Bulgaria in Drive to Revive Lending

Simeon Djankov, the finance minister, said about BGN 1 B – about 12 per cent of the reserve – would be allocated for short-term deposits at commercial banks through an auction process. Photo by BGNES

From The Financial Times (ft.com)

By Kerin Hope and Theodor Troev

Bulgaria plans to place funds from the government’s fiscal reserve with local subsidiaries of foreign-owned banks in an attempt to lift the economy out of recession.

Simeon Djankov, the finance minister, said about BGN 1 B – about 12 per cent of the reserve – would be allocated for short-term deposits at commercial banks through an auction process.

“This measure would stimulate the economy by helping bring down interest rates for borrowers . . . and, if required, more liquidity could be made available,” Mr Djankov said in a telephone interview.

“Banks have been competing for deposits and driving up rates because they are no longer being funded by parent groups abroad.”

Bulgaria, the European Union’s poorest state, was badly hit by a collapse in holiday-home demand and a plunge in exports.

The economy is expected to shrink by about 6 per cent this year and 2 per cent in 2010 – the second-largest contraction in south-east Europe after Romania.

Mr Djankov, a World Bank economist who joined a new centre-right government in July, said: “We could transfer up to 20 per cent of the reserve from the central bank to commercial banks where it would earn a useful interest income.”

He expected demand for loans “will soon be huge” as export markets recover and disbursement of EU funds gets under way.

One Sofia-based banker said; “This is a good proposal by the finance ministry to revive lending, but confidence has sunk low and it may take time for demand to build.”

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