It was a year of major acquisitions and of laying the groundwork for future mergers, part of a process that began when the privatisation of the banking sector ended in previous years. Borrowing rose, as did the use of credit cards, and within the span of 12 months, the central Bulgarian National Bank (BNB) first tightened restrictions on lending growth, and then announced that it was to scrap them from the beginning of 2007.

A little bit of banking life changed for every customer with the introduction of International Bank Account Number (IBAN) protocol, easing the interaction of the country’s banking system with that of the rest of the world.

Meanwhile, outside the conventional banking sector, leasing companies and other non-bank lenders sought a piece of the action from Bulgaria’s growing band of borrowers.

Among banks, there was sharp competition for the home loan market, with barely a week going by without a major bank announcing a promotion, usually with an initial zero-interest repayment period.

One of the first major announcements of an acquisition was in January, when Icelandic tycoon Thor Bjorgolfsson’s Novator investment fund said that it had bought 18.27 per cent of Bulgaria’s Economic and Investment Bank (EIBank).

In the same month, SG Expressbank changed its name to Societe Generale Expressbank, to underline its identification with its French parent company, one of the largest banking groups in Europe. Greece’s Piraeus Bank, which has subsidiaries in Bulgaria and other countries near Greece, announced the establishment of a 50 million euro real estate investment trust for South Eastern Europe.

In February, Bulgaria’s First Investment Bank announced that it was buying a majority stake in Serbia’s MB Banka. In the same month, United Bulgarian Bank, a member of Greece’s NBG Group, said that it was teaming up with two other companies to launch two insurance companies.

However, the dominant acquisition and merger story in the banking sector in 2006 was the purchase by Italy’s UniCredit and Bank Austria Creditanstalt of Bulbank, HVB Bank Biochim and Hebros. Bulbank’s Levon Hampartzoumian, who was named as the chief executive of the new mega bank, said that the completion of the merger process in 2007 would create Bulgaria’s biggest bank by assets.

In a separate development, BNB said in March that it had given permission to Germany's Bayerische Landesbank to buy 60 per cent of Bulgaria's Unionbank through its Hungarian banking arm Magyar Kulkereskedelmi Bank (MKB). The purchase was finalised in May.

In April, Bulgarian American Credit Bank (BACB), at the time the 21st largest bank by assets in Bulgaria, listed on the stock exchange.

The initial public offering of about 30 per cent of the bank raised about 109 million leva, at 29 leva a share. In the same month, Central Co-operative Bank said that it would seek to raise 24.25 million leva in a capital hike aimed at boosting its credit portfolio and expanding its branch network. A few days later came the news that Dutch financial services group ING was launching life insurance operations in Bulgaria. Expansion of branches was a theme of the year for some banks, notably Piraeus Bulgaria and Bulgarian Postbank.

Towards the end of the first half of the year, Alpha Research published the findings of a poll that said that about 55 per cent of Bulgarian households had taken some form of loan in the first five months of 2006. Consumer loans from banks accounted for 27.9 per cent, hire-purchase 14.1 per cent, and “relatives and friends” 20.2 per cent.

In May, BNB - after earlier in the year stepping up lending growth restrictions - announced that it would start easing them from the third quarter of 2006.

At the mid-point of the year, the Association of Commercial Banks, representing all major commercial banks in Bulgaria, called for proper regulation of non-bank lenders. The call was made soon after Parliament approved the Consumer Credit Bill, which was designed to protect consumers from unscrupulous lenders. The law required, among other measures, that consumers be enabled to fully understand their obligations, and introduced a fine for banks that refused to accept early repayment of loans. The banks said that non-bank institutions tended to proffer loan terms much more unfavourable than those of banks.

In June, consolidation in the leasing market advanced with the merger of HVB Leasing and Hebros Leasing, both part of the UniCredit Group.

The second half of the year saw several banks stepping up the race to provide overdrafts to small and medium-sized enterprises, SMEs.

Several banking stories related to Bulgaria’s accession to the European Union, and in the much longer term, adoption of the euro. In July, the European Central Bank (ECB) named the rapid rise in borrowing by Bulgarian households as a matter for concern. It said that in Bulgaria, as in other countries, central bank restrictions on lending growth were being circumvented. A few days after the ECB statement, BNB produced a report saying that between mid-2005 and mid-2006, Bulgarians had borrowed a total of a billion leva from banks, in corporate credits, consumer loans and mortgage loans.

On the more positive side, in the same month the European Investment Bank said that it was making available about 100 million euro to Bulgarian financial institutions to help them provide co-financing for EU-backed infrastructure projects.

At the end of H1, a clearer picture emerged of which banks at that stage were the most powerful players. DSK Bank was the top performer, followed by UBB, Raiffeisenbank Bulgaria, Societe Generale Expressbank, EIBank, Hebros, Bulbank, Postbank and BACB.

In H2, the acquisition story that generated the most excitement was that of DZI Bank by Greece’s Eurobank EFG. In September, it was announced that Eurobank EFG had offered 157.76 million euro for 74.26 per cent of DZI Bank, which formerly was owned by Emil Kyulev, the banker millionaire who was shot dead in central Sofia in October 2005. The acquisition brought to six the number of Bulgarian banks owned by Greek banks.

Other innovations of 2006 were the enabling, as of December 1, of individuals and companies to check up information on themselves in the Central Credit Register maintained by BNB, and the launch by FIBank of mortgages specially for foreigners - the latter an acknowledgement of the changing dynamics of Bulgaria’s economy, and its real estate and banking markets.