Bulgaria’s Commission for Protection of Competition (CPC) confirmed on July 14 media reports that it had launched an investigation because of suspicions that banks in Bulgaria had entered a cartel agreement.

In a statement on its website, CPC said that the probe was into the Association of Banks in Bulgaria (ABB), but offered no further details, saying that it acted to find out whether banks engaged in "behaviour whose goal is to prevent, limit or breach competition on the respective market". Dnevnik daily said earlier that the main target was interest rates charged by lenders on deposits and loans.

CPC said that it decided to launch the investigation on June 11 and searched the premises of the ABB on July 8, with police present, after receiving a warrant from the Sofia Administrative Court. Papers and documents stored electronically were seized during the search, the CPC said.

CPC was still in the evidence-gathering stage and the search of ABB premises did not mean that the association was guilty of any wrongdoing.

Nevertheless, ABB decried the methods used by the competition watchdog, saying that they would have a "serious negative impact on the image of the banking community and create systemic risk". The CPC investigation was based on what ABB said were "observations and media reports," not well-grounded market studies. The reasoning was "unconvincing and the data imprecise and incorrect," Dnevnik daily quoted the ABB as saying in a statement.

The credit crunch has curtailed the access of Bulgarian banks to cheap foreign refinancing. The rising monetary policy rate has prompted banks to increase interest rates on loans, while at the same time offering higher rates on deposits to raise new funds.

Bulgaria’s currency board agreement prevents the central bank from setting the monetary policy rate, which is instead determined based on the overnight deposit rates on the interbank market.

The ABB’s stance was backed by Bulgarian National Bank (BNB) on July 14. "Bulgaria’s banking system is one of the most tightly regulated sectors of the Bulgarian economy. BNB is exercising strict bank supervision and has monthly data on each individual bank and the banking system as a whole," the central bank said in a statement.

"This data is available on the BNB website and guarantees public access and transparency of the banking sector and its operations. Banks in Bulgaria have been operating in conditions of extreme competition and it is this publicly visible professional competition that guarantees the absence of any kind of accord between banks on the issue of maintaining agreed interest rates on loans and deposits."

Bankers polled by Dnevnik daily were unanimous in rejecting the suspicions of any price-fixing in the banking system.

"The CPC was given complete co-operation. The result of the check can be only one – there is no cartel. Quite the opposite, Bulgaria has a competitive and dynamic lending market," the chief executive of Raiffeisenbank Bulgaria, Momchil Andreev, who is a member of the ABB managing board, said.

EIBank chief executive Petar Andronov, who is also on the ABB board, said: "There are no grounds for the check and argumentation itself is weak. If anyone bothered to study and compare the products offered by different banks, they would have seen that there are price differences of at least two to three per cent. [...] Why did no one complain about a cartel when banks were decreasing interest on loans? There is no market more competitive in Bulgaria than the banking sector and there is no market more regulated."