Bulgarian National Bank warns on rising credit risk in the banking system

Credit risk in the banking system is worsening, although the share of non-performing loans (NPL) is decreasing, warns Bulgarian National Bank (BNB) in the latest “Banks in Bulgaria”, a quarterly newsletter. At the end of September 2022 share of NPL is decreasing, but the only reason is growth of the credit portfolio. At the same time the long term trend of reducing in the NPL volume has been interrupted, notes BNB. 

According to the Central bank data, Stage 2 loans are increasing at the same time, which is a signal of worsening credit risk. These types of loans are overdue, but less than 90 days, so they do no yet classify as non-performing. In case of worsening economic conditions or а sharp increase of interest rates, credit risk is likely to materialize, after accumulating due to the continuing high growth of new loans. 

BNB predicts the rise of the interest rates in Bulgaria after their rapid global increase. The recommendation for banks is to adjust their lending policy and provisioning with the economic environment risks. However, the Central bank reassures that the current level of capital ratios are significantly above the minimum requirements. 

At the end of September gross NPL was 5.6% from banks portfolios, with a 0.2 percent point drop compared to June. In the third quarter activities of write-off and credit sales continued, shows the BNB report. As a value, from the end of June to the end of September, gross NPL increased by BGN 28 million (0.6%) to BGN 4.7 billion.

The increase of NPL in the system is accompanied by an increase of the impairment, says BNB. At the end of September total accumulated impairment of loans and advances in a narrow scope was BGN 3.6 billion, which is 2.9% quarterly growth. Problem loans coverage has reached 49.7%%, which is a 1.4 percentage points increase compared to June.

According to the monetary statistical data, published by BNB, lending in December has slowed down. Total volume of bank loans increased 12.2% year-to-year, to BGN 74.27 billion. The growth is smaller than in previous months, as in November it reached 13%. The limited increase was mainly due to corporate loans, while household mortgages continued to increase. According to the supervisory quarterly statistics, non-performing and restructured loans was 4.63% at the end of 2022, with 0.46 points below their level in September. This data gives a picture for the continuing increase of NPL in the banking sector, mainly due to sale of these portfolios from banks to debt management companies.

Read more news here.