Strong growth of lending in Bulgaria in the near future should not be expected, according to ratings agency Standard and Poor’s (S&P).

The agency said that Bulgaria’s banking system continued to be stable, due to the support of parent companies of Bulgarian lendings as well as measures taken by central Bulgarian National Bank (BNB) to keep the sector stable after the impact of the financial crisis in 2008.

"Asset quality in the system will not deteriorate sharply, taking into account the latest data on loan portfolios of banks and the continuing effects of economic recession," according to S&P analyst Magar Kyoumdjiyan, quoted by daily Dnevnik.

He said that the agency’s estimate was that problematic loans, including restructured ones, would reach between 25 and 30 per cent of the whole portfolio.

Measures taken by BNB amid the crunch in 2008 included reducing the minimum reserve requirements, easing the capital burdens on banks. 

BNB also increased the amount of guaranteed deposits to boost confidence of depositories, the analysts said. They said that BNB did not consider it necessary to introduce additional assistance partly because foreign banks continue to finance their subsidiaries in Bulgaria. In S&P’s estimate, about 28 per cent of funding came from outside the system, which raised questions about the effect a withdrawal of this support would have, they said, while adding that such a scenario was unlikely.

"Funding from parent banks abroad played a significant role in the loan growth in the years before the crisis," the analyst said. However, it was possible that Bulgarian banks would not be able to rely on them for further increases in activity.

On August 19, Fitch Ratings announced that it had affirmed Bulgaria’s long-term and local currency Issuer Default Ratings (IDRs) at 'BBB-' and 'BBB', respectively. The outlooks for the long-term IDRs were negative, Fitch said. At the same time, the ratings agency affirmed Bulgaria's short-term foreign currency IDR at 'F3' and the Country Ceiling at 'BBB+'. 

Separately, corporate wire SeeNews said that S&P announced on August 24 that it had raised its long-term issuer credit rating on the Bulgarian capital city of Sofia to investment grade BBB- from BB+, with a stable outlook. In a statement, S&P said that the "upgrade reflects the resilience of Sofia's solid operating budgetary performance to ongoing economic difficulties and our expectation that significant confirmed funds from the EU will help the city complete its major infrastructure projects with slower debt accumulation". The rating reflects Sofia's strategic position as the administrative, financial, and commercial centre of Bulgaria, (BBB/Stable/A-3); consistently high operating surplus; modest debt burden; strong liquidity position; and strong support from the central government, the agency said.

The rating is constrained by Sofia’s still limited financial predictability, continued expenditure pressure from urgent infrastructure requirements, only sluggish economic growth projected for 2010-2012, and sizable contingent liabilities related to its main transport and utility companies, S&P said.