Банкеръ Weekly



Just one year from now the foreign debt of banks and companies operating in Bulgaria will reach in size the liabilities of the state to foreign countries. This is the conclusion from statistical data provided by the Bulgarian National Bank (BNB) for the first seven months of 2004. The state debt exceeds EUR7.1BN (40.4% of the GDP) as of July 31, while banks and private companies are owing a total amount of EUR5.5BN (28.3% of the GDP) to foreign creditors. But what sounds more curious is the fact that while the state debt is diminishing (by over EUR350MN compared to the end of 2003), the debt of private companies is growing by more than EUR2.1BN.The prevailing part of private debts to foreign creditors is accumulated by commercial companies and not by banks. In the end of July 2004 private companies owe some EUR4.4BN to foreign creditors, while banks have to pay EUR1.1BN abroad, BNB reveals. It's worth noting that foreign financing is as much important to Bulgarian companies as it is to the local banks. It is indicative that the loans launched by Bulgarian credit institutions to companies and agricultural owners working in Bulgaria amount to BGN8.5BN, or more than EUR4.3BN, in end July.Therefore, Bulgarian companies are growing more and more dependent on their foreign creditors. Moreover, this is valid for the big companies in the country, because small and medium-sized enterprises do not have access to financing from western banks yet. It is also important that a significant part of these companies receive bank credits and direct financing for their activities from their foreign owners. There is evidence for that in the statistics of BNB. It turns out from the figures that the internal liabilities of Bulgarian companies owned by foreigners have grown from EUR1BN to EUR1.4BN from January to end-July 2004. However, for the same period of time the loans launched by foreign banks to local private companies are up from EUR1.68BN to EUR3BN.Several reasons led to the sudden growth of the amount of foreign loans. One is the series of restrictions on the crediting growth which BNB declared last April it would impose by request of the International Monetary Fund. Even then bankers warned that many companies will find alternative sources of financing, since they can take credits from foreign banks and also use the services of lease companies. There is evidence for this statement in the July figures presented by BNB, too.The other reason for the intensified borrowing from abroad are the advantageous conditions under which the credits are launched. According to analyses of the Central Bank, the size of the average annual interest which companies in Bulgaria pay on foreign credits in euro is 4.3% and in dollars - 3.4 per cent. In case of internal corporate credits (foreign headquarters - subsidiary in Bulgaria) the average annual interest in euro is 2.5% and in dollars - 0.6 per cent. At the same time, Bulgarian banks launch corporate loans in euro with an 8.8% average annual interest and loans in dollars with a 9.1% rate.Western banks have one more advantage. Their loans are for a much longer term compared to those launched by Bulgarian credit institutions. According to BNB, in the end of July 75.6% of the corporate loans from western banks (amounting to EUR3.3BN) are long-term ones with an average redemption period of five years and eleven months. On the other hand, corporate loans launched by Bulgarian banks for periods longer than five years amount to BGN867MN, which is about 11% of the total financing to companies.Such conditions provided, it is clear that the amount of foreign credits to Bulgarian companies will keep growing faster than corporate financing provided by local banks. That will favour the companies with foreign capitals, since they have broader access to foreign financing. Most of the companies controlled by Bulgarians will be forced to keep relying on local crediting which, as proven by the statistics, turns out more expensive and short lasting. Therefore, it may be forecast that foreign companies in Bulgaria will continue to expand their market share on the expense of Bulgarian ones in the next few years.It is quite reasonable to predict that until 2007 when the country joins the European Union a significant part of the large local businesses will be controlled by foreigners while Bulgarians will only have the alternative to grow in the field of small and medium-sized enterprises. However, their viability will still depend on orders placed by larger companies.The quick expansion of foreign credits to companies operating in Bulgaria has another unpleasant consequence - more and more currency is leaving the country and is going abroad. It is true that its amount is not considerable now. For the first seven months of 2004 the total amounts paid by local companies to redeem their foreign debts reach EUR139.1MN. Compared to the same period of 2003, they are only 15% higher. Still, this amount is going to rise in the coming years for two reasons at least. First, the total amount of loans coming from abroad will go up. Second, the London Interbank Offered Rate (LIBOR) and the European Interbank Offered Rate (EURIBOR) used as a base for the floating interests on credits are expected to grow.On September 17, 2004, the six-month LIBOR for dollar-denominated debts was 2.08% and forecasts are it will reach 3% in one year. The same level is also expected for the six-month EURIBOR which was 2.19% for loans in euro on the same day. Since a floating interest rate is accrued on two thirds of the credits launched by foreign banks to Bulgarian companies, it is obvious that when the LIBOR and EURIBOR grow companies will spend more on interests on their foreign credits.To say that this is a problem of the companies and not the taxpayers is only partially true. Eventually, any currency flowing out of the country is a problem of the people who live in it. The reason is that the payment of interests in a foreign currency leads to reduction of the currency reserves of the country which in turn is basic for the stability of the Currency Board. The smaller the reserves, the bigger the threat for the financial stability of the country. The only relief is that 85% of the loans received by Bulgarian companies from abroad are in euro. As Bulgaria joins the euro zone (no sooner than in the middle of 2009) the euro will become the single currency unit in the country. Then payments in euro will not be reported as currency outflows.

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