Research guide to banking services in eastern Europe
BackgroundSigning its first stand-by agreement with the IMF in 1991, Bulgaria chose a path of rapid and radical economic reform. The transformation programme was aimed at curbing inflation and achieving relative stability of the national currency, rapid growth of the private sector, and slowing down the slump of production. The transformation began with the establishment of a legal and institutional framework for a market economy.The market reform was made up of two principal components: macroeconomic stabilization and structural adjustment. The monetary, fiscal and income policies were geared towards reducing inflation and strengthening foreign currency reserves to meet conditions of the debt service agreement negotiated with private bank creditors. Structural adjustment started with the decentralization of the largest state-owned enterprises and the commercialization of public companies under the provisions of the country's commercial law. The bankruptcy legal framework was adopted in 1994. The restitution of agricultural land and residential property constituted an important part of structural reform as well. At the start of the economic reform in 1991, the private sector share in GDP was 6.4% while at the end of 1995 estimates suggest it will be about 40%. For the same period the number of newly-established private companies surpassed 500,000. In general, the private sector is growing at an ever faster pace. The government is committed to encouraging private sector development and to the growth of small and medium-sized enterprises. Bulgarian privatization started in 1993 following the 1992 adoption of the Law on Restructuring and Privatization of State-Owned and Municipal Enterprises. The law governs only market (cash) privatizations that use a range of techniques such as open tenders, auctions, management buy-outs, and negotiations with potential buyers, etc. By the end of 1995, 512 state-owned enterprises were sold for more than Lev10 billion, of which Lev4.51 billion was paid in cash, and the rest with debt instruments. At the same time foreign companies invested $360 million in Bulgarian privatization, mostly as a result of deals concluded by the country's privatization agency. At present, more than 1,500 state-owned enterprises are undergoing privatization. By launching combined privatization methods, the government intends to privatize nearly one-third of the state-owned assets. Investment opportunitiesActivities by foreign investors in Bulgaria are regulated by the foreign investment law adopted on January 1 1992. According to the law, a foreign investment is any kind of deposit made by foreign legal or physical entities in:* shares in commercial enterprises; * ownership and limited real estate rights; * ownership of enterprises; * bank deposits; * bonds, treasury bills and other securities; * long-term loans (for more than five years). Foreign investors are entitled to invest in the country without having special permission, except in those cases where the investment concerns: * production and trade with weapons, munitions and military equipment; * banking and insurance, and shareholding in banks and insurance companies; * real estate ownership in certain geographic areas designated by the government; * partnerships which secure the majority or control decision-making in companies in the above mentioned areas. Investments are subject to registration in the finance ministry within 30 days of execution. The legislation does not provide any restrictions for foreign investors except for purchases of agricultural land. The advantagesThe advantages of investing in Bulgaria are substantial: favourable geographic location and environment, proximity and sound contacts with the markets of the former USSR and eastern Europe, as well as highly-qualified and relatively cheap manpower.Priority sectors for foreign investments are the tourism, electronics, machine-building, textile, cement and food processing industries, and large-scale infrastructure projects in transportation and telecommunications. Privatization also provides opportunities for potentially profitable investments. Nearly 90% of the capital assets of enterprises are still state property which provides significant scope for privatization. Foreign and Bulgarian investors are treated equally in the privatization process. The option to obtain state property using foreign and national debt bonds secures a discount of up to 40% from the negotiated price. Mass privatization, which started at the beginning of 1996, will encourage the growth of the stock market in the country and will facilitate the participation of strategic investors. The Foreign Investment Agency assists contacts between foreign investors and their Bulgarian partners. International relationsAfter signing an agreement with the London Club of its private bank creditors in June 1994, Bulgaria was able to restore its access to the international financial markets. Brady bonds worth $5,137 billion were issued of which 36.3% were discounted, 32.3% initially had decreased interest payments and 31.4% had expired interest. As part of the deal Bulgaria bought back $1,027 billion of its debt.Also in 1994 a protocol agreement was signed with the official creditors from the Paris Club in order to restructure Bulgaria's foreign debt. IMF and World Bank support for Bulgaria is directed mainly towards the country's balance of payments and towards decreasing its debt service burden. Joint projects with the World Bank include various investment and export finance projects, structural adjustment of the economy, and restructuring of the financial and industrial sectors. Significant projects are being accomplished with the help of the European Bank for Reconstruction and Development (EBRD), mainly in infrastructure - telecommunications, power engineering and transportation, and also in private business encouragement. In banking and finance, the central bank issued a license to Bulgarian Investment Bank, BNP-Dresdnerbank, Common Insurance Association and Euromerchant Balkan Fund - all with share participation from the EBRD. In April 1996 Sofia will host the annual general assembly of the shareholders of EBRD. With the help of the EC PHARE programme, many projects are being undertaken in practically all spheres of the economy. Under the PHARE programme, for the first time eight of the largest Bulgarian commercial banks were internationally audited: Balkanbank, Sofiabank, Hebrosbank, Expressbank, Mineralbank, Economic Bank, Post Bank and Biochim. An agreement between Bulgaria and the European Council stipulates a gradual decrease of trade restrictions and gives access to European markets for Bulgarian goods and services. Membership in the World trade organization (GATT) and CEFTA, for which negotiations are now being carried out, will bring new opportunities for the country to actively join the international business community. BankingBanking was the fastest progressing sector of the economy at the beginning of economic transformation in Bulgaria as it was identified, to a great extent, with the economic changes in the country. Banking reform started with new laws covering banks, credit activity and the Bulgarian National Bank. But true reform was constrained by the high rate of inflation, the frequent and sharp price fluctuations, the incapability of the country to determine credit growth and the lack of a developed capital market. The uncertainties of the surrounding economic environment - the collapse of the CMEA, the embargo against Iraq and ex-Yugoslavia, and the enormous damages incurred to the economy as a result - had an extremely negative impact on the country.From the centrally planned economy the banks inherited a weak relationship with foreign finance organizations. Most of the commercial banks had no foreign contact other than for correspondent banking relations. To date, long-term agreements for cooperation and joint-venture projects aimed at the adoption of new technologies and know-how, as well as the establishment of affiliated banks outside the country, are not wide-spread. Direct foreign investments in Bulgarian commercial banks are although moderate, still insufficient. Privatization of the state-owned shares in the commercial banks is expected to bring to a maximum, efficiency of assets management, and also to help diversify bank services, increase profitability of bank operations, limit spending by economic components, and encourage entrepreneurship and new job creation in the country. A number of incentives to encourage privatization are under discussion including tax allowances to individuals and buying publicly-owned shares in banks. The government programme is expected to attract first-class foreign investors to Bulgarian commercial banks, to facilitate performance of joint projects with the EBRD, the World Bank and the Black Sea Bank, and finally, to increase the overall investment rating and attractiveness of the national economy. GDP by sectorsMain economic indicators
Balkanbank is one of the biggest Bulgarian commercial banks with a full range of banking services. It is experienced in servicing loan and finance programmes in particular sectors of the economy. Balkanbank has a representative office in Moscow and a subsidiary in Macedonia p; Balkanska Banka. Head office 18, Vitosha Blvd, 1040 Sofia, Bulgaria tel: +359 2 881 221 Fax: +359 2 872 305 International division 12, Hr Beltchev Str, Sofia, Bulgaria tel: +359 2 882 911 Fax: +359 2 883 519 SWIFT: BKAN BG SF dealing code: BALK |
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