Bulgaria's banks together with those in Romania and Hungary, are the most vulnerable in Eastern Europe, according to credit rating agency Fitch.

"Banks are not doing so well, specifically in terms of banking asset-quality data, in Romania, to some extent Hungary and to a lesser extent Bulgaria. Romanian, Hungarian and Bulgarian banking systems also display weaker features because of macroeconomic imbalances," Michael Steinbarth, a senior director at Fitch in London, told Bloomberg in an interview.

"Contributing factors include the impact of the unwinding of bank credit booms as well as foreign-currency debt on balance sheets of banks and some reliance on funding from European parent banks, including Greek parent banks for Bulgaria and Romania," Steinbarth said.

Fitch has negative outlooks on 15 of 44 banks it rates in the region, signaling possible rating cuts. Six are in Bulgaria and four in Poland, Bloomberg reports.

It points out that Bulgarian banks, just like the banks in Romania and Hungary are at a risk of contagion from the Greek debt crisis. It reminds that Hungary and Romania needed IMF bailout loans to avoid going into defaults.

Greece's fiscal crisis, which led to an EU-led bailout in May, raised funding costs for the country's banks, increasing the risk they would fail to repay debt at Balkan units. Almost a third of Bulgaria's banks and 12% of Romania's are owned by Greek parents such as Piraeus Bank SA and Alpha Bank SA.

Bloomberg points out that delinquent loans in Bulgaria were 12.6% in June, double the figure from the beginning of the year. Hungary's ratio was 7.5%, and Romania's 11.3%.

"Non-performing loan ratios are likely to remain high in 2010 and also loan impairment charges with some reduction expected for next year," according to Steinbarth.

There are still lessons to be learned from the crisis, such as the need to reduce foreign-currency lending, Steinbarth said. In Hungary, Romania and Bulgaria, loans in euros and Swiss francs, popular during the boom years to escape high interest rates, are about two-thirds of outstanding credit.

"The various governments have taken measures to reduce economic risks but more needs to be done. Most economies are still going through the economic cycle," Steinbarth said.

The article cites the recently released twice-yearly Regional Economic Outlook for Europe of the IMF, which says that in 2010, Hungary's GDP will grow 0.6%, Bulgaria's economy is stagnating, and Romania's economy will shrink 1.9%