Foreign banks reduce lending to their Bulgarian subsidiaries by BGN 5 bn

Western European banks continued to reduce the financial assistance to their Bulgarian subsidiaries in Q2 2012, read a report of the European Investment Bank (EIB). The reduction reached some BGN 5 bn between October 2011 and July 2012.

The withdrawal of funds and the decrease in lending to their subsidiaries continued in April - June 2012, albeit at a slower pace than at the end of 2011 when the problem acquired alarming dimensions, commented EIB.

The situation is worrying because in Q2 2012, withdrawn or not allocated funds in Central, Eastern and Southeastern Europe (excluding Russia and Turkey) were equivalent to 0.8% of the gross domestic product (GDP) in the region, and in the last nine months – to 4% of GDP, said EIB’s experts.

According to the report, the situation in Hungary, Slovenia and Croatia, is even more worrying. This confirms the trend of parent banks tightening lending to their subsidiaries in the region. Analysts state that its has become more expensive for local financial institutions to get financing from their western owners. Moreover, demand for loans on the part of local businesses and individuals has decreased.

EIB pointed out that the withdrawal of money is due to the abundance of funds in subsidiaries, which cannot lend them due to insufficient demand or shortage of good projects to finance. Therefore, they prefer to return the money to the parent banks, to which they have liabilities rather than continue to wait for an improvement of the economic growth in the respective country.

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