Bulgarian banks use the favorable momentum to clear intensively their portfolios, comments Peter Andronov, chairman of Association of banks in Bulgaria (ABB), quoted in the quarterly newsletter of organization.
The positive impact on the sector is mainly due to the faster growth of the Bulgarian economy compared to the average GDP growth in the EU, the low unemployment as well as the increasing income and stable fiscal position, says Andronov.
The banker isn’t a large optimist about 2019. He points out warnings toward changes of the interest rates cycle in combination with a slowdown of the economy. Andronov argues his expectations with the signals from the external environment and the monetary policy of the central bank.
For the last two years some experts in Bulgaria have expected and predicted an increase of the interest rates. The initial forecasts were that the interest rates will start rising from the second half of 2018. These expectations were revised later and now most economists believe the ECB will lift the interest rates in the second half of the year. Andronov says that banks have already started to prepare their clients for unfavorable changes. The procedure for asset quality review (AQR) and stress tests, performed by the European Central Bank (ECB), is considered to be one of the most important events for the banks this year. The results of the AQR are going to be announced in July 2019.
Bankers do not expect unpleasant surprises and shocks due to the stress tests, but very often these exercises are very often accompanied by increased sales volumes of non-performing loans (NPL) to debt collection companies. Compared to previous years, banks are now selling much larger packages of NPLs. Last year Debt Collection Agency (DCA) EAD purchased a NPL portfolio with a nominal value of nearly EUR 250 million from UniCredit Bulbank, the biggest deal ever in this field in Bulgaria. At the end of September, the share of NPLs in the Bulgarian banks went down to 8.8% of the total portfolio, a declining trend as it is obvious. Peter Andronov reminds in the ABB’s newsletter that at the end of 2014 NPLs were 16.9%. The level remains, however, above the EU average. The Bulgarian banking system has a higher level of coverage regarding gross NPL/provisions ratio, compared with the average level of the EU countries, says Andronov.
BNB Governor Dimitar Radev warns that the ongoing expansion of credit growth will accumulate risk in the banks. The credit risk would grow particularly in an economic slowdown or a situation less favorable than the one observed in the recent years, Radev says. There are many indications for possible problems and increased uncertainty – globally and in the euro area. This could bring negative effects to Bulgaria, the BNB Governor thinks. According to Peter Andronov, banks have preserved their strict criteria for funding. Despite the increase in lending the banks are careful not to loosen additionally credit standards in order not to allow excessive and irresponsible funding to the business and consumers and to service really solvent clients, says Andronov.
After the publication of ABB’s newsletter, “Address” real estate agency reported its observations on the housing market – the last quarter of last year, mortgage deals declined for the first time in three years. So far, the property market has been moving from low interest rates and easily accessible loans, but an increase in interest rates will lead to a decline in demand. „Address“, which is among the largest real estate agencies, expect that the downturn will continue and prices will also go down. At the same time, customers are relying on an increasing percentage of borrowing money, the agency says.
Read more news about the debt collection sector here.