UniCredit Unit Chief Expects Bulgarian Economic Recovery to Cut Bad Loans

UniCredit SpA Bulgaria Chief Executive Officer Levon Hampartzoumian. Photo by BGNES

By Elizabeth Konstantinova

Bloomberg agency

Bulgaria's economic recovery should halt the rise in bad loans as it picks up pace in the next six months, helping commercial banks recover losses incurred during the global crisis, the head of UniCredit's Bulgarian unit said.

Bulgaria's economy expanded 0.3 percent in the third quarter from the second quarter, after shrinking 5.1 percent in 2009, when the global crisis cut investment and demand. Loans past due more than 90 days rose to 10.61 percent of total credits in the third quarter from 9.45 percent in the previous three months, according to the central bank.

"Bad loans may continue to increase by inertia in the next one or two quarters, when sustained economic will help overturn the trend," said UniCredit SpA Bulgaria Chief Executive Officer Levon Hampartzoumian in an interview in Sofia yesterday. "With the continuing economic expansion, lending will increase and the share of the old bad loans will shrink."

Romanian, Hungarian and Bulgarian banks are the most vulnerable in eastern Europe to a renewed crisis as the volume of bad loans remains high and sluggish growth curtails lending, Fitch Ratings said on Oct. 21. East European units of banks including Milan-based UniCredit, Vienna-based Erste Group Bank AG and Paris-based Societe Generale SA, have struggled to roll over debt, including foreign-currency mortgages and consumer loans, during the credit crunch.

Greek Contagion

Romanian and Bulgarian banks are also at risk of contagion from the Greek debt crisis, according to Fitch. Greek banks control about 28 percent of banks' total assets in Bulgaria.

"The Greek debt crisis has an indirect impact in Bulgaria as the appetite of Greek lenders for new business declines," Hampartzoumian said.

Most loans in Bulgaria are collateralized, giving banks the option to recover losses through bankruptcies of indebted companies or asset sales, said Hampartzoumian.

"The level of bad loans in Bulgaria is not too high, it's average for the region," he said. "These portfolios will have to be well managed over the next few years."

Lending rose 1.4 percent in Bulgaria in the third quarter, after 0.3 percent decline in the previous three months, the central bank said. Banks' capital adequacy declined to 17.8 percent at end-September, after 18.03 in June.

EU-based banks control 85 percent of all bank assets in the Balkan nation. The five biggest banks are UniCredit Bulbank; DSK Bank, a unit of OTP Bank Nyrt., Hungary's largest bank; United Bulgarian Bank, owned by the National Bank of Greece SA; Raiffeisenbank Bulgaria and Eurobank EFG Bulgaria. Together they account for around 60 percent of total assets.

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