Bulgaria's banking industry is stable even though it ranks third in the European Union in terms of bad loans, IMF data shows.

Bad loans in Bulgaria spiked up to 14.9% at the end of 2011 from a year ago, totaling BGN 8.365 B, according to the Washington-based lender, which confirms data by the central bank in Sofia released earlier this month.

This puts the country at spot number three in terms of bad loans in a ranking, encompassing all EU member states, almost on a par with Romania, Greece, Ireland, Latvia and Lithuania.

Western European countries, including the Czech Republic and Estonia (whose economies the IMF defines as advanced) have single-digit share of nonperforming loans.

IMF data shows that lenders in all Central and Eastern European countries have seen their loan quality deteriorate by two-digit percentage.

Even though Latvia and Lithuania continue to hold the largest share of bad loans in their portfolios, they have slightly dropped – from 19% to 17.5% and from 19.7% to 16.4% respectively.

In the advanced economies of Austria, Belgium, Czech Republic, France, Italy and UK, the share of nonperforming loans in 2011 remained relatively unchanged over 2010, IMF data shows.

Despite the rising bad loans, however, Bulgaria's banking industry has managed to preserve its stability and boasts capital adequacy ratio of 17.5%, one of the most adequate levels in the European Union.

Greek banks hold nearly a 30% of the Bulgarian banking market, a 20% share of the bank loans and one-third of all deposits.

Some of the biggest lenders in Bulgaria are managed by Italy's UniCredit, Greece's National Bank of Greece, Hungary's OTP and Austria's Raiffeisen.

Other Greek banks present in Bulgaria include EFG Eurobank, Piraeus, Emporiki and Alpha Bank.

Experts have warned that Bulgaria, the European Union member boasting one of the the bloc's smallest budget deficit, risks seeing its banks sucked under by the fiscal sins of neighboring Greece.

Bulgaria's central bank and finance minister however have repeatedly tried to assuage fears over funds outflow from Greek bank subsidiaries in the country to headquarters in Greece, saying this is part of the free movement of capital.