed circulation of cash, allowing the optimization of operational and time costs. But the future lies not with ATMs, but with digital banking.
InfoMarket: Do you mean 24/24 zones?
Nikolay BORISSOV: They only guarantee round-the-clock access to services. By the way, according to statistics in Moldova, an ATM installed in a closed area is used 20% less than an ATM installed on the street.
Speaking about automatic servicing, I mean, for example, a credit conveyor. Some of our competitors already use it, but we want to launch the most modern one, which mathematically and statistically will help us better evaluate customers. All banks are gradually moving away from personalizing decision making. And here there is a problem of reflecting real data by one or another company in its reporting: in decision-making, the system will not be able to evaluate "gray accounting", so clients will have to decide whether: to try to minimize taxes or get loans.
When the bank's work was connected with personalities, at the level of the client's acquaintances with managers, I even had some kind of déjà vu. I came across this in Bulgaria, when a European investor introduced standard procedures, digital data processing using a credit conveyor. It is the system who calculates how much and on what conditions can be given to a particular borrower; everything is taken into account, even payments on utility bills. Previously, the bank's infrastructure was considered at the level of a branch network, in the future everything will be carried out through mobile banking and other digital channels. In Europe, 70% of banking services do not provide for face-to-face communication between a client and a bank employee.
InfoMarket: Do you plan to close your agencies and branches in this context?
Nikolay BORISSOV: Last year, due to the pandemic, we closed 21 agencies: some of them worked in shopping centers that were closed at that time, in some agencies one or two people worked and it became difficult to ensure compliance with sanitary standards. But the bank still has the largest network in the country - 160 active offices, and the number of employees decreased by only three people over the year. Today the bank employs 1,496 people. At the stage of preparation for the implementation of the new platform and mobile banking, we do not plan to close any office. After all, if we do not have time to competently transfer customers from traditional service to high-quality digital, they might leave, but to us each client is important.
InfoMarket: You carefully mentioned that you have not noted any positive or negative dynamics in case of legal entities, nevertheless, the bank had problems with correspondent accounts, especially with USD accounts, when your partners refused this service because of the past reputation?
Nikolay BORISSOV: In 2020, we additionally opened two new correspondent accounts in China and Belarus. There was a period when some foreign banks did not allow MICB payments, but now the problem has been resolved. The issue we face is not how to return normal correspondent relations, but how quickly it will happen. There are two reasons for this delay. The pandemic is the first reason. There were planned events, visits of representatives of large banks who wanted to carry out due diligence on the spot and get to know the people who work here. In line with international anti-money laundering regulations, they can only do this with on-site verification. And the second reason, very unpleasant, is that, in these latter days many international financial institutions do not want to take the risks of Moldova because of the undermined reputation of the country, and Moldindconbank operates in Moldova. For the same reason, we are not able yet to obtain international credit lines.
InfoMarket: How much do you need international lines if the bank's capital adequacy is 35.5%, and the liquidity exceeds 59%?
Nikolay BORISSOV: This is, first of all, an increase in our reputation. In addition, the availability of such credit lines allows us to provide good conditions for clients. We have started negotiations, but so far international financial organizations are showing concern about additional investments in Moldova.
InfoMarket: What, in your opinion, can be done with increased banking liquidity, apart from buying government securities?
Nikolay BORISSOV: Unfortunately, the increased liquidity suggests that we are not very good at managing assets. Therefore, it is necessary to lend. And while we are doing well with lending to individuals, we have lost a little bit with respect to legal entities due to the conservative lending policy of recent years. The choice of an active client who needs financing depends on the best conditions offered by banks. And we, as a bank that had been under external control for a long time, at the beginning of the pandemic were more conservative than other market participants.
InfoMarket: Many companies have problems with fulfilling their obligations due to the pandemic, to what extent does your bank correspond to Mark Twain's statement that a banker is a person who gives you an umbrella when it is sunny and takes it away when it starts raining?
Nikolay BORISSOV: We are patient with clients who have encountered problems, but they must understand that it is necessary to communicate with the bank. If we do not have information and communication, we cannot do anything; the initiative must also come from the client as well.
InfoMarket: Last year the Official Journal of Moldova (Monitorul Oficial) has published the largest number of announcements on the application of the right of pledge on behalf of your bank, what is the reason?
Nikolay BORISSOV: in 2019, the bank wrote off a large number of loans from the balance sheet. We have not forgotten about them, they were simply paid off at the expense of the share capital. Our reserve fund was increased and the cases were transferred to the legal department. Prior to that, delays in the loan portfolio for more than 30 days reached 10.5% of all loans, and this caused bewilderment among our partners. When we took loans off the balance sheet, this figure was reduced to 2.8%. The quality of the loan portfolio has improved significantly. This does not mean that we have forgotten about these loans, they are our assets and we continue to work in order to return them, although Moldova’s judicial system faces very big problems. I think we will be able to retrieve more than 20 million euros - already as a profit, since it was due to the unrealized profit of previous years that we “wrote off” them.
Now our employees and credit departments are working from scratch, their reports no longer contain problem loans that spoil their performance, the work environment has been improved and everyone minds his own business: credit departments - lending, legal departments - return of "written off" assets.
InfoMarket: What, in your opinion, is the main problem of the banking system of Moldova?
Nikolay BORISSOV: As far as lending is concerned, the biggest problem is the judicial system. One cannot be sure of the fairness of court decisions. “Interested parties” do not use this when it comes to small loans, interest appears when large and very large sums are at stake.
An important problem is the lack of a sufficient regulatory framework for the development of digital banking technologies and external approvals. In Europe, PSD-2 (Payment Services Directive) is used: banks are required to open doors for fintech companies, which, possessing licenses, can independently view the balances of their clients and collect information about transactions from all banks. And Moldova has not even decided yet how to enter the cloud - Cloud Sollutions. We could have not invested a lot of money in IT, equipment and premises, but use the power of cloud technologies to make calculations and make decisions faster. And we are not even talking about the transfer and storage of data in the clouds, but about the purchase of machine time. Another example is the use of external services. Banks could order services for the digitization and storage of archived data - this is not a banking business. But so far this is not regulated, since the probability of information leakage is high. Although in Europe, archives have been kept on outsourcing for a long time.
InfoMarket: For many years, banks in Moldova have not agreed on the creation of an internal payment system for VISA and MasterCard cards, all payments go through external operational centers, so users pay large commissions, especially if they use an ATM of another bank. Is there a chance to change something?
Nikolay BORISSOV: When we were doing due diligence in three banks, we noticed this. This greatly increases the cost of internal transactions, not to mention the cost of services for customers if they use ATMs of other banks. Bulgaria has an internal card center, and I don’t think about who owns the ATM when I want to withdraw money. Today, the largest banks in Moldova are managed by foreign specialists, so I think there is an opportunity to come to an agreement. It is unfair for card users in this country to pay such high fees.
InfoMarket: In recent years, the owners of the largest banks have changed, foreign investors, international networks have come, and many have re-branded. Don't you think it's time for your bank to change its logo too?
Nikolay BORISSOV: Before you change the facade and logo, you need to change the base of the bank. Our goal is not to change the logo: we want to change the bank from the inside, and then, as a result of investment in IT, it will make sense to change the logo as well. Today we rank second in terms of assets, in terms of loan portfolio, but our goal is not to be the largest bank, but the best bank: so that our clients define us as the best bank. But the client’s criteria for evaluation - is another issue. If customers are satisfied with our services, we will become the largest as well. However, if we are not the best, there is no point in being the largest.
// 09.03.2021 - InfoMarket