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Country Commercial Guides
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CHAPTER VIII. TRADE AND PROJECT FINANCING
A. Description of the Banking System
Bulgaria is a cash economy. However, automatic teller machines have been introduced by several banks. Development of services for consumers, such as debit cards, started within the last two years, while personal checks are almost unknown and unused as a method of payment for locals. Checks and credit cards are used mainly by foreigners.
The Bulgarian National Bank (BNB) operates independently of the government and reports directly to Parliament. The BNB regulates the financial markets and regulates banks, but under the Currency Board Arrangement, has no discretion in setting monetary or exchange rate policy.
There are 34 commercial banks in Bulgaria. Twenty are fully licensed and authorized to engage in international transactions; three are licensed only for activity in Bulgaria and settlement of accounts abroad; three are licensed only for Bulgaria; one has a limited license; six are branches of foreign banks in Bulgaria; and the remaining bank is the State Savings Bank, which operates under a separate law. Citibank (United States) has a representative office in Bulgaria, while the Bulgarian-American Credit Bank, owned 99.99 percent by the Bulgarian-American Enterprise Fund, has been fully licensed since December 30, 1998.
According to the Bank Consolidation Company (BCC), the largest banks in terms of total assets at the end of 1998 were: Bulbank, 2 billion levs ($1.1 billion); the State Savings Bank, 972 million levs; the Bulgarian Post Bank, 390 million levs; and Ekspresbank, 365 million levs.
The government's shares in the state-owned banks Expressbank, Hebrosbank, Biochim, and Bulbank are managed by the BCC. All of these banks have been offered for privatization. By Bulgarian law, state-owned banks are permitted to raise capital through new share issues only after approval of the BCC. The purpose of this rule is to avoid indirect privatization through issuance of new shares.
The most recent bank privatizations were Bulgarian Post Bank, purchased by a joint venture between AIG/Alico of the United States and Consolidated Eurofinance Holding of Greece, and United Bulgarian Bank. The GOB has pledged to privatize the remaining state-owned banks by 2000 except for the State Savings Bank and Biochim.
Bulgaria experienced a severe financial crisis in 1996. BNB closed 18 of the weakest banks, but liquidation has moved slowly. The central bank has enforced compliance with the Basel accord ten percent capital adequacy ratio (which will be raised to 12 percent by the end of 1999) and a 10 million levs (approximately $5.4 million) capital adequacy requirement.
The Bulgarian Deposit Insurance Fund, which was created in January 1999, is collecting premiums from all licensed Bulgarian banks. The fund is strengthening its operations, and has satisfied depositor claims in the instance of the Credit Bank failure in April 1999. The bank regulatory agency requires banks to meet BIS standards. They are well supervised, and supervision is getting better. Under applicable law financial statements are required to be in compliance with international accounting standards. In practice audits of the major banks are performed by internationally recognized accounting firms, which have offices in Sofia. Loans to the private sector account for 55 percent, and loans to the public sector, including the government, state-owned enterprises, account for 45 percent. While large loans made to state enterprises were a problem in the past, active supervision is bringing into compliance the large loan portfolios. All banks are currently in compliance with ordinances related to large loans with the single exception of the exposure of Expressbank over loans to the Varna Shipyard.
B. Foreign Exchange Controls Affecting Trade
International financial remittances in payment of imports into Bulgaria are generally allowed. The export of hard currency by commercial entities, including juridical persons and sole traders, is permitted only by bank transfer. Transfers for current international payments (imports of goods and services, transportation, interest and principal payments, insurance, training, medical treatment and other purposes defined in Bulgarian regulations) must be supported by documentation such as invoices, certificates, or transport documents, to the transferring bank.
Transfers are currently governed by the Law on Transactions in Foreign Valuables and Currency Control (1996), Regulations on the Export and Import of Foreign Exchange Valuables (1996), and Decree Number 138 of July 5, 1999 amending the foreign exchange regime (1997). Bulgarian and foreign citizens may take BGN 2,000 or an equivalent amount of foreign currency out of the country without declaration. Regulations allow foreign currency of up to BGN 20,000 to be exported upon written declaration. Above BGN 20,000 transfers must have prior approval of the Bulgarian National Bank (BNB). Investments abroad by Bulgarian companies or individuals must by approved in advance by the BNB and the Finance Ministry. Foreigners are permitted to export without prior approval as much currency as they have declared upon import into Bulgaria.
