Bulgaria’s Banks Riding the Storm

As daily doses of negative economic news are dispensed from Wall Street, certain areas of the investment landscape continue to do good business. Bulgarian banks, for example, are still doing remarkable commerce even in the face of the global economic crisis.

Bulgarian banks posted a 10.5% increase in assets during the second quarter of 2008, continuing the excellent growth that they have had over the last year. As with other eastern and central European countries, the banking system is somewhat underdeveloped in comparison to the West. Bulgaria’s banking needs were less complex and because of this, banks that expanded into the region did not need to involve themselves in higher risk arrangements like those that occurred on Wall Street. In retrospect, it was a perfect case of “less” being “more”.

Christoph Rosenberg, regional representative for the International Monetary Fund, summed it up this way: “The new EU member states have been holding up well in the global financial turmoil.” “Banking systems in countries with a relatively low loan-to-deposit ratio… are less exposed to the risk that foreign funding dries up,” he recently told Reuters.

James Gonzalez, Market Analyst at Obelisk, does not see foreign funding in Bulgaria waning any time soon. “Bulgaria is an attractive emerging market with a great future. Its banking system should remain immune to the monetary contraction that is affecting so many other markets. Bulgaria should continue to provide great return on investment.”

The need to maintain the high level of foreign direct investment (FDI) remains paramount to Bulgaria’s economic outlook and the latest data does not indicate that a decline is imminent. Stoyan Stalev, chief executive of Invest Bulgaria Agency, recently announced that Bulgaria received €2.84 billion of FDI between January and July, 2008, representing a year-on-year increase of €200 million.

He also announced that in 2006 and 2007, there was a total of €11.2 billion invested in Bulgaria, a figure that represents more than one-and-a-half times the total sum of FDI in the 16 year period after 1992. He attributed this growth to the country’s low taxation and the currency arrangement that pegs the leva to the euro, adding to economic stability.

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