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. Last Updated: 07/27/2016

Sofia Bank Urges Sell-Offs

SOFIA, Bulgaria -- Bulgaria's ailing banking system, plagued by bad loans, decapitalization and unclear ownership, can be healed only by speedy privatization, central bank governor Todor Valchev said.


"Losses sustained by a rushed privatization would be far less than losses sustained by the wild plundering of financial resources, which has already happened in other sectors of the economy," Valchev told an international seminar on bank privatization in Central and Eastern Europe on Sunday.


He warned that bank sell-offs "should not be unduly delayed in a situation of a weak government ... which is not in a position to exercise the right of ownership."


He attributed delayed privatization to frequent government changes. Preoccupied by power struggles, politicians had no time to address privatization with due attention.


Bulgaria's fourth government since 1989 was appointed last week for a two-month term to prepare for early elections to be held on December 18.


Valchev said that most state-owned banks perpetuated a drain on the economy by extending large credits to loss-making state firms, either under government pressure or by their own will.


"The executive directors of the state-owned banks turned into independent managers. Their freedom in decision-making ... resulted in unjustified credit expansion and in the accumulation of new bad debts ... after 1992," he said.


The government issued 25-year bonds in respective issues worth 32 billion levs ($490 million) and $1.8 billion to cover bad loans extended to state firms before 1991.


Valchev accused new financial groupings of using large state-owned firms for easy profits by monopolizing their supply channels and buying their products cheaply. The state firm had enough for wages, while the profit went to the private firm. "When you offer to privatize an enterprise ... there is a resistance from trade unions, political leaders and private enterprises which prefer to keep the existing system," he said.


Bulgaria's private sector accounted for around 30 percent of gross domestic product last year and early this year.


The relative share of 18 private banks in the overall assets of banks, not counting the State Savings Bank, amounts to about 12 percent.


Valchev said the Bulgarian National Bank and the Bank Consolidation Company, which represents state equity in about 60 Bulgarian banks, have privatization schemes for several banks and are prepared to execute them after the approval of the interim government.


The Bank Consolidation Company, set up in 1992, merged some 60 banks across the country into seven larger institutions and prepared them for privatization.


"With consolidation completed, the key issue now is to solve the problem of privatization and recapitalization in parallel," said Valchev.


Bulgaria's banks were decapitalized by high inflation, which for the first nine months of this year stood at 87.5 percent.