Bulgaria’s right-wing opposition parties have opposed the proposed transformation of Encouragement Bank, of which the state is the majority owner, into the Bulgarian Development Bank.

Speaking to journalists after Parliament approved the first reading of the Bulgarian Development Bank Bill on March 13, Democrats for a Strong Bulgaria (DSB) MP Vesselin Metodiev said that concentrating vast financial resources in the new state-owned bank would “open a huge door to corruption”.

It would be normal market practice to give all banks an equal playing field in servicing EU funding.

Encouragement Bank was set up in 1999 by the government of the time, headed by Ivan Kostov who now leads the DSB, to encourage the establishment of small and medium enterprises (SMEs) and to stimulate exports from Bulgaria.

The stated aim of the Bulgarian Development Bank Bill is that the bank will improve, promote and develop the overall economic, export and technological potential of SMEs and facilitate their access to financing. Along with the new bank, there will be a National Guarantee Fund and a Capital Investment Fund. The Cabinet says that the Bulgarian Development Bank will refinance banks that lend to SMEs, and foreign banks that lend to buyers of goods and services provided by Bulgarian SMEs. The Bulgarian Development Bank will be financed with its own funds, and through bond issues, loans from local, foreign and international institutions and EU funds.

The Bulgarian Development Bank would be the sole administrator of funds from the European Regional Fund, European Social Fund and the Cohesion Fund, as well as the co-ordinator of public bids on development, services and supplies. The DSB said that this meant that the bank would have the exclusive right to operate with funds of up to five billion euro, and would distort competition on the banking market.

In Parliament, the DSB called on Bulgaria’s Association of Commercial Banks (ACB) and its chairperson, Levon Hampartzoumian, to distance themselves from the bill. It is understood that a letter was received at Hampartzoumian’s office on March 17 and has been circulated to members of the ACB. There has been no confirmation of media reports that the ACB will comment publicly on the bill.
Speaking to Bulgarian National Radio, DSB MP Konstantin Dimitrov said that the party did not accept the coalition Cabinet’s argument that setting up a development bank was in line with practice in other EU countries. The reason that this argument was unacceptable was the level of corruption in Bulgaria, Dimitrov said.

Zornitsa Manolova of the Institute of Market Economics told The Sofia Echo that it would be better for the role envisaged for the Development Bank in the handling of EU funds to be left in the hands of private sector banks. There was a lack of clarity on how the performance of the Development Bank would be assessed, Manolova said.

A statement on the Encouragement Bank website posted after the Cabinet approved the bill in early March said that approval of the bill setting up the Bulgarian Development Bank would be the the next step forward in the process of establishing a financial institution on the model of state development banks existing in the European Union member states.

“The development bank is one of the most popular and standard instruments of EU member states to support the investment and expand the export opportunities of small and medium-sized enterprises,” the statement said.

The Guarantee Fund, which will provide guarantees to SMEs on loans from commercial banks in Bulgaria, would “complement the insufficient collateral which is a very common problem for Bulgarian SMEs”.

“In the long run it is expected that the activities of the bank will further increase the number of SMEs, their successful development and add to their competitiveness, support more job openings and enhance the focus of state policy.”
Within the EU, public development banks were a standard instrument in support of member states’ national policies and had been in existence for more than 50 years.

“They are also an effective means to harmonise and improve the policy of single states as well as the common policy of the EC in the area of entrepreneurship, SMEs and employment,” according to the statement.

Almost all member states have established development banks, including Germany, France, Sweden, Austria, Finland, Latvia, Spain, Italy, Hungary, Luxemburg and Slovakia. The total value of assets managed by these banks was more than 500 billion euro, the statement said.