Reuters

Bulgaria has attracted 24 billion Euros in foreign direct investment since 2005, when the Socialist-led
government came to power, but the global crisis has hit the flows and put an end to the credit-fueled economic boom.

Economists say Bulgaria is now paying the price for not using the boom to boost productivity and encourage exports. Here are capital flows went and some major investments since 2005: (in million euros)

                       2005      2006      2007      2008      2005-08
 REAL ESTATE DEALS     533.8     1,778.0   2,505.1   1,900.3   6,717.2
 FINANCIAL SERVICES    667.3     799.4     2,112.5   1,485.9   5,065.1
 PROCESSING INDUSTRY   868.2     1,064.7   906.2     810.9     3,650.0
 RETAIL                576.9     964.5     1,237.4   796.9     3,575.7
 CONSTRUCTION          171.6     501.0     797.4     465.0     1,935.0
 ENERGY                308.5     352.4     332.5     176.2     1,169.6

AES

U.S. energy company AES.N in 2006 launched construction of a $1.4 billion coal-fired power plant, the largest investment in Bulgaria since the fall of communism in 1989. AES is also building a 270 million euro wind park.

ENEL

In 2003, Italian utility ENEI.MI started a 700 million overhaul of Bulgaria’s thermal power plant Maritsa East Three, which was completed earlier this year. Enel holds a 73 percent stake in the coal-fired plant.

AURUBIS

Germany’s copper producer NAFG.DE has invested 80 million euros since 2006 in its plant in the town of Pirdop, the second biggest in the group.

The smelter was initially owned by Belgium’s Cumerio which was taken over by Norddeutsche Affinerie in 2008. The new group then changed its name to Aurubis to reflect the expansion.

GREAT WALL

China’s largest sport utility vehicle maker, Great Wall Motor Co, has started building an 80 million euro car
plant in a joint venture with Bulgaria’s Litex.

Litex said investment in the project, which will employ some 1,300 people, would reach a total of 300 million euros at a later stage.

KBC

In 2007, Belgian banking and insurance group KBC KBC.BR acquired 75 percent of Bulgaria’s EIBank, ninth-largest bank in
terms of assets in the country at the time, in a 295 million euro deal.

ALLIED IRISH BANKS

Allied Irish Banks ALBK.I bought 49.99 percent of specialist business lender Bulgarian-American Credit Bank (BACB)
for 216 million euros in 2008.

OMAN FUND

The Oman State General Reserve Fund, which is one of the key investment institutions of the government of the Sultan of Oman, paid 185.4 million levs for a 30 percent stake in Bulgaria’s Corporate Commercial Bank earlier this year.

Although banks’ interest rates of savings accounts are still high, in February those of one- and three-month deposits started decreasing. At the same time the interest rates for six- and twelve-month fix term saving deposits are still increasing.

UniCredit Bulbank did not continue with their promotions and decreased the interest rate of the fourth period of their Increasing Interest scheme from 12% to 9% for the deposits in levs and from 10% to 7% for the deposits in Euros. The interest for their one year fix term deposit has dropped from 8.80% to 4.85%.

First Investment Bank did not continue their promotion Golden Deposit. The bank has launched their product March Deposit, a three month fix term deposit with interest rate, both for deposits in Euros and in levs, of 8.75% instead of 9.75% like the previous promotion.

Most other banks still keep increasing the interests of savings accounts in order to attract fresh money. Among them are: PostBank, Raiffeisenbank, Eibank, Invest Bank and Alpha Bank.

Concerning customer loans, all banks have increased their interest rates by about 1% in February, apart from Alpha Bank who decreased it by 0.7%.

Most of the mortgage rates have not increased and in the rare cases of an increase, it does not exceed 1%.

Companies in Bulgaria drain their bank accounts while Bulgarian banks fight for the savings of individual clients and increase the interest rates to compensate. According to analysts this is due to the lack of fresh money. In the last months the Bulgarian banks have cut financing of companies to minimum – only 240 million levs for the whole of January – thus forcing companies to withdraw their money. The other reason is tax preferences which made companies pay their tax in advance.

Some bankers do not agree with this explanation and think that companies just transfer their money from one account into another and explain this with the slow down of economy and the drop in the volume of export. These make many companies freeze their projects for enlargement and renovation. In this way they release money into their current accounts. According to some bankers some companies even put their money into personal accounts to take the benefit of the high interest rates.  The annual interest for personal accounts is 2% higher than the ones for companies and when it is a matter of 10-15 million levs this is a significant difference.

