The risks in the banking system have been increasing and therefore the Bulgarian National Bank (BNB) has imposed new requirements on the borrowers of mortgage loans, according to a news release from the central bank. They will affect both new loans and those already granted but being renegotiated. The measures will take effect from October 1.

According to the new requirements, banks will lend up to 85% of the value of the collateral; monthly loan servicing costs should not exceed 50% of the borrower’s income, and the maximum loan term is 30 years. The BNB allows exceptions, but the total amount of such loans in the respective commercial bank’s portfolios for each quarter should not exceed 5% of the total gross value of newly granted or renegotiated loans from the previous quarter. Banks will have to report further to the supervisor to check whether their deviations are permissible.

The BNB believes that the risk assessment in the banking system shows a move to a higher category of certain indicators such as credit growth, indebtedness, house prices and overvaluation, average size of loans. This signals a potential build-up of medium-term risks in the system.

However, there is no deterioration in credit standards indicators, but there are potential areas of vulnerability, the central bank’s analysis shows. The new requirements are preventive, the supervisory authority also points out. 

According to data from the BNB statistics, at the end of July, loans granted by banks in Bulgaria amounted to nearly BGN 117 billion (EUR 59.82 billion). This is an increase of over BGN 10 billion (EUR 5.1 billion) since the beginning of the year. The growth is biggest in loans granted to households. So far, the BNB has announced measures to restrict crediting several times, mainly by increasing the required reserves and recommendations for restrictions to banks. The Bulgarian central bank has limited powers because of the Currency Board and, unlike the Fed and the ECB, it cannot centrally determine interest rates. Indirectly, it can influence the liquidity in the system, but it has been high for a long time and this allows the banks to grant loans, especially since although lending is growing, in recent years the tendency is for non-performing loans to decrease.

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