Extensive credit expansion involving foreign currencies could deepen 'financial crises' in Bulgaria and Romania, Financial Times reported.

The number of individuals and companies borrowing loans in euro had increased significantly over the past few years because of the low interest rates.

On July 4 the European Central Bank (ECB) published a report saying the depreciation of Bulgarian and Romanian currencies could result in mass bankruptcies.

The same factors triggered the Asian financial crisis from 1997 to 1998, ECB said. The report, however, refrained from predicting the likelihood of similar crisis in the two countries, Financial Times reported.

Banks have been attempting in vain to restrict foreign currency borrowing, which totals nearly 50 per cent of consumer loans, Financial Times reported. The ECB had on several occasions warned countries in Eastern Europe, including Bulgaria, Romania and Turkey, of the dangers of credit expansion.

In its latest report ECB said that Turkey had achieved significant progress in improving its financial stability but that credit growth remained a 'major challenge' and could result in an increase in the current account deficit.