C. General Availability of Financing
Commercial financing is now becoming available in Bulgarian levs at rates up to 15 percent per annum. However, local banks are still very cautious in lending money to either private or state-owned enterprises. With the overall stabilization of the economy and the banking sector, bankers will likely increase lending in the near future.
D. How to Finance Exports/Methods of Payment
There are a number of methods used to settle payment in Bulgaria: cash in advance, letter of credit used in conjunction with a documentary draft (time or sight), promissory note, documentary collection or draft, open account and consignment sales. As with U.S. domestic transactions, a major factor determining the method of payment is the degree of trust in the buyer's ability and willingness to pay.
Because of the protection it offers to the American exporter and the Bulgarian importer, an irrevocable letter of credit (L/C) payable at sight is commonly used for settlement of international payments.
Another payment option is the use of documentary collection or open account with international credit insurance which, unlike the letter of credit, allows the importer's line of credit to remain open. At the same time, this option protects the exporter if the buyer goes bankrupt or cannot pay.
E. Types of Available Export Financing and Insurance
Trade finance options for Bulgarian importers are limited. In most instances, Bulgarian companies assume the full financial burden in purchasing goods. Some companies use Letters of Credit (LCs). In trying to make sales in Bulgaria, U.S. companies may have to develop creative payment schemes, which may increase the risk of the transactions. To offset that risk, it is necessary to develop a strong client relationship.
1. U.S. Export-Import Bank
The U.S. Export-Import Bank (Eximbank) is still a limited source of export financing and insurance for U.S. transactions in Bulgaria. For exports to Bulgarian state-owned entities, EXIM will "cover" or guarantee a commercial bank loan up to 85 percent of the value of the contract. Eximbank's cover policy currently requires a sovereign government guarantee. It is open for projects of short or medium term (project value over $10 million with a maximum repayment term of 5-7 years). Eximbank must be able to determine the borrower's creditworthiness through the analysis of financial statements (an audited annual report). Eximbank does not yet provide credit guarantees or insurance for routine contracts with private companies in Bulgaria.
2. Small Business Administration
The Small Business Administration (SBA) provides financial and business development assistance to encourage and help small U.S. companies in developing export markets. Export loans are available under SBA's guarantee program.
3. The U.S. Trade and Development Agency
The Trade and Development Agency (TDA) is an independent U.S. Government agency that promotes U.S. exports for major development projects. TDA funds feasibility studies, consulting contracts, training programs, and other project planning services related to U.S. exports. Contracts funded by TDA grants must be awarded to U.S. companies. U.S. involvement in project planning helps position potential U.S. suppliers at the project implementation stage. TDA has been active in Bulgaria with projects in energy, environment, transport, air traffic control, and telecommunications.
F. Availability of Project Financing
Financing of U.S. investment projects in Bulgaria is available from the European Bank for Reconstruction and Development (EBRD), World Bank, Overseas Private Investment Corporation (OPIC), and several other U.S.-based and other organizations. Participation of a multilateral bank such as the EBRD in a project also assists exporters through the requirement of open competitive tendering procedures which enables U.S. suppliers to bid, as well as helps the procuring entity to get the best value for its money.
1. European Bank for Reconstruction and Development
The European Bank for Reconstruction and Development (EBRD), whose largest shareholder is the U.S. Government, has a number of programs available to U.S. investors. The Bank makes loans as well as takes equity stakes in infrastructure projects. It will be increasingly focusing on private-sector development in Bulgaria. It also mandates open competitive tenders in procurements, which give U.S. companies opportunities to supply goods and services. The EBRD has an office in Sofia.
2. International Bank for Reconstruction & Development (World Bank)
While the International Bank for Reconstruction & Development (World Bank) does not give loans for private-sector investments, its procurement procedures enable U.S. exporters to bid on public procurement contracts. To date, approved projects are in the energy, telecommunications, residential heating, railways, health, environmental and public administration sectors. The World Bank has an office in Sofia.
