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EUR 345 mln. foreign capital entered Bulgaria through the banks in 2004
submited on 21.03.2005 in category Monetary policy | Macroeconomic developments
submited on 21.03.2005 in category Monetary policy | Macroeconomic developments
Among the most significant reasons for the credit expansion in 2004 was the inflow of foreign capital though the banking system in the last three years. Since 2002 the banks have an important role as a channel of foreign capital entering Bulgaria. Only last year, EUR 345 mln went into the economy through the banks.
Non-residents’ deposits rose by EUR 514 mln – twice as much as in 2003. In the meantime the banks attracted another EUR 410 mln in the form of loans, which were almost unknown two years ago. In total the banks’ liabilities increased by 1 billion euro.
In 2002 and 2003 Bulgarian banks liquidated foreign assets for over half a billion euro and therefore returned that amount of capital in Bulgaria. However this process turned its direction last year when the banks increased their assets by some EUR 580 mln. We have to deduct that figure from the increase of the liabilities in order to end up with net international transfer of capital through the banking system.
The banking system started decreasing its net foreign assets as early as back in early-2002. At that time ECB had already cut its key interest rate to 2.25%, as it was 3.50% just a year before. The soft monetary policy in the Euorzone persisted in 2003 as ECB cut its key interest rate to 1%.
A significant portion of the capital inflow through the banking system is a result of improved financial intemediation in the economy. However another factor should be also accounted for: the access to cheap credit in Europe in the last three years. There will be most likely a change in the ECB policy within the course of this year and it will be in direction of more expensive credit.
The Bulgarian central bank recently imposed a series of restrictions to the banks aiming at slower credit growth. It is still unclear what were the effects of that policy, including on the inflow of foreign capital thought the banking system.
The recent measures of the local central bank will change the structre of investments channel through the banking system (probably increase of the foreign participation in the capital at the expense of the non-residents’ deposits). But more importantly, the repressed ability of the banks to extend credit will result in reduction of the inflow of foreign capital through the banking system.
Non-residents’ deposits rose by EUR 514 mln – twice as much as in 2003. In the meantime the banks attracted another EUR 410 mln in the form of loans, which were almost unknown two years ago. In total the banks’ liabilities increased by 1 billion euro.
In 2002 and 2003 Bulgarian banks liquidated foreign assets for over half a billion euro and therefore returned that amount of capital in Bulgaria. However this process turned its direction last year when the banks increased their assets by some EUR 580 mln. We have to deduct that figure from the increase of the liabilities in order to end up with net international transfer of capital through the banking system.
The banking system started decreasing its net foreign assets as early as back in early-2002. At that time ECB had already cut its key interest rate to 2.25%, as it was 3.50% just a year before. The soft monetary policy in the Euorzone persisted in 2003 as ECB cut its key interest rate to 1%.
A significant portion of the capital inflow through the banking system is a result of improved financial intemediation in the economy. However another factor should be also accounted for: the access to cheap credit in Europe in the last three years. There will be most likely a change in the ECB policy within the course of this year and it will be in direction of more expensive credit.
The Bulgarian central bank recently imposed a series of restrictions to the banks aiming at slower credit growth. It is still unclear what were the effects of that policy, including on the inflow of foreign capital thought the banking system.
The recent measures of the local central bank will change the structre of investments channel through the banking system (probably increase of the foreign participation in the capital at the expense of the non-residents’ deposits). But more importantly, the repressed ability of the banks to extend credit will result in reduction of the inflow of foreign capital through the banking system.
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