Bulgaria 2007 Credit Growth At 5-year Peak Of 64%

Sofia. Domestic lending growth quickened to 64% by the end of 2007 to set a record for the past five years, data of the central bank showed on Thursday. The Bulgarian market is outperforming the rest of the EU where annual credit growth is around 30%, as the online English edition of Dnevnik Daily reported. The local banks now have close to 37 bln levs of loans on their book, which equals 67% of the nation's GDP. For the first time ever, corporate lending growth last year outpaced consumer lending 71.5% to 52.2%. Data for the first three quarters of 2007 shows the retail sector absorbing the biggest chunk of new corporate loans (37.5%), followed by the processing industry (22%), construction (12%) and the hotel and restaurant business (6.4%). The data indicates that credit growth surged immediately after the central bank dismantled the lending dampeners in early 2007. They were first put in place in 2004 at the insistence of the IMF to cool household lending which was exceeding 80% by the end of 2003. The lending restrictions moderated credit growth down to 32% in 2005 and to 24% in 2006. After the measures produced the desired effect and were loosened by the central bank, credit growth once again pick up pace, prompting a new batch of deterrents in September 2007. A growth rate of over 60% is not sustainable and raises a lot of questions about the quality of the credits, Dnevnik was told by Federico Ghizzoni, head of UniCredit Group business development in Central and Eastern Europe. The issue is not the percentage or absolute value of the growth but whether the risk management amidst the surge is any good, said Levon Hampartsumyan, chairman of the association of Bulgarian banks and UniCredit Bulbank CEO. In his view, a healthy credit growth for the Bulgarian economy would be a rate of 25-30% annually with more leeway for certain booming sectors like construction and real estate. Most analysts are taking heart from the fact that the share of bad corporate loans is down to 1.6% by end-2007 from 2.4% in December 2006. The share of bad consumer and housing loans is unchanged, pointing to a reasonable lending policy on the part of the banks, said the analysts. The robust corporate lending is a good economic indicator and a testament to the efforts of the local enterprises to stay competitive and in touch with the expansion of the Bulgarian economy, said Hampartsumyan. Most bankers and analysts expect credit growth to slow down in 2008. Several international analytical outfits recently made the same forecast for Bulgaria on the backdrop of the global credit crunch. simplibulgaria.com