What a difference does 12 months make. On Day of the Banker, December 6 2008, the leitmotif throughout the statements made by Bulgarian bankers was stability and how Bulgaria had it. With the world still reeling from the bankruptcy of Lehman Brothers, the near-collapse of AIG and the billions in government bailout money handed out around the world, the fear that Bulgaria was headed for a second major banking crisis in 12 years was very strong and bankers were doing their best to dispel it.

Naysayers have been proven wrong so far, but no one is ready to argue that Bulgaria is over the hump as December 6 2009 dawns on the calendar. A year earlier, lenders showed their confidence in the underlying fundamentals of their loan portfolios by continuing to give out loans, albeit under tighter conditions.

Twelve months later, the annual lending growth rate has slowed down to a snail-like pace of 4.2 per cent at the end of October, about a 10th of the figure recorded in October 2008 – the credit crunch on global markets and the end of the era of cheap re-financing has achieved what the restrictions imposed by the Bulgarian National Bank (BNB) could not. Just two years after imposing stricter mandatory reserves requirements to curb lending, the central bank now faces the opposite problem – stimulating new loans.

Wait and see
The recurring theme for this year’s Day of the Banker, one that could dominate a good part of 2010 as well, is the question of when will credit flow again.

"Lending could recover in two months or in one year. Fears are strong right now, both with banks and businesses," the chief executive of Belgian financial group subsidiary CIBank, Petar Andronov, told Kapital weekly in November.

Assen Yagodin, executive director at Eurobank EFG’s Bulgarian unit Postbank, was more forthright: "You might as well be asking me when the sun will stop shining".

"It boils down to how interested clients are in taking a loan and their willingness and ability to go into debt given the expected rise in unemployment in the coming months," he said.

The central bank, in its latest economic review quarterly report in November, was more optimistic, forecasting moderate growth at the start of 2010. Until then, both the corporate and retail lending segments would grow at declining rates.

BNB attributed the slowdown to the more stringent lending requirements adopted by local lenders, which were predictably hit by the economic downturn, and the 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 boost lending volumes. However, most of the lending growth in September came from Bulgarian banks buying back loans that they sold during the boom years – October figures showed a much slimmer increase in the loan portfolio of local lenders.

Eyes on Government
The Cabinet cannot order banks to lend money, Prime Minister Boiko Borissov said in November, but the Government does have its part to play, bankers said.

Bulgarian lenders were busy restructuring loans given to firms that are owed money by the state, whether as subsidies, European Union financing or public procurement, Kapital said on November 28.

"We are modifying and restructuring loans blindly, because no one knows when the payments will come, which means that no one knows when and if the overdue loan amounts will come in," the newspaper quoted one banker as saying.

Speaking after a Cabinet meeting on November 25, Borissov said that Government payments would resume in December – "we are not deliberately delaying any payments" – adding that he was hopeful that the backlog would be cleared by February 2010.

In cases where the Government could not pay what it owed, it would send letters to banks, asking the lenders for further postponement in loan repayments.