Non-banking finance company sector NPLs decreased as lending increased

Non-banking finance company sector non-performing loans (NPLs) slightly decreased in the second quarter of 2021, according to the Bulgarian National Bank’s data. At the end of June their share was 9.06% compared to 9.39% by March. Overdue receivables as an absolute value increased, but the total growth in lending helped to reduce their share in the portfolio.

Majority of the non-banking finance companies lend more easily and at higher interest rates than the banking sector. There are branches of banking groups that transfer their consumer lending to a separate company. Their requirements are higher and the arrears are less, so it affects the overall data. Since the beginning of the COVID-19 pandemic in March last year, non-banking finance company sector NPLs have been increasing. In fact, the lowest share of overdue loans in the sector was registered in March 2020 (see chart below).



The loan moratorium was granted only by banks to their borrowers, so the clients of the non-banking finance company sector did not have the opportunity to defer their loans. It reflected in a rather strong growth in NPLs within a few months – the peak was at the end of December, when their share reached 9.68%. Since then, in the second quarter of 2021,  their share declined.

It is interesting that in recent months, for the first time, loans granted to non-finance corporations, i.e. to companies working in the real economy, have exceeded BGN 700 million. It is the result of the more flexible conditions and the less collateral securities that are required by businesses in order to receive loans. So, a lot of companies contacted banks during the COVID-19 crisis. However, the bulk of all loans were granted to individuals – for households.

Most of the loans in the sector were with greater than 5 years’ maturity. Long-term loans accounted for 44% of the total portfolio of the non-banking finance company sector. They declined by 2 percentage points compared to June 2020.

Leasing companies’ sector NPLs decreased again both in value and in share, according to the Bulgarian National Bank’s data for Q2 2021. As of the end of June they were 2.35% or a little over BGN 100 million.