25/06/2010 - Bulgarian capital market and economy in May.2010

Highlights:

Debt problems of Europe and inabilityof member states to make unite decision and implement them for combatingmacroeconomic woes made investors nervous in May. Fears that huge budgetdeficits, growing debt burdens, anddebtrefinancing difficulties for some of the euro area countries will lead theWorld economy in to a new recession, led to a global sell offs on financialmarkets. Bulgarian stock market took the downside direction as well.

Major stock market indexes, calculatedby BSE, fellbetween 6 and 8.5 percentin May. The benchmark SOFIX suffered the most from the negative mood, being hithardest. The index went below the key support level of 400 points and stillstays more than 80 percent below its 2007 peak value.

Minister Traikov announced that thelisting of 33 percent state share of E'ON on BSE will be appointed after theaudit inspection by the State Energy and Water Authority. Listing earlier thanthe fall is unlikely, as the optimistic scenario, however this will happenwithin this year.

Markets in Portugal, Germany, Polandand Belgium have lost between 3 and 4 percent of their market capitalization.In these countries shares suffered the least from the global sell off. Worstperformers were stocks in Ukraine, Greece and Romania, which dropped in therange of 14 and 27 percent. While the strong depreciation in Ukraine andRomania is seems to be a correction to the robust appreciation since thebeginning of 2009, the movement of the benchmark in Athens resample a severebear market, mainly due to macroeconomic problems of the southeasternEuropeancountry.

In April the banking system managed tocome at a profit as well, which, however, continues to shrink on an annualbasis. For the first four months of the year, net income reported by commercialbanks stood at 218 million leva, which is 34 percent below that thecorresponding period of 2009 value.

The ratio between the provision forimpairment and credit continues to grow, and by the end of April 2010 rose to anew record, at 4 percent for the last at least 8 years. Of course, when economicsituation improves part of these provisions will be reintegrated, this will turnin additional source of income for the system. Share of cash assets in banksassets slid to 8.5 percent in April, which is not sign for a liquidity problemof the system, quite the opposite. Expensive funding and low credit demand etthese interest rate levels on loans makes banks keep less cash.

Downward trend in interest rates onnewly deposited funds in banks keeps intact. This tendency however is poorlytransformed in to lower interest rates on newly lent loans. Quite the opposite,even some of the loans are getting more expensive.

Interest rates of euro denominatedcorporate deposit declined to 3.5 percent, and euro denominated householdsdeposits went down below the 5 percentage point level. Denominated in levadeposit are traditionally more expensive, but for a eight straight monthinterest rates on them are getting lower.