LM Legal Services Blog

59.8 billion levs  have been held in Bulgarian banks in May 2009 which is a decrease by 437 levs, according to the Bulgarian National Bank (BNB). This is the second most serious decrease of the amount of money in the Bulgarian banks since the beginning of the year. This is mainly due to the fact that the amounts which foreign banks and other foreign credit institutions keep in Bulgaria have decreased by 390 million levs in May 2009.  Despite this the amount which they keep here is not small – 15.4 billion levs.

In comparison   personal savings total 22.8 billion levs and the total of the funds of companies in Bulgarian banks is 19 billion levs.  The personal savings have decreased by 100 million levs despite the attracting interest rates of savings. The total amount of the  money in companies’ accounts has slightly increased.

From January 2009 the level of the  money in the accounts held at the Bulgarian banks tend to fluctuate both ways on almost permanent  basis.  The most significant withdrawals took place in January and in May.  In January about 800 million levs have been withdrawn, 500 million levs of them were withdrawn by foreign banks. The Bulgarian companies withdrew 600 million levs but personal savings increased by 340 million levs.

The personal accounts have a positive balance while the companys’ accounts are in the red.  In May individuals held 22.8 billion levs in their accounts while they had credits amassing to 17.7 billion levs. The companies at the same time held 19 billion levs into their accounts but they owe the banks 32 billion levs.  On the whole the Bulgarian banking system is one of the few in the EU which is profitable. Its profit in the end of May 2009 was 402 billion levs. The liquidity index is 20.6% which means that 20% of the attracted funds in the banks can be immediately paid in cash if requested.

According to the State Agency for Tourism (DAT), three-four hotels go bankrupt every week in Bulgaria. They are unable to re-pay their mortgages. Many hotels are put for sale but there are no buyers and banks repossess them but it remains unclear if the banks will be able to sell them.

It seems that Bulgaria follows the road of Spain where the state buys the bankrupted hotels and demolishes them, in order to create parks.

According to the statistics, in the first half of the last year, 820 new hotels have opened on the Black Sea coast. As result of the construction boom the number of hotels and holiday properties is much higher than the number of  the tourists.  Many hotels can not sell all their beds and their owners suffer losses. All this makes it impossible for the hoteliers to repay their mortgages and other credits and go bankrupt.

Property prices in Bulgaria have fallen by 13.57% in the first quarter of 2009 in comparison with the same period last year, according to the Global Property Guide. This time last year the Bulgarian property prices have registered an increase of 16%. Now, in 14 countries the property prices have dropped by more than 10%. The main reason for this tendency in Bulgaria is the drop in the number of foreign buyers.

According to the Global Property Guide the property market is in crisis in 27 out of 32 reviewed countries. The main reasons for this are the growing unemployment, stricter bank rules for landing and diminishing consumer confidence.

Only a few countries experienced increase of property prices. Switzerland is in the first place with a growth of 4% in the first quarter of 2009. The main reason for this is the stable demand supported by falling interest rates and the presence of a great number of foreign buyers. Next are Thailand, Austria and Israel with a price growth of 3%, shortly followed by Shanghai with 1.76%.

The mortgage applications in Bulgaria have increased by 20% in April in comparison to March 2009. They are mostly young professionals who work for foreign companies and have good incomes. They would like to take advantage of the good prices and think that it is worth paying higher mortgage interest. Most of them have savings which can pay for 50% of the price of the property that they would like to buy and answer to the stringent requirements of the Bulgarian banks which do not lend higher than 50% mortgages.

In connection with this and with the decreasing property prices, the average amount of the mortgage in Bulgaria has fallen down to 35 236 EUR, levels typical for the summer of 2007.

The number of mortgages lent in the first two months of the year in Bulgaria is twenty times lower in comparison with the same time last year. In January and February last year the banks lent mortgages to the value of 355 million levs, in the same months of this year the same figure was 18 million levs. The positive effect of the limiting of the landing is that for the first time in two weeks there is a tendency for decreasing the interest rate, although not by all banks. This decrease is of 0.54% for the mortgages in levs and 0.36% for the mortgages in euros. The average mortgage interest at the moment is 9.95%.

However, leading bankers think that in a recession the sensible policy is not to drop the interest rate. They have warned the developers to forget about the Brits and the Irish who used to buy all the properties at the Black Sea resorts and to focus on the Bulgarian customers, in order to survive the recession. It is expected that the Bulgarian property market will suffer mostly in September and October of this year.

According to developers the state must support the construction industry and the property market by pressing the water and electricity suppliers to offer better services.