Lending volumes in Bulgaria could begin to "increase slightly" at the start of 2010, the Bulgarian central bank said in its latest economic review quarterly report. Loans to businesses and households grow at a declining rate until then, according to the Bulgarian National Bank.

Loans to firms and households rose by 5.7 per cent on an annual basis in September, or 2.732 billion leva, compared to the breakneck 47.7 per cent, or 15.543 billion leva, for the 12 months to September 2008.

The slowdown follows more stringent lending requirements adopted by local lenders, which were hit by the economic downturn that soaked up liquidity and led to decreased demand for loans, as businesses shelved investment plans and households became more concerned with job and income security than consumption.

The first signs that the credit crunch might be abating came in early September, when several banks cut interest rates, prompting forecasts that this would prop lending volumes. The central bank expects loan and deposit rates to flatten out in the coming months, setting the stage for their much-anticipated gradual decline.

Over the past year, stiff competition between lenders to draw savings has propelled interest rates to an annual nine to 10 per cent for term deposits in leva and seven to eight per cent for deposits in eurl.

The credit market will be backed also by the high liquidity of the banking system and the weaker credit activity. The flagging lending is dampening demand by banks for financing for their credit operations, which will eliminate the need to maintain high deposit rates translating into high loan rates, the central bank said.

Source: Dnevnik