Lending growth in Bulgaria will shrink to 24-25 per cent by June, compared to 33 per cent at the end of 2005.
This was forecast by Bulgarian National Bank (BNB) in its latest economic overview, published on March 17.
Nevertheless, BNB said that demand for corporate and consumer loans remained high.
In the last quarter of 2005 alone, banks granted loans to a total value of 1.45 billion leva.
By the end of 2005, the credits-to-GDP ratio reached 45 per cent, moving up eight percentage points year-on-year.
In absolute terms, credit growth has declined fractionally and companies should not be experiencing any liquidity constraints, the central bank said. A growing number of companies choose to take cheaper loans from abroad.
Household credits are expanding their share in the banks portfolios, to 37 per cent of the credit total by the end of 2005, compared to 31 per cent a year earlier, the overview said.
The BNB said the hikes in interest rates across Europe and the US were unlikely to be replicated in Bulgaria.
The countrys forthcoming accession to the EU would boost investor interest, foreign capital inflows and exports of investment commodities, BNB said.
Annual inflation is expected to rise to 7.78 per cent in the first quarter of 2006 on the back of the higher excise duty on cigarettes and then drop to 7.5 per cent in the second quarter.
The current account deficit-to-GDP ratio is expected to improve to less than 14.5 per cent in the first quarter and further to 14 per cent in the second quarter of 2006.
Exports will grow by an average of 22-24 per cent annually in the first quarter and 19-24 per cent in the second quarter, boosted by the local economys improved competitiveness and higher growth in the eurozone.
Meanwhile, the central bank is preparing to check for the first time on May 4 the level by which the local banks comply with the restrictions aimed at curbing lending growth.
The BNB updated in early November the rules on loan provisions and minimum obligatory reserves in a bid to slow down consumer lending and credit growth overall.
The central bank set the quarterly limit on credit growth at five per cent, the half-yearly at 12.5 per cent, the nine-month at 17.5 per cent and the annual at 23 per cent for 2006.
The banks that have exceeded the limit by less than one per cent have to tie up with the central bank double the amount by which the growth cap has been overshot; a breach of between one and two per cent will result in the remittance of triple the amount while a breach of over two per cent will require the remittance of quadruple the amount by which the growth limit has been overshot.
The minimum obligatory reserves which the banks keep with the central bank do not yield any income and therefore hurt banks balance sheet. The credits/deposits interest gap makes it more profitable for the local banks to remit additional amounts to the reserves rather than scale down their lending operations.
The BNB was forced by the International Monetary Fund (IMF) to restrict as much as possible consumer lending. The Fund fears that it is the key force behind the countrys worsened current account balance. Bulgaria ended 2005 with 14.5 per cent current account deficit.
Many economists inside and outside Bulgaria however, disagree with the IMFs opinion and say that lending growth does not pose a threat but positively influences the economic growth.
According to analysts at independent research company Industry Watch, the new data on the balance of payments considerably changes the picture of the macroeconomic situation in Bulgaria.
The central bank said in early March it would be cutting the current account deficit figures for 2004 and 2005 due to a change in the methodology it uses to compute the external account data.
The BNB revised the 2005 current account deficit figure down to 2.531 billion euro, or 11.9 per cent of GDP, from the 3.163 billion euro, or 14.9 per cent of GDP, reported in February.
The considerable revisions made by BNB to the balance of payment figures are the result both of newly received data and of a change of methodology. They are based on new figures on foreign investment in 2004 and 2005 and introduce a new method of calculating revenues and transport costs in the import and export of goods, taking into account the type of transport and the nationality of the haulier.
They are also based on a new methodology in registering flows from concealed employment of Bulgarians in EU countries.
According to Industry Watch, the flow of capital towards Bulgaria (calculated through the financial account) was actually higher than that reported so far, or a total of 444 million euro for the two years.
Using the new more accurate methodology in calculating transport costs resulted in a considerably lower current account deficit by 0.6 per cent of GDP.
The methodology of calculating incomes from concealed employment of Bulgarians abroad resulted in an additional 800 million euro a year which decreased the current account deficit by approximately three per cent of GDP.
The registered savings are also higher - by 3.6 per cent of GDP.
All this shows that concern over the high current account deficit of almost 15 per cent of the GDP was to a great extent unjustified, Industry Watch said.