3. European Investment Bank
The European Investment Bank (EIB) is the most important source of EU project financing for U.S. companies, as they can participate in most tenders involving EIB loans of its own resources. Trans-European Network (TEN) energy, telecom and transport sectors are priorities for the EIB. Loans for Bulgaria include ECU 60 for construction of a new passenger terminal and apron at Sofia Airport.
4. The Bulgarian-American Enterprise Fund
The Bulgarian-American Enterprise Fund (BAEF) is a $55 million bilateral assistance fund funded by the U.S. Congress to promote the development of the Bulgarian private sector and to promote joint ventures between small and medium-sized Bulgarian firms and Western companies. The Fund's programs include loans, grants, equity investments, feasibility studies, investment funds, an bank, and technical assistance to companies in Bulgaria. BAEF has an office in Sofia.
5. The Bulgarian-American Credit Bank (BACB)
The Bulgarian -American Credit Bank extends investment credits for equipment or facilities which are typically over $200,000 with a five year term. BACB also provides mortgage loans to individuals for the purchase of homes and consumer credit. These loans range from $10,000 to $100,000 and are for a 10-year term. BACB has an office in Sofia.
6. CARESBAC - Bulgaria AD
CARESBAC is an investment company that takes equity positions from 25 percent to 49 percent in small and medium-sized private companies. CARESBAC is interested in investment in companies that have growth potential in all industrial sectors. Typical investments are between $50,000 and $250,000. CARESBAC's shareholders include EBRD, the U.S. Agency for International Development (USAID), and the U.S. Department of Agriculture (USDA).
7. Global Finance SA
Global Finance is a Greek venture capital firm which manages the Euromerchant Balkan Fund (EBF). Capitalized at $27.3 million, both the EBRD and the World Bank's International Finance Corporation (IFC) have contributed funds. EBF is permitted to invest from $500,000 to $4 million for up to 10 years in any single project and assumes a minority position (less than 50 percent). EBF may give preference to projects in food production, consumer goods, retailing, construction materials, home furnishing, packaging, software, product distribution, and financial services. Global Finance has an office in Sofia.
8. Overseas Private Investment Corporation
The Overseas Private Investment Corporation (OPIC) is a self-sustaining U.S. Government agency that promotes growth in developing countries and transition economies by encouraging U.S. private investment. OPIC's key programs are its loan guarantees, direct loans, and political risk insurance. OPIC also offers an Eastern European Growth Fund, designed to match OPIC funds with private venture capital to finance new business; the Small Business Loan Guarantee Program; and an environmental investment fund. To date, OPIC has not financed any projects in Bulgaria.
9. Multilateral Investment Guarantee Agency
The Multilateral Investment Guarantee Agency (MIGA) is part of the World Bank Group. Its purpose is to encourage foreign investment in developing countries by providing investment guarantees (political risk insurance) against the risk of currency transfer, expropriation, war, civil disturbance and breach of contract by the host government.
10. PHARE Program
The European Union's PHARE Program delivers financial and technical assistance in key sectors of the beneficiary governments' efforts to restructure their economies toward a market-oriented system, and contributes to creating the administrative, regulatory, financial and commercial framework. Some American companies may qualify for PHARE-funded contracts if they have subsidiaries in Europe that qualify as European companies pursuant to EU definitions.
G. Types of Projects Receiving Financing Support
Depending on the source of financing, trade and investment projects receiving financing support range from the export of nuclear reactor control equipment to the establishment of a bakery, a yogurt factory, and an ice-cream distributorship. Financing is also available to strengthen banks, and for infrastructure projects such as reconstruction of electrical generating stations, waterworks and roads. Again depending on the source of financing, projects can range from $10,000 to more than 100 million dollars. A list of EBRD projects in Bulgaria with detailed descriptions can be found in the National Trade Data Bank as an International Market Insight (IMI) prepared by the Commercial Service's EBRD Liaison Office in London.
H. List of Banks with Correspondent U.S. Banking Arrangements
A list of all Bulgarian banks may be found in Appendix E. Some Bulgarian banks may have 100 or more U.S. correspondent banks, and some U.S. banks may have correspondent relations with more than one Bulgarian bank. As banking relationships can change quickly, the best source of current information on correspondent banking arrangements is the banks themselves.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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