Despite challenges, room for growth in Bulgaria is huge, finds
Margaret Waldren.

Bulgaria’s economy continues to boom with banking, tourism,
property and construction growing rapidly. Bulgaria joined the EU
in January 2007, although now that novelty has worn off it is
having to face the reality of member responsibilities and

One of the government’s priorities is encouraging investment. In
2007, GDP growth remained high at 6.2 per cent, with growth in
gross fixed capital formation reaching 21.7 per cent (2006: 14.7
per cent). Investment activity became the most significant
component of domestic demand in 2007, according to the Bulgarian
National  Bank’s (BNB) latest Economic Review. In 2008,
investor interest is being driven by positive assessments of
Bulgaria’s sustainable growth and expectations of high returns and
long-term opportunities.

The Bulgarian Association for Leasing (BAL) was established in
2006 by the merger of two associations. BAL cochairman, Teodor
Marinov, said that leasing has shown phenomenal year-on-year growth
since the turn of the millennium, with new business increasing from
just €53m in 2001 to €1.3bn in 2007, when it broke through the
billion-Euro barrier for the first time.

Finance leasing dominates the Bulgarian market. Operating
leasing in 2007 represented just 1 per cent of activity. Cars and
commercial vehicles accounted for 62 per cent of new business,
followed by machinery and industrial equipment at 27 per cent.
Leasing’s penetration rate rose from 9 per cent in 2006 to 11.7 per
cent last year. Marinov said that there is scope for an improvement
– maybe to 15 or 16 per cent.

Bulgaria does not have leasing-specific legislation. The main
laws governing leasing are the Commercial Code, the law on
contracts and accounting law. Lessors are not protected by law in
the event of supplier default, and there is scope for improving the
official channels for pursuing defaulting customers. There are no
accounting and tax advantages for finance leasing.

Challenges facing lessors include country risk and cost of funds
liquidity issues. The latter is limited for banking groups, harsher
for captives and severe for independent lessors. Others include
eligibility for EU-funded projects, Basel II, and an industry that
will mature in one to two years. 

Timeline: Bulgarian Leasing