Bulgaria’s banking sector continues its development course with the country just two years away from its full accession to the European Union. The neighboring state’s market has in the last week been at the center of analyses, assessments and recommendations of international financial analysts because this year, as in the case of Romania, it will have to pass the test of Brussels. Particularly in the case of Bulgaria, the evaluation and the prospects noted have additional significance for Greece, given that the Greek economic interests with a presence there are great and the Greek banks, through the subsidiaries they have acquired, cover about 25 percent of the Bulgarian banking market. This is the biggest business presence beyond the country’s borders. Standard & Poor’s, the international credit rating firm, is praising the prospects of the banking system of Bulgaria. It states in a report this week that Bulgaria has one of the best developing financial sectors in Central and Eastern Europe. In Bulgaria the credit system is multi-centered, with strong competitive characteristics as none of the banks has a market share that exceeds 15 percent. Leading the market is DSK Bank of the Hungarian OTP group with 14 percent, followed by Bulbank with 12 percent and the Greek-interest United Bulgarian Bank (UBB) with 11 percent, owned by the National Bank of Greece. Other Greek banks with a market share in Bulgaria are EFG Eurobank (6 percent), Piraeus Bank (5 percent) and Alpha Bank (1 percent). The returns expected are therefore very handsome. Key factors S&P stresses in its report that the Bulgarian banking sector is today much healthier and stronger than it was a few years ago and notes that its credit rating and its possible valuation upgrading will depend on four key factors: whether banks manage to respond to the evolving credit environment, whether they maintain wise capitalization, whether they satisfy the increasing needs for new financial products and whether they secure the best access to funding. The firm’s analysts also note that the sector in Bulgaria is characterized by stiff competition with the prize being a greater share of the market. They further realize the gradual and substantial increase in deposits by households thanks to the gradual rise in incomes as a result of the country’s financial growth. They do not fail to note the explosive credit expansion of recent years, but despite that S&P underscores that the sector in Bulgaria operates nowadays with improved risk management margins as well as better know-how than many Western banks. At the same time, the banking sector benefits from the stronger position of households and companies and from the better regulatory status. This confirmation of the improvement in the Bulgarian economic climate and the optimism about the future developments in the economy came just two days after the World Bank extended its own praise to Bulgaria. Separately, in a survey announced early last week and conducted among a high number of Bulgarian enterprises, the business climate has improved considerably during 2005 compared with 2004. Seventy percent of respondents said conditions were much better and they are optimistic for the future, which is the crucial years of 2006 and 2007, just before EU entry. Their access to funding by the banking system is an interesting parameter: Most high-level staff (69 percent) believe that in 2005 their ability to access credit was much greater than in the previous year. About 45 percent believe that the country will enter the EU in 2008 and this is a development that may deflate economic uncertainties, though other respondents said they do not feel ready in terms of competitiveness and competition pressure in the market. Over 80 percent of companies agree that competition in the markets they are involved with is very strong, while 60 percent answered that the biggest problem they face is the poor training and skills of employees.