Banking

Credit expansion remains a serious problem of the Bulgarian banking sector. The loan increase has caused concerns to the International Monetary Fund (IMF) and the World Bank. In 2006 the IMF has agreed only to partial removal of the imposed credit limitations. Loan restrictions were imposed because the credit expansion threatened the stability of Bulgarian banks. IMF restrictions included forcing banks exposed to credit risk to hold additional reserves for covering liquidity losses. Banks soon found a way of avoiding the limitations, transferring credit deals to leasing companies, which are subject of fewer regulations. According to Bulgarian National Bank's (BNB) annual report on the banking sector condition, loans have amounted up to 4.4 million leva.Most Bulgarian households have already borrowed loans. Nearly one third of the households choose consumer loans from banks and every fifth household borrows money from friends or relatives. The majority of consumers prefer drawing smaller loans up to 10 000 leva used for the purchase of white goods and household electronics. One of the reasons for the credit expansion is the low average wage in the country. Low incomes also account for the smaller deposits in Bulgaria.