April 2025 – Kinstellar routinely monitors developments in finance, commercial, and contract law and in key regulatory areas relevant for financial institutions in Bulgaria in order to provide the most up-to-date information to our clients operating in or considering investments in the country. With this briefing, we will regularly update you on key developments in Bulgarian legislation, case law, and our Banking, Finance & Capital Markets practice.
Please feel free to contact us if you have a topic that you would like us to cover.
Update on draft legislation in Bulgaria
- Limitations on bank fees and commissions
A draft bill seeks to amend the Credit Institutions Act by instituting caps on fees and commissions charged to clients by banks. The sponsors of the draft bill report that profits in the banking sector have increased by 420% since 2020. They claim that almost half of the increase is related to inflated fees. The draft bill looks to apply multiple measures to limit their amount.
The Bulgarian National Bank (“BNB”) will issue regulations specifying the permissible types of fees and their amounts. Notably, fees will not be able to exceed the bank’s cost of providing a particular service. The bill defines “cost” as all labour, material, and management expenditures incurred by the bank. Additionally, all credit institutions will be banned from raising fees and commissions for the 12 months following Bulgaria’s accession to the Eurozone (current target date is 1 January 2026).
- Decrease of the statutory interest rate
Debtors in default would usually owe a default interest to their creditors in the amount of the statutory interest rate applicable in Bulgaria. The law currently provides that the statutory interest rate is the base annual interest rate determined by the BNB plus 10%.
The draft bill to amend the Obligations and Contracts Act seeks to reduce the amount of the statutory interest rate to the base annual rate determined by the BNB plus 4%. The rate would be reduced to the base annual rate plus 8% when owed between companies.
- Implementation of the Markets in Crypto Assets Regulation (“MiCA”)
A pending legislative procedure in the National Assembly seeks to implement the provisions of the EU’s MiCA Regulation into the Bulgarian legal system.
The draft bill provides that the Bulgarian Financial Supervision Commission will be the competent body for licensing and controlling the issuance of crypto assets. Currently, virtual assets service providers (“VASPs”) in Bulgaria need to register with the National Revenue Agency (NRA Register) if they wish to provide crypto-related services in Bulgaria. The current registration regime will remain in effect until the new law is adopted. Importantly, once the draft law enters into force, VASPs will be able to provide crypto-related services in Bulgaria without a license under MiCA until the end of 2025.
For more information, please see our publication on the tokenisation of assets under MiCA here.
- Loan servicers and loan purchasers
The European Union (“EU”) has prioritised solving the issue of non-performing loans (“NPLs”), as their build-up could harm the financial stability and economic growth of all Member States. One of the measures to prevent their accumulation is the development of a secondary market for such distressed assets. The framework for the secondary market is outlined in Directive (EU) 2021/2167. The Bulgarian government has introduced a new draft Credit Servicers and Credit Purchasers Act, which looks to transpose the Directive. The aim of the draft legislation is to incentivise and regulate the transfers of NPL portfolios in Bulgaria. Upon entry into force, the Act will establish the conditions and procedure for licensing servicers of NPLs, the requirements for loan purchasers, and the obligations of credit institutions in relation to the transfer of NPLs.
Case law overview
- Asymmetric jurisdiction clauses
The rules on the establishment of the jurisdiction on civil and commercial matters in the EU are laid down in Regulation (EU) No 1215/2021 (“Brussels Ia”). Parties to a contract may also determine the jurisdiction by an agreement (a jurisdiction clause).
In practice, it is often agreed that lenders may choose a competent court from a jurisdiction of their choice, while restricting borrowers to a choice of only specific jurisdictions (an asymmetric jurisdiction clause). It has been a contentious issue in the courts of Member States as to whether such clauses are valid or should be rendered null and void due to their unilateral nature.
