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.

In the last years the bank credits have been the driving force of the Bulgarian economy. Now the credit flow has dried up, the money from the gray economy has become the majour factor.

Only credits to the amount of 33.6 million levs have been lent by the banks to Bulgarian businesses in December 2008. In comparison, the average amount of the business credits for 2008 is 626.9 million levs.

Many companies have been experiencing cash flow problems and they can not pay their expenses. The bad debt has increased and some analysts expect 30% of the companies in the country to go bankrupt. Others are more moderate in their expectations and do not expect a total collapse.

The construction industry is in a very bad state, despite the opinion of the analysts. The need for fresh cash is so serious that some of the companies have switched to barter deals. They offer their business partners apartments and office space instead of cash.  The problem of many developers is that they have started several projects at the same time and have relied on off-plan purchases. However, once the credit policy of the banks became more strict, the off-plan purchases have stopped.  As result, many investors had to freeze their projects, some of them stopped paying their subcontractors and suppliers. The banks have ignored the whole of the construction industry and now lend money only to companies who also work in another field of business, which can guarantee the repayment of the loans. There is still no official information about the level of debt in the construction industry but it is expected to be quite serious.

The maximal new foreign debt of Bulgaria in 2009 will be increased by 25% or 2.5 billion levs (about 1.2 billion Euros) according to the decision of the parliamentary budget and finance committee. The council of Ministers will not make any changes in the credit framework during the year as the loans and the beneficiaries have been already chosen. The largest loan is of 600 million Euros and it is for the construction of the nuclear power station Belene.

The Bulgarian banks have introduced tougher rules for lending money after two days of stopping crediting. Now they lend money only for the purchase of properties which can be easily sold if reposessed. Families with total income under 1500 levs per month can not take a mortgage to purchase an apartment in one of the larger cities. To such families the banks offer only small size credits with monthly instalments not exceeding 50 Euros. While in the past the banks were satisfied if the monthly repayment instalments were up to 50% of the total income of a family, now they restrict the instalments to not more than 39% of the monthly income. The average mortgage interest is 8.2% per annum and the average instalment is 360 Euros per month, which is an increas of 40 Euros for the last six moths.

According to Credit Centre the most popular mortgage in Bulgaria at the moment is for a plot of land and a prefabricated house. More and more Bulgarians prefer to move in the outskirts of their cities and to build their own house, rather than to buy an apartment in a block, where two-bedroom apartments are in the same price bracket.

Another new trend is the increasing number of customers who restructure their debt, due to the increase of the interest rate. Many Bulgarians face difficulties repaying their mortgages and some even their utility bills. According to Credit Centre in September each sixth credit has been taken to pay old debt.

In general more than 79% of the mortgages are for the purchase of property and only 1.3% for construction.

Another tendency is that for a second consecutive month the average size of the mortgage has decreased to 43 000 Euros, while during the peak of the property boom it has exceeded 50 000 Euros. Customers freeze their purchase or redirect to a cheaper property. The change is more obvious among the most popular customers – the middle class ones – who used to take a 80 % mortgage for the purchase of one-bedroom apartments. Now these clients are seeking smaller apartments and try to pay a large proportion of the price with their own funds.

The collapse of the banks in the West is a serious warning for the future of Bulgarian banks. In the last three-four years, the Bulgarian banks enjoyed enormous profit and record growth levels but the world financial crisis is going to put an end to this.

Almost all Bulgarian banks have started to change their development policy following September, 14.  Almost all plans for the opening of new branches have been frozen. The major problem in the banking sector is the lack of fresh money. The foreign financing has stopped and now all Bulgarian banks have focused on the domestic market to keep their growth. It is expected that a within a year a real war to attract deposits of new clients will unleash and the perks for the clients will include holidays abroad and golden watches.

However the biggest loser will be the business and the ordinary consumer. Many banks have changed their policy to attract new clients and now focus on keep the reliable clients with a good track record. It will be very difficult to get a credit if you are a new company. The price of this will be high for the Bulgarian economy – so far the banks have been the major force of the economic growth.

Burgas Municipality has received the BBB credit rating. The general evaluation has shown that the investment risk in Burgas is and it is a good place to invest. The financial audit of the municipality and the following credit analysis has outlined an income increase of 95%, low unemployment and increase of the tax income.

The Vienna Institute For International Economic Studies (Wiener Institut fur Internationale Wirtschaftsvergleiche) forecasts a decrease in the foreign investment in Bulgaria in 2008. The reasons for this are the economic slow down in Europe and the instability of the world credit markets. In the last two years Bulgaria has attracted foreign investment exceeding 12 billion Euros with an annual increase of 2,48%. The forecasted decrease for South-East Europe is 17%. Apart from Bulgaria, Estonia, Lithuania and Hungary will be the worst hit.