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14 March 2024
media coverage

Banking Legislative and Business Developments in Bulgaria During 2023

CEE Legal Matters | Bulgaria

Following a long period of political instability, including five snap parliamentary elections in the past couple of years, as of June 2023, Bulgaria has a broad coalition government supported by a large parliamentary majority.

Legislative Developments

Many crucial laws that were delayed due to the lack of a stable parliament are now being adopted. Notably, the EU Restructuring Directive (EU) 2019/1023 was transposed in 2023 by amending the existing preinsolvency restricting regime in Bulgaria. The “likelihood of insolvency” criterion as a prerequisite for the restructuring application was amended. It is now defined as the debtor’s expected inability to make payments (previously, only certain payments were relevant) based on their maturities over the next 12 months (as opposed to six months previously). The six-month threshold proved to be too short, as applications were submitted too late, and the courts were regularly faced with actual insolvency – as opposed to a likeli-hood of insolvency – when deciding on them. Certain typical arrangements in credit documentation, such as acceleration of all loan repayments, due to filing for or commencement of restructuring are now prohibited. Others need to be aligned with some specific facets of the transposition of the EU Restructuring Directive.

Further statutory novelties relevant to corporate financings are expected in 2024 as part of Bulgaria’s plan to join the Eurozone on January 1, 2025.

Business Developments

Bulgarian banks in 2023 remained over-liquid with a very high level of deposits at symbolic interest rates. This continued to keep interest rates under credits at record-low levels compared to other EU countries. Credit activity remained elevated and certain areas such as residential property financing. It increased by more than 20% compared to 2022. The Bulgarian National Bank (BNB) attempted to slow down this expansion by increasing the banks’ minimum capital reserves from 10% to 12% but reported only a minor increase in interest rates under credits as a result. The BNB’s chairman hinted recently that further measures of this sort may be taken soon, motivated by the need to “prevent household over-indebtedness.”

A specific business that continues to attract lots of financing is renewable energy (mostly solar projects). Due to the sharp rise in electricity prices and the development of more efficient and cheaper solar energy technologies, solar power plant construction has become a profitable business. We saw a significant rise in large-scale project financings as well as acquisition financings for renewables. The largest local banks are capable of making such loans individually, while smaller banks tend to form syndicates. Local banks in such syndicates are ready to provide significantly lower interest rates compared to foreign banks but are not able to do so individually due to capital and large exposure restrictions. Hence, the number of local banks participating in such syndicates has been growing in recent years. Foreign lenders, however, are sometimes more flexible in their requirements for extending loans, so when time is a crucial factor (which is often the case with renewables), borrowers resort to bridge financing provided by foreign banks at higher interest rates.

The telecom sector has also been attracting a lot of financing lately. Telecoms concentration has been a trend, with the largest players pushing to increase their clients via the acquisition of smaller internet/cable TV providers or other operators. Smaller-scale acquisitions are numerous, though not so visible, and are usually financed by Bulgarian banks. Larger-scale acquisitions are financed by foreign bank syndicates and private placements of notes.

There are also plenty of individual projects or acquisitions in various other sectors that are attracting significant financing, such as IT services, agriculture, and automotive parts manufacturing, to name a few. The largest financings or those where local subsidiaries of global foreign entities are at stake continue to be provided by syndicates organized by foreign banks.

In recent years, the EBRD and EIB made a number of unfunded risk-sharing guarantee arrangements with Bulgarian banks, increasing local banks’ capacity to provide credits. Last year, the EBRD extended the scope of its risk-sharing facilities with two major Bulgarian banks to cover syndicated credits as well, and already provided guarantees to syndicated credits. When local banks avail of such risk-sharing guarantees under particular credit arrangements with their borrowers, those ultimate arrangements need to follow some established models of the guarantors that are in some cases more sophisticated than local banks’ models. Therefore, the activities of the EBRD and EIB in this respect also have a generally positive impact on the development of credit documentation in Bulgaria.


This article was first published in Issue 11.2 of the CEE Legal Matters Magazine.