Whether to take a loan in leva or in euro will be one of the main questions to arise given Bulgaria’s intentions to adopt the single European currency, the euro, sometime between 2011 and 2014.

According to BNP Paribas Bulgarian unit general director Ullrich-Guenter Schubert, for a private person in Bulgaria with revenues denominated in leva, it would be safer for the repayment for a loan to be in leva.

“In case of mismatch of the currency of the revenues (BGN) and the currency of the loan (e.g. EUR, USD, CHF) that person would be exposed to foreign exchange risk,” he told The Sofia Echo.

According to Schubert, private persons should avoid exposure to foreign exchange rates fluctuations unless this was done as part of their wealth management, while financial institutions managed foreign exchange risk as a business.

He said that BNP Paribas offered its private customers only leva denominated loans. The currency chosen for a corporate loan depended on the underlying business of the company taking the loan.

Schubert said that most probably, as had happened in the countries that adopted the euro in 2002, there would be a (three-year) transition period, in which banknotes and coins in the old national currency, the leva, would still be legal tender.

In these countries, this period was between 1999 and 2002 and after it expired, the local currency could only be exchanged in a country’s national central bank.

He said that it was likely that similarly, after the transition period expires, “Bulgarian National Bank will gradually withdraw all leva banknotes and coins. Thereafter leva will be exchanged for euro only by the Bulgarian National Bank.”

Questioned what would happen with a loan agreement in Bulgaria where the loan was denominated in leva, when the country adopts the euro, Schubert said there will most probably be legal provisions for the automatic conversion of all financial assets and liabilities from leva into euro, including loans and deposits.

“Financial agreements shall be re-denominated in euro by virtue of legal provisions, without the necessity of the parties to each agreement explicitly negotiating the conversion,” he said.

The conversion will be effected at the then official euro to leva exchange rate according to the fixing of the Bulgarian National Bank (BNB).

Schubert said BNB repeatedly had said that the adoption of the euro would be effected at the rate currently in force - 1.95583 leva to the euro.