The Bulgarian National Bank (BNB) is introducing new measures to limit lending, announced by the Central Bank. Starting April 1 next year, the countercyclical capital buffer will be set at 2.25%. This marks the first change in a year and a half, as it currently stands at 2%. The supervisory authority indicates that at the end of last year, the ratio of credit to gross domestic product (GDP) was 77.6%, and additional indicators are taken into account when determining the level of the buffer, including indebtedness, the real estate market, and the overall economic environment.

In the final months of last year, elevated credit activity continued, according to the BNB. “This trend is driven by the persisting favorable labor market conditions and historically low interest rates on mortgage loans. On the supply side of credit, the high capital and liquidity capacity of the banking system plays a decisive role,” commented the supervisory experts. At the same time, there is uncertainty in the external environment, and the deepening of geopolitical risks has the potential to worsen economic conditions, which could then impact borrowers. The increase also takes into account the effects of the requirements that were introduced on October 1 for credit standards when granting and refinancing mortgage loans.

These requirements are related to collateral and the ratio between the value of the real estate and the amount financed, as well as borrowers’ income and overall indebtedness. So far, the measures have not had a significant effect on the growth of lending – at the end of February, mortgage loans increased by 29.5% year-on-year. Growth is also observed in other sectors, albeit smaller, with the total credit portfolio increasing by over 13% annually. Experts point to rising property prices as one of the reasons for the growth in mortgage loans. Although the number of loans may not be increasing, price increases, as well as renegotiations of old loans, lead to an overall rise.

 

Regarding the increase in lending that has been ongoing for several years, financе experts warn that it resembles the credit boom before 2008. On the one hand, lending contributes to rising real estate prices and inflation; on the other hand, ever-higher prices require more loans, indebtedness increases, and there are risks to households’ ability to pay them on time. During the previous crisis after 2008, banks accumulated many non-performing loans, which were cleared over several years, with the debt collection companies playing a major role in this process.

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