The conclusion of the process of bank privatisation in Bulgaria in 2003 meant the opening of a new chapter, the events of which are still unfolding: first, rapid expansion in the giving of loans, followed by measures to calm this trend; and second, consolidation in the banking industry.

The pace of credit expansion has been a source of widespread concern, including among Bulgaria’s multilateral partners, the International Monetary Fund and the World Bank.

After measures introduced by Bulgarian National Bank in July 2004 failed to have much effect on credit expansion, further measures were scheduled to come into effect in April 2005.

The new measures, based on IMF recommendations, will force banks with high credit exposure to hold additional reserves as a hedge against liquidity risks. Doubts have been expressed that the new measures will work, because banks may opt for transferring lending operations to leasing firms, which are not subject by law to the same degree of regulation and transparency as ordinary banks.

Credit growth in the past three years has been somewhat more than significant. At the end of January 2005, the credit portfolio of commercial banks in Bulgaria totalled about 14.193 billion leva, an increase of just less than 48 per cent year on year.

 In 2003, consumer loans saw the highest growth, at 145 per cent, according to BNB statistics. Next highest was mortgage loans.

The assets of the banking system increased by 40 per cent year on year in 2004, to about 25 billion leva, about 67 per cent of GDP. As a result of credit expansion, loans to the non-financial sector equaled 36 per cent of GDP at the end of 2004, compared to 26 per cent at the end of 2003.

At the end of 2004, loans to households totalled 4.3 billion leva, about 11.8 per cent of GDP, an increase of 75 per cent year on year.

The trend continued in January 2005, with bank loans jumping by 382.478 million to 13.711 billion, according to BNB data. Again, among the most significant types of loans showing an increase were mortgage loans.

Important background to these developments, and a factor that may influence the future of lending in Bulgaria, is that loans became more available on the domestic market because of the relatively low interest rates elsewhere in Europe after 2002. Should, as some analysts expect, the European Central Bank act in a more restrictive manner, this would likely reduce the pace of credit expansion, especially in conjunction with the BNB measures.

Meanwhile, Bulgaria, as a relatively small banking market in European terms, saw the beginning of the consolidation process that was inevitable after successful privatisation put the sector fully in private hands. As an indicator of this trend, on March 1, 2005, Bank Austria Creditanstalt and its Bulgarian subsidiary, HVB Bank Biochim, officially concluded the acquisition of local Hebros Bank, in a deal reported to have been worth about 110 million euro. The integration of the two banks into a single structure is to start in 2006. Currently, if their lending activities are taken together, they have the second biggest share of the lending market, of 11.4 per cent, after DSK, the privatised State Savings Bank.

What the Banks Offer

Interest Rates
Interest rates on deposits in levs: monthly approx.3%APR; yearly approx.5% APR
Interest rates on mortgages in levs: from 8.5% to 14%APR
Interest rates on consumer loans in levs: 12-17%APR

Banking Cards
Local debit cards are part of the BORIKA system and can be used for payments in shops, online for bills (www.epay.bg) or to withdraw cash from ATMs. They cannot be used outside Bulgaria.

Credit Cards
Most banks now offer credit cards, usually VISA or Mastercard, but the requirements are usually that you have a fairly large deposit in that same bank.

Eurobank now offers a local credit card called Transcard (www.transcard.bg), which can be used as a payment method at many shops, petrol stations, etc. Many of these outlets have a small percentage discount when you purchase goods with a Transcard, though you do not get the money back immediately but at the end of the calendar year.