Chief financial officers expect an increase of NPLs cost

Most of the financial managers of the companies in Central and Eastern Europe, including Bulgaria, expect an increase of the provisions for non-performing loans (NPLs), shows the latest Central Europe CFO survey of consulting company Deloitte. The study was conducted among chief financial officers (CFOs) in 17 states and provides their views on critical business matters, strategic priorities and the factors they currently consider vital for success. 

According to the survey, conducted between November-December 2020, 82% of the respondents predict that costs related to provision for overdue debts will increase in 2021. For 2020 only 44% of respondents had such expectations. The forecasts of the CFOs coincides with the trend of strong increase in bank provisions and the forecasts for a new wave of NPLs. 

The COVID-19 pandemic continues to frame perspectives this year. While overall confidence continues to fall, CFOs are not entirely negative in all areas surveyed for 2021, noted the authors from Deloitte. 

The share of managers, who expect an increase in the credit price, is significant – according to 51% it will grow up this year, and only 13% expect it to fall down. Executives in financial service companies have much higher expectations for growth in overdue debt provision costs, more than their counterparts from other industries. Many CFOs in manufacturing companies have similar opinions, also, the majority of them think that the credit costs will increase this year – much more than the expectations in other economic sectors (see the chart below). 

In general, most of the companies have positive expectations about the ability to pay their debt on time in the next three years. Just over half believe that this ability would not change, and even 38% expect to improve it. Only 8% are on the pessimistic side and expect a decrease in their ability to pay on time. The biggest optimists are CFOs in financial services, life sciences, energy, mining and utility sectors. Pessimism prevails in the construction industry and manufacturing. 

Internal financing and bank borrowing are still the most attractive source of funds for companies. Corporate debt and equity are less desirable. Bank financing is attractive to at least half of the surveyed managers in Poland, Slovenia, Hungary, Bosnia and Herzegovina, Albania. It is less attractive in Montenegro, Bulgaria, Slovakia, Latvia, Lithuania, Romania. Issuing of the equity would be chosen mainly by managers in Albania, North Macedonia, Latvia, Lithuania, Romania. In recent years Baltic countries and Romania have placed much emphasis on the development of alternatives to bank financing, available on the stock markets. This clearly reflected on plans of the companies from these countries.