Only in January the recession and the optimisation of liquidity of the banks have led to the withdrawal of 550 million levs from the company’s current accounts and more than 170 million levs from the savings accounts. At the same time the total amount of the money in personal fixed term savings accounts has increased by 708.4 million levs. This contradicts the real abilities of households to save money. In the last year the personal savings in Bulgarian banks did not exceed 230 million levs. Svetoslav Gavriysky, the executive director of Allianz Bank, however thinks that from an accountancy point of view this is a very complicated combination and the withdrawal of money from the company’s current accounts is due to the lack of fresh credits.

Representatives of the Bulgarian Chamber of Construction have had a fruitless meeting with managers from the leading Bulgarian banks. The developers have informed the bankers that construction projects exceeding 2 billion levs have been stopped. According to information of the chamber in 2008 the number of the new planning permissions have decreased by 20%.  The situation of the projects which have been already started but their developers do not have money to complete them is most alarming.  Although there are many shopping malls and business centres among the projects put on hold, there are also apartment buildings where most or all apartments have been sold off-plan to buyers who took mortgages. The owners of such kind of properties are in dire straights as they can not use them -  the buildings where the properties are situatied can not acquire permission to use (Protocol 16) in the foreseable future.  Deadlines have been missed.

The response of the bank managers was that now banks can only rely on the personal savings and on the budget and ignored warnings that they might also suffer from the recession and told the developers to manage on their own.

The Bulgarian banks – First Investment Bank, Central Cooperative Bank, Corporative Trade Bank – have increased their incomes by 15%, reaching 338.7 million levs, due to increasing their interest rates. The net profit of these banks for 2008 was 166.7 million levs, an increase by 13% in comparison with 2007. The increase of taxes and fees have led to the increase of their income by 12 million levs. However, their expenses have also increased to 2890 million levs from 236 million levs in the previous year.

According to analysts there are no indication for crisis in the banking sectior. The growth of the Bulgarian banks come to prove that they have not been affected dramatically by the recession.
Most of the analysts think that there will be no economic catastrophy and the private business will be able to repay bank loans.

According to a research carried out by Sega daily newspaper, some Bulgarian banks continue to charge a penalty fee in the cases of early repayment of customers’ loans, although the amendments to the Law for the Customer Loan have come into effect from 5 January 2009. According to the amendments, banks should not collect a penalty fee if loans ranging from 400 to 40 000 levs are repaid before the maturity date.

According to First Investment Bank, they still collect penalty fee because it is not clear if the amendment will affect old loans or will be valid only for new loans. UniCredit, UBB and Piraeus Bank said that they still did not have internal instructions and at the moment they collect the penalty clause as per the contracts signed with their clients. Allianz Bank declared that they continue to charge a penalty fee of 5% of the total amount if the customer pays in one go less than 6 instalments but if they pay more instalments at once, there is no penalty fee.

The number of the customer loans in Bulgaria has not decreased, only the requirements of the banks have become more strict, according to the statistic of the Bulgarian National Bank. The total amount of the bank loans in September was 48.15 billion levs which is an annual increase of 17.55 billion levs or 47.8%. in October the number of the customer loans continued to grow and it has reached 48.9 billion levs, and increase of 750 million levs in one month. The ratio of the customer loans in the bank assets have been constantly increasing and have reahced 71.24% in October 2008.

Between September 2007 and September 2008 the company loans have increased faster than the individual customer loans. The companies have received more than 10 billion levs in loans while the individual customers 5.1 billion levs.

However, it is worrying that the size of the loans exceeds the deposits of individuals and companies – in October they have reached 118.97% of the deposits.
ми.

Mortgage interest rates offered by Bulgarian banks have reached their peak in November. According to the specialists the increase of the interest rates have stopped rather then the lending of new mortgages itself. Most of the banks have tightened their conditions last month and the largest mortgages now cover not more than 75% of the price of new properties in the big Bulgarian cities, while in smaller towns they do not exceed 65% of the price. Concerning apartments in prefabricated blocks from the days of socialism, mortgages do not go over 60% of the price.  At the same time, the number and the size of the new mortgages have decreased in November.