Scarcely a day seems to pass without news breaking of yet another tectonic shift on Wall Street, but away from the tumult of the global financial crisis Bulgarian banks are still doing brisk business, posting a 10.5 per cent increase in assets during the second quarter of 2008.

Despite almost a decade of solid growth, Eastern European countries remain under-banked compared to the West of the continent and the US, but that might be just the reason the worst of the crisis would pass them by. Foreign banking groups that have expanded into the region never felt the need to use complex financial instruments, the cause of much of Wall Street's troubles, when old-fashioned banking was enough to bring them solid revenues and profits.

"The new EU member states have been holding up well in the global financial turmoil," news agency Reuters quoted International Monetary Fund regional representative for Central Europe and the Baltics, Christoph Rosenberg as saying.

"Banking systems in countries with relatively low loan-to-deposit ratios [...] are less exposed to the risk that foreign funding dries up."

Even with the threat of access to outside financing, the loan portfolio of Bulgarian banks has grown by 48.3 per cent in the 12 months to the end of August, according to Bulgarian National Bank data. Despite dropping from the peak 62.5 per cent recorded for the 12 months ending in December 2007, it remains a sizeable growth rate by any standards. That growth remains mainly rooted in domestic deposits, which stood at 54.4 billion leva, compared to a loan portfolio of 51.5 billion leva. Bad loans were less than two per cent of the total portfolio, a relatively low figure considering that creditworthiness assessments, especially in the retail segment, are not developed to the same extent as in Western Europe or the US.

That is not to say that Bulgaria is guaranteed a soft landing, given how strongly it relies on foreign inflows to cover its current account gap, which expanded to 4.55 billion euro, or 13.9 per cent of the projected gross domestic product, in the first seven months of this year. Should the most pessimistic analyst predictions about a property bubble on the verge of being burst prove true, the banking system could see a sharp rise in the share of overdue loans.

Topping the rankings
End-June balance sheet data from the Bulgarian National Bank showed no major shifts in the top 10 ranking of Bulgarian lenders. UniCredit Bulbank retained the lead with 10.1 billion leva in assets, accounting for 15.4 per cent of total assets in the banking system. It was followed by Hungarian OTP Group-owned DSK Bank, with 8.4 billion leva in assets and 12.8 per cent market share, and National Bank of Greece subsidiary United Bulgarian Bank, whose assets totalled 7.3 billion leva for a market share of 11 per cent. The top five banks, which also includes the local units of Austria's Raiffeisen Bank and Greece's EFG Eurobank, held combined assets of 37.9 billion leva, or 57.6 per cent of the banking system's total.