Long periods of credit growth create conditions for an increase in indebtedness and accumulation of credit risk in the banking system, warns the Bulgarian National Bank (BNB) in the latest report “Banks in Bulgaria”, which covers the fourth quarter of 2022.
During this period, NPL-exposition volume decreased as a result of write-offs of loans to households. However, the central bank notes a worsening of credit risk as the share of Stage 2 loans remains relatively high. These types of loans are not officially non-performing, but with a delay in installments and a high risk of payment refusal.
Due to fluctuations in energy prices, risk of disruptions in the supply chains and the expected slowdown in domestic demand, debt payments may deteriorate, the BNB noted. This would lead to a rise in non-performing loans and an increase in impairment charges. In addition, the financial situation of debtors will be affected by the global increase in interest rates. The transfer of growing rates will accelerate in the coming months, according to the forecast of BNB.
In the last months of 2022 volumes of new housing loans remained high, the report states. There is no change in the risk appetite, collateral level and indebtedness of the borrowers. The only difference with previous quarters is the smooth increase in the average size and maturity of new loans.
At the end of 2022 gross NPL in banks’ portfolios were 5.2%, down with 0.04 percentage points quarter-on-quarter. Write-offs and sales of overdue loans have contributed to the decline, the BNB says. Net credits are also declining (see the chart). Due to the reduction, the banks’ gross impairments fell by 3.4% to BGN 3.5 billion, according to the report.
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