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Bulgarian Banks, Mortgages and Property Transactions

Quest Bulgaria takes a look at the current situation in Bulgaria with banks, loans, mortgages and property transactions in late 2009 and what is likely for 2010. The Bulgarian Central Bank has already indicated that lending volumes may increase from the start of next year. Lending to businesses and households increased by nearly 6% during September this year. During the last couple of months the banks have relaxed their lending policies a little and a few are said to be lending mortgages up to 80% of the property price. Nonetheless, the banks are still applying stringent income and property criteria. The regions where you are likely to obtain such a LTV ratio are the four main cities.

It was actually the reduction by some banks of interest rates which sparked the increased lending volume in September and gave an indication that the Bulgarian banks are tentatively seeing a potential upturn. Hopefully these lower rates and further reductions will set the scene for business improvement and for increased property transactions.

Ivan Iskrov, the Bulgarian National Bank Governor recently stated at a government meeting in Sofia that the banking system had 'high capital adequacy' and that it was stable with good indicators. During the first nine months of this year, the banks made a combined profit of over 310 million euros. The bank also believes that the economy will start growing in the second half of next year.

Along with the Prime Minister, the new Finance Minister, Simeon Djankov has also asked the banks to lower interest rates by 3% or more in the coming months. He is awaiting proposals and measures from the banks for reducing interest rates, to improve market conditions. The banks are looking for a reduction of interest rates on deposit accounts, currently paying out as much as 10%, comared with most of Europe, where deposits are only paying as much as 3%. Having now gathered as many deposits as possible by offering such high interest rates, the banks are sitting comfortably and can afford to lower mortgage and other lending rates.

Nonetheless, 2010 will still remain difficult for the Bulgarian banks as bad loans and defaults will still rise and are likely to reach a peak of 10%. It is, though, worth bearing in mind that Bulgaria classifies loans as 'bad' when they are overdue for 90 days, compared with the majority of their EU banking counterparts, who wait until a loan is overdue by more than 180 days before declaring it 'bad'.

On the property and real estate front, draft amendments to the Notaries Public Act are going to ensure that all property transactions are done through bank payments - and not cash as has been the case. This is a clear endeavour to halt money laundering. The buyer and vendor will be obliged to declare their bank account information for concluding payment on a property transaction or can use the notary's account. This is excellent news and will encourage buyers as property purchases will be more transparent.