Through its judg ment C-537/23 of 27 February 2025, the Court of Justice of the EU (“CJEU”) settled the dispute by ruling that asymmetric clauses are generally valid. The CJEU’s understanding is significant to the banking sector, as it brings certainty to the standard practice for credit institutions to include asymmetric clauses in their loan agreements in order to reduce their financial risk and prevent forum shopping.
It should be noted that an asymmetric clause may still be rendered null and void if it violates the imperative rules of Brussels Ia on jurisdiction (e.g., jurisdiction in contracts, concluded with customers).
- Acceleration of loans
The question of whether creditors should announce the acceleration of loans (in Bulgarian: предсрочна изискуемост) to guarantors was addressed before the courts. The Supreme Court of Cassation, in its Order No. 461/12 February 2025 to case No. 1806/2024, determined that it is sufficient to announce the acceleration to the primary debtor only.
When a debtor has received a creditor's declaration for acceleration of the loan, the unpaid amount becomes due towards both the borrower and the guarantor. The guarantor’s liability is, in any case, linked to the original debtor’s obligations, so no notification towards the guarantor is necessary.
- Statute of limitations for principal payment instalments
The Supreme Court of Cassation, in its Decision No. 36/03 February 2025 to case No. 52/2023, ruled that the statute of limitations for monthly repayment instalments to a loan agreement runs from the due date for each instalment. It follows that if the repayment of the principal is made in periodic instalments, the statute of limitations from each such instalment will run from the due date of the respective instalment and not from the termination of the loan agreement. Respectively, if an automatic renewal clause is included in the loan agreement and the final repayment instalment is due on the termination of the agreement, the statute of limitation for that instalment runs from the date of effective termination.
The Court further confirmed the long-standing principle that parties cannot agree on the limitation period and the moment from which it begins to run.
According to other recent case law, if a loan is accelerated, the statute of limitations for any instalment that is not yet due, runs from the date of the acceleration of the loan.
- Mortgage on future property
Assets used as collateral should be clearly described in a mortgage for it to be valid. This requirement can raise questions regarding the permissibility of certain contractual provisions. One such example is if using buildings that are yet to be built can be used as collateral for a mortgage.
The Supreme Court of Cassation, in its Order No. 746/10 March 2025 to case No. 463/2024 ruled on this issue. The Court found that future buildings can be covered by the scope of a mortgage contract, provided that such a provision is included in the mortgage deed. In the case reviewed by the Court, the future buildings were individualised by a variety of characteristics. The judges established that they were covered by the scope of the mortgage, as the contract specified the location, borders, and size of the mortgaged land plot and referred to the previously approved investment plan for the building’s construction.
Latest Kinstellar deals in Bulgaria
- Financing for a 238 MW power plant
Kinstellar, together with Linklaters’ team in Milan, successfully advised the European Bank for Reconstruction and Development and Raiffeisen Bank International on a EUR 114 million financing for the construction of a solar power plant in Bulgaria. Following the project’s completion, 238 MW of electrical capacity will be added to the Bulgarian national energy system.
For more information, please see our publication here.
- Issuance of corporate bonds by one of the fastest-growing convenience stores in Bulgaria
Kinstellar has advised UniCredit Bulbank as lead manager and investor in the private placement of corporate bonds worth EUR 25 million by Minimart, a fast-growing chain of convenience stores in Bulgaria.
For more information, please see our publication here.
Did you know that?
Bulgarian law explicitly allows for (i) future receivables and (ii) receivables that have conditions attached to be the subject of a security. However, secured receivables must be sufficiently individualised. This means that the receivables must be individualised in the relevant agreement in a way that allows for the receivables to be identified once they arise.
With respect to drafting security agreements, it is unlikely that merely referring to “all [other] future receivables against the obligor” would be accepted by local courts and institutions as sufficient to deem the receivables identifiable. Such wording would be regarded as vague and would lead to the unenforceability of the security due to a lack of subject matter. It is therefore recommended that the description of the receivables refers to specific transactional relations or circumstances pursuant to which a receivable will arise in favour of the obligor.