Bulgarian bankers were often less than fully effective in collecting all available information, or in considering later how they could improve their methods of evaluating clients. One method that more banks might usefully adopt is systematic review of loan losses and the incorporation of lessons learned into the training of new loan officers. In addition, there were serious difficulties in sharing information about borrowers among bankers and between bankers and other firms. Some relaxation of bank secrecy would be appropriate. We also identified policy areas where improvement appears appropriate.
Reputation can be effective in ensuring that borrowers fulfill their contracts.
The heavy reliance on collateral imposes high costs on borrowers and lenders. For collateral to work properly, banks must be able to perfect the collateral and to dispose of it quickly. Bankers and prosecutors must make the prosecution of bank fraud a priority. We base our findings on the 24 banking interviews we conducted in Bulgaria. We also conducted 12 interviews in Hungary.