By Elizabeth Konstantinova

Bloomberg

Bulgarian banks may cut the interest they charge clients and boost lending as the European Union's poorest country emerges from the deepest recession in more than a decade, Raiffeisen Bank International AG said.

"If in 2009 and part of 2010 we saw the glass as half empty, now is the time to look at it the other way around as half full," Momchil Andreev, executive director of Raiffeisenbank's Bulgarian subsidiary, said in an interview in Sofia yesterday.

Rising exports will boost the country's economic growth to 3.6 percent in 2011 from 0.7 percent this year, according to government projections. The bank's economic growth estimate for next year is 3 percent, which will help boost assets and lending growth "at a faster pace than this," Andreev said. Raiffeisen is eastern Europe's third-largest lender by assets.

Bulgaria, the poorest EU country in terms of per-capita gross domestic product, is emerging from its deepest economic slump in 12 years after a three-year lending boom stalled and foreign investment dried up. The economy grew 0.5 percent in the third quarter from a year earlier, the first annual increase after six quarters of contraction.

Declining interest on deposits, which was "extremely high," and improvement in the country's credit quality enabled Raiffeisenbank Bulgaria EAD to cut interest rates by half a percentage point to 5.9 percent on euro loans and 7.5 percent on lev loans, Andreev said. The level of non-performing loans in the country will start declining in the course of 2011 as bank portfolios expand, he said.

Bad Loans

Loans more than 90 days past due rose to 11.24 percent of total lending in October from 10.61 percent at the end of September, according to the central bank. Total lending rose 1.4 percent in the third quarter, after a 0.3 percent decline in the previous three months, while capital adequacy was 17.8 percent at the end of September and liquidity was at 22 percent.

"International financial institutions provided sizable credit facilities to major banks, which are suitable for investment loans," Andreev said. "There is ample liquidity, which creates preconditions for more active lending and should positively impact consumption."

Andreev downplayed the risk of contagion from the Greek debt crisis. Analysts at Citigroup and Fitch Ratings have warned that Bulgarian banks were more susceptible to possible shocks that may be caused by Greek banks' funding, as Greek lenders control some 28 percent of total bank assets in Bulgaria.

Greek Units

"Greek bank units in Bulgaria have to comply with the same capital adequacy and liquidity standards as all the other banks," Andreev said. "From this perspective, they are much better than their parent companies in Greece."

Lenders based in other EU countries control 85 percent of banking assets in the Balkan nation. The five biggest banks are UniCredit Bulbank AD, the Bulgarian unit of Italy's UniCredit Spa; DSK Bank, a unit of OTP Bank Nyrt., Hungary's largest bank; United Bulgarian Bank, owned by the National Bank of Greece SA; Raiffeisenbank Bulgaria and Eurobank EFG Bulgaria. Together they control 55 percent of the banks' assets in the country.

Commercial banks' total profit rose to 516 million lev (8 million) in October from 476 million lev in September, according to the central bank.

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