This document analyzes structural changes in Bulgaria's banking sector over the past 20 years of transition to a market economy. It describes the major factors driving changes like privatization, bankruptcies, and foreign direct investment. The banking sector is now bank-based and stabilized with healthy finances and sufficient equity. While foreign banks have expanded, concentration levels remain within acceptable limits. The document concludes that Bulgaria's banking sector stability depends on monetary policy, foreign capital influence, and positive state intervention when needed.

1. MODELING OF STRUCTURAL
CHANGES IN THE BANKING SECTOR
IN THE REPUBLIC OF BULGARIA
Stavrova Elena, Assistant Professor,
SWU “N.Rilski”-Blagoevgrad
Bulgaria

2. Characteristics of transition 20 years ago:
- Double change of regime: political and
economics;
- Financial crises of enterprises.
Major factors of market structure changes:
- privatization;
- Bankruptcies, liquidation, consolidation;
- Foreign direct investments in the financial sector

3. The financial system in the Bulgaria is
“bank based”
 Dominant
role of the banking sector since the
start of the transition from the centrally planed
economy in 1989;
 Over the past 20 years the banking sector has
undergone a fundamental restructuring;
 The sector is now stabilized, shows healthy
financial results, has sufficient equity to cover its
risks and is resilient to potential shocks.

4. Banking reform and transformation to a
market type economy
 Banking
reform has been integral part of the
transformation from a centrally planned to
market economy;
 The issues were not only technical (types of
banks, licensees and conditions of entry and
exit, regulation and supervision) but primary of a
political economy character;
 The process of banking restructuring interacted
with the type and pace of reform in the national
economy, legal and institutional environment;

5. Entry of small private banks and their
challenges
 Impressive
increase in new entries of
small private banks in the early 1990s;
 Liberal approach towards new start-ups;
 Loose (benevolent) licensing policy;
 Banks mostly undercapitalized, access to
funds limited by their small size and small
number of branches;
 Defective legal framework and loose
institutional supervision.

6. The dynamics of existing banks and branches of
foreign banks to the financial crisis 1996-2009
Types banks
1990 1991 1992 1993 1994 1995
1996
2007
2009
Total
70
78
59
41
45
47
35
32
30
Foreign
-
-
-
1
3
5
7
7
26
-
2
Licensed by the year
61
8
2
7
10
4
2
…Foreign
0
8
0
1
2
1
2
Consolidated
0
0
22
29
9
3
0
2
3
Banks after consolidation
0
0
1
4
3
1
0
-
1
Revokedlicense
0
0
1
0
0
0
14
1
-

7. Market share of public banks
№
Banks
Bank
Market share
assests
(% of the bank
(in mln)
sistem,assest)
1.
CCB
1 651 000
2,38
2.
BAKB
829 000
1,19
3.
FIB
4 223 000
6,08
4.
Corporate bank
1 820 000
2,62

8. The main factors stimulating the direct
financial investment in the Bulgarian
banking sector
1. Increased attractiveness of Bulgaria.
2. Sharply increased volumes and
profitability of credit operations in the
Bulgarian banking sector.
3. Currency comfort provided by the
currency board system.
4.Growth the prices of securities on the
Bulgarian Stock Exchange, including
public banks.

9. Ways for expansion of foreign banks in
the Bulgarian banking sector
1. Opening of the subsidiary banks branches of non-banks.
2. Purchase of Bulgarian banks with the
right to participate in the market.
3. Purchase of significant blocks of shares
entitled to participate in the management

10. Systemically important banking
institutions
UNICREDIT-BULBANK
DSK BANK
UNITED BULGARIAN BANK
RAIFFEISENBANK (BULGARIA)
EUROBANK EFG - BULGARIA

11. Concentration of risk in the first
group of banks
Concentration of credit risk in the First
Banking Group
57,80%
42.2%

12. Herfindahl-Hirschman Index
N

H = ∑ S i2

i=1
 H = S1 58,7 2 + S2 36,28 2 + S35,022,
 H = 4 787,12
H > 1 800


13. Herfindahl-Hirschman Index for a seven
biggest banks
Н
= S122,042 +S218,52 + S316,3 2 +
S414,742 +S511,412 + S68,732 +
S7 8,69 2
CR 7= 1567,68, CR < 1800

14. Herfindahl-Hirschman Index for a
seven biggest banks in the amount of
deposits
CR7 = S1 18,86 2 + S214,86 2 + S3 21,40
2+ S4 14,70 2+ S5 10,78 2+ S6 10,70 2+
S7 8,70 2
CR 7= 1556,96

15. Country risk as an effect of
increased level of concentration

16. Conclusions:
1. Regarding the role of the Monetary
Board for the stability of financial and
credit system.
2. Domination of foreign capital put the
banking sector, depending on the status of
foreign financial sectors.
3. The positive effect of state intervention
for the stability of the banking sector

17. CONCLUSIONS:
1. Regarding the role of the Monetary
Board for the stability of financial and
credit system.
2. Domination of foreign capital put the
banking sector, depending on the status of
foreign financial sectors.
3. The positive effect of state intervention
for the stability of the banking sector

18. THANK YOU FOR YOUR ATTENTION!
stavrova@swu.bg