BNB: Transactions with overdue debt and write-offs reduce the share of non-performing loans, but the risk in the system is exacerbated

The share of non-performing loans (NPL) in Bulgarian banks continues to decrease mainly due to their sales to specialized companies and write-offs, but despite this, the credit risk is exacerbated, commented the Bulgarian National Bank (BNB) in ​​the latest report on the state of the banking system in the first quarter of 2023. At the end of March NPL were 4.7% of portfolios, down 0.5 percentage points in just three months. The Central bank warns that the share of loans at Stage 2 remains at a relatively high level. The Vienna Initiative analyst group recently warned for the same in the countries of Central and Eastern Europe.

Given the fluctuations in energy prices, the risks of problems in supply chains and the expected slowdown in external demand, the ability to service debt may weaken, leading to an increase in NPL and impairment charges, said BNB. The Bulgarian supervisors warn that the trend towards an increase in interest rates will affect the financial situation of the borrowers.


In terms of value, gross NPL at the end of the first quarter were BGN 4.1 billion, with a 7.4% drop in three months. Because of their reduced value, the impairments of the banks have also decreased. Lending in general, however, continues to grow. The gross loan portfolio increased by 2.7% in the first quarter, to BGN 88.4 billion. The most serious growth was in loans to financial enterprises – by 12.3%, in loans to households the increase was by 3.1%, and in those to non-financial companies, i.e. the real economy, there was only a 1.2% increase for the quarter.

The BNB reassures that the banks’ current capital ratios are significantly above the minimum. The level of NPL coverage improved in the first quarter. The coverage ratio of gross NPL and advances with their inherent impairment rose to 50.2% in March, up from 49.2% at the end of 2022. Since the beginning of this year, the countercyclical capital buffer for local risk exposures has been raised to 1.5%, and from October it will become 2%. The report makes it clear that analysts are worried about changes in the volume and structure of deposits caused by the deteriorating financial condition of enterprises and households.

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