The European Commission has told Greek banks to curtail funding to their subsidiaries in South Eastern Europe, including Bulgaria, according to Greek media reports.

“Local banks will have to curtail their operations in Southeastern Europe as the European Commission’s Directorate General for Competitiveness has asked managers to commit against transferring cash and funds in a bid to strengthen their subsidiaries in neighboring countries,” Kathimerini newspaper reported.

While this may be a blow to the growth of the country’s credit institutions, it means that they will succeed in fending off a proposal by certain Commission officials calling for an urgent withdrawal of Greek banks from the Balkans.

Sources told Kathimerini that the Commission and Greek banks have agreed that by 2017 domestic lenders will have to reduce the total volume of their operations abroad, something that can be attained without necessarily meaning the sale of subsidiaries.

The Bulgarian banking system is concentrated, with most of the assets owned by large financial institutions from the eurozone.

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 bloc's smallest budget deficit, risks seeing its banks sucked under by the fiscal sins of neighboring Greece.

Bulgaria's central bank and officials 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.

Bulgarian lenders suffered a 47% reduction in parent funding during the first half of 2012, the largest drop among banks in Central and Eastern Europe, according to a Fitch Ratings report.

Full text of Kathimerini article READ HERE