The merger of DSK Bank and Société Générale Expressbank could lead to a monopoly in Bulgaria, which would harm the interests of consumers. Moreover, Société Générale Expressbank had to be under Hungarian ownership at a time when the European Union started criminal proceedings against Hungary. We warn the authorities to be careful with the approval of the deal. That is why we sent letters to the Commission for the Protection of Competition (CPC), the BNB and the Financial Supervision Committee. One of the indicators to determine whether there is a dominant position is market share. After the merger, DSK Bank can dominate and disrupt the market because it will become a giant, especially in retail banking. The combined market of the two banks for mortgage loans is close to 27%, and for consumer loans – 38.78%. For the total amount of loans to households, the share of the bank is 31% and in the case of mortgage loans 26.7%.
The new bank will be the asset leader – according to the BNB data at the end of June 2018, they reach BGN 19.1 billion, while those of the first UniCredit Bulbank currently amount to BGN 18.6 billion. DSK Bank will therefore take over first place on this benchmark. In addition, the new institution is the leader in the amount of loans granted (BGN 17.05 billion) and attracted deposits (16.7 billion BGN).
However, the total market share of the three largest banks in Bulgaria will remain long above the threshold of 40% of the CPC after the acquisition of Societe Generale Expressbank by DSK Bank. In this way they will manage more than 48% of the assets of the entire banking system, provide 47.9% of the loans, attract 48.2% of the liabilities and 48.5% of the deposits. In particular, the concentration of the mortgage credit market will be strong – 57.5% of which will be allocated by the three largest banks, while for consumer credits it will be 50.7% and in the case of deposits from households 50, 3%. This will also affect the share of profits, which will reach 60.6% of the total for the banking system. It is worrying for us that they can be understood and dictate the market. For example, to raise interest rates together, which would damage citizens.
Another fact is worrying. Following the merger of DSK Bank and Société Générale Expressbank, approximately 20% of the assets of the Bulgarian banking system will be controlled by the OTP Group with a head office in Hungary. It is a country outside the euro zone and it does not want to quickly enter a free floating exchange rate. Consequently, the Bulgarian banking system will depend heavily on the decisions of the Hungarian central bank, not only on the stability of the parent bank, but also on the subsidizing financing by the parent bank to the Bulgarian bank. In the case of inflationary or deflationary shocks and corresponding hard actions by the Hungarian central bank, the change in the value of the Hungarian currency will have a direct effect on the stability of the Bulgarian SSB. Potential negative effects can vary: unpredictable anti-cyclical credit reduction, pro-cyclical credit persecution or bank take-up to cover losses to the parent bank, which could destabilize the fund, economists say.
The Bulgarian government has already announced its intention to join the banking union and the euro zone. We support this endeavor because consumers are protected by the European Central Bank. Otherwise, our banking system depends on Hungary. Bulgarian economists also believe that the buyer of Societe Generale Expressbank in Bulgaria – the Hungarian OTP has a risk profile. After the deal, Fitch announced that it was placing the rating of Expressbank A under supervision and expects it to be reduced to levels around BB due to weaker support from the new owner. That would mean a decrease of at least five steps.
Unlike Société Générale, which is directly supervised by the European Central Bank and has access to its liquidity, the Hungarian OTP is located outside the euro zone and is a country where governments have had complex relationships in recent years (especially with foreign banks). ) and were criticized for failing the independence of the central bank.
In view of the arguments presented, we warn the Consumer Protection Commission, the Commission for the Protection of Competition (CPC), the BNB and the Financial Supervision Commission to closely monitor the approval of the transaction between DSK Bank and Societe Generale Expressbank. We believe that this will lead to a dominant market position and that the end result will be at the expense of ordinary consumers, who may fall into the hands of collectives.