The settlement of non-servicing credits granted prior to December 31st 1990 Act being enacted (Official Gazette #110 of 1990) enterprises' obligations were substituted for in the credit portfolios of banks by long-term state bonds issued in leva of 26,391,832,000 leva and denominated in dollars of 1.808 million dollars.

The banks sticking to the requirements of the law submitted demands for securities denominated in dollars for sums exceeding by about 230 million US dollars the one stated in the Act. The Ministry of finance reduces the sums claimed by the commercial banks following which unrestructured into state debt remain interests amounting to 71,094, 432 million US dollars on cleared principals. The banks have not received those interests and accounted them as incomes for future periods. The Minister of finance in a report to the Government submitted on July 11th, 1994 proposes these interests to be settled as receipt to be written off. Thus the banks will increase their losses as they would not get reimbursed for paying the interests on interiorated credits remaining to be paid on their part. The supplemented security loan allocations show who are the holders of greatest amounts of bonds. It will be hard for them to make up for the losses during the first years from the reduced interest incomes. There is the option to sell the bonds and to find credit markets for the incomings to thus compensate for the losses, but it is very limited since the high price of the credit (over 70%) reduces the demand for it. Another option is to use bonds as means for participation in the privatization.

This could work in the long run, but would not solve the problems arising this and next years. The estimated general financial condition of Economic Bank, Mineralbank, Balkanbank where larger amounts of bonds are concentrated remains rather critical.

For the state budget the bad credit clearing operation means increase of the interest expenses for this year and the years to follow. This should be compensated through increased real economic incomes provided that the enterprises are encouraged to work under normal conditions and increase the taxes they pay - a something that cannot be relied on.

For the country in general the 1994 bad credit clearing did not have the expected positive impact because, as noted before, the operation was rather belated. A new infavourable development can be outlined. Banks massively sell their bonds to private firms and companies concluding contracts insecurely guaranteeing the due payments of these credits. Many of the debt recipients are convinced the loans they borrow will or need not be paid inasmuch as the banks are state-owned and the budget would take the consequences after all. These are problems to be shortly discussed by the BNB and the Ministry of finance and means are to be found to place constraints on the pressurized banks holders of so called bad credit bonds. This not be done by late 1994 or early 1995 at the latest the incomes will go to private companies and the considerable amounts of bank losses will add to the public debt with all the general economic consequences known.