1. BULGARIA Country and Financial Sector Presentation

2. Main Economic Indicators

3. Developments in 2006 High growth starting with Q2 High growth starting with Q2 Sizable reduction in net export’s negative contribution to GDP Sizable reduction in net export’s negative contribution to GDP Tight fiscal policy Tight fiscal policy Strong private domestic demand Strong private domestic demand High growth of gross fixed capital formation High growth of gross fixed capital formation High rate of credit growth High rate of credit growth High Current Account Deficit High Current Account Deficit

4. Prospects for 2007 High growth continues more broadly based High growth continues more broadly based Export oriented industries fast growth materializes in a higher growth rate for exports than imports Export oriented industries fast growth materializes in a higher growth rate for exports than imports Tight fiscal policy Tight fiscal policy Sustained inflationary pressure put some pressure on the currency board Sustained inflationary pressure put some pressure on the currency board High levels of FDI High levels of FDI

5. Financial Sector Currency Board arrangement since 1987 Currency Board arrangement since 1987 Banking Sector dominant at 90% of financial sector assets Banking Sector dominant at 90% of financial sector assets Bank assets to GDP 78% at end 2005 Bank assets to GDP 78% at end 2005 High concentration (first 5 hold over 50% of assets) High concentration (first 5 hold over 50% of assets)

6. Banking Sector 34 banks as at end 2005 (15 foreign owned, 12 locally owned, 2 state owned, 5 local branches of foreign banks) 34 banks as at end 2005 (15 foreign owned, 12 locally owned, 2 state owned, 5 local branches of foreign banks) Share of bank assets owned by foreign banks and branches 72% in 2005 Share of bank assets owned by foreign banks and branches 72% in 2005 Share of loans by local banks 21% Share of loans by local banks 21% Share of deposits in local banks 13.4% Share of deposits in local banks 13.4% Capital adequacy ratio > 12% Capital adequacy ratio > 12%

7. Banking sector (cont.) Deposit Insurance Fund Deposit Insurance Fund Credit registry Credit registry Declining interest rates and spreads Declining interest rates and spreads Increased volume of MLT loans Increased volume of MLT loans Good ratio of non-performing loans to total assets (2.2%) but increasing since 2004 Good ratio of non-performing loans to total assets (2.2%) but increasing since 2004 Responsible for >25% of private foreign debt Responsible for >25% of private foreign debt

8. Banking Sector (cont.) Since 2001 high credit growth Since 2001 high credit growth Bank credit to non-government sector increased from 4% of GDP in 1998 to 12% at end 2004 (still low) Bank credit to non-government sector increased from 4% of GDP in 1998 to 12% at end 2004 (still low) In 2005 BNB introduced quantitative limits on credit growth In 2005 BNB introduced quantitative limits on credit growth Consequently increase in non-bank financial intermediation (including cross-border lending) Consequently increase in non-bank financial intermediation (including cross-border lending) Restrictions to be removed in 2007 Restrictions to be removed in 2007

9. Capital Markets Still low turnover in the Stock Exchange Still low turnover in the Stock Exchange Market capitalization < 10% of GDP Market capitalization < 10% of GDP Rapid growth in the market index Rapid growth in the market index Private pensions picking up at 2% of GDP Private pensions picking up at 2% of GDP Gross premium income of all insurance 2.5% of GDP Gross premium income of all insurance 2.5% of GDP

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