Non-performing loans in Bulgaria fell to their lowest level since 2009 but their share continues to be higher than the EU average
The non-performing loans (NPLs) throughout the EU have diminished to their lowest level since the financial crisis, according to the newest data from the European Banking Authority (EBA), which examined a sample of 150 EU banks accounting for more than 80 percent of the sector’s total assets.
The pile of toxic debt that remains on European Union (EU) banks’ balance sheets has been cut in half over the last four years up to June 2019 and bad loans are now recorded at €636 billion, equivalent to 3.1 percent of total loans, which is sizeably lower than the €1.15 trillion recorded in June 2015 (or 6 percent of total EU loans at the time).
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The reduction can be largely credited to the measures taken by the regulators and governments, coupled with banks’ efforts to enhance their NPL management capabilities, clean their balance sheets and sell their NPLs, the EBA notes. Further support has also come in the form of positive economic growth, low interest rates and decreasing unemployment.
Despite the favorable data, stockpiles of bad loans still remain high in some countries, EBA warns. By June 2019, only Greece and Cyprus had NPL ratios in double digits—39.2 percent and 21.5 percent respectively, followed by Portugal and Italy – 8.9 percent and 7.9 percent respectively.
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Bulgaria lied in the fifth position in terms of NPL ratio by June 2019 with NPL ratio of 7.2% which is over two times greater than the EU average. The bad and restructured loans in the Bulgarian banking system fell by 21% in the last year while their share of the total loans went down from 10 to 7.35 percent or a fall of BGN 1.14 billion down to 4.3 BGN billion – the lowest level since 2009. The reduction can be attributed to the written-off of the bad corporate loans that have fallen from BGN 3.5 billion to BGN 2.74 billion in the past year. Household loans have gone down by around BGN 400 million to 1.56 billion due to mainly mortgage loans.
Despite the positive results achieved the Bulgarian central bankers continue to encourage the local lenders in their efforts to reduce actively their toxic debt and clean their balance sheets.
The past 2019 is expected to be a record year in terms of debt purchases in Bulgaria. According to the preliminary data the value of the deals has reached approx. BGN 2 billion which is a little bit higher compared to the one in 2018. Experts forecast that the volume of the NPLs will diminish in the next years in case the economic growth stays on. The secondary debt market and the increasing number of forward flow deals are the new trending topics in the sector. “We see an increase in the volumes sold under such contracts and I expect this growth to remain stable in the next year or two years,” commented Dimitar Bonchev, executive director of Debt Collection Agency EAD (DCA), part of Norway-based B2Holding, noted.
Check out here more forecasts about the debt purchases in Bulgaria and Southeast Europe in the interview with Georgios Christoforou, regional director of B2Holding.
