Non-performing bank loans in Bulgaria increased in the first quarter of the year, according to BNB data. In contrast to previous quarters, the growth of lending failed to compensate for the increase in NPL – the share of overdue loans grew and for the second consecutive quarter was over 2% of the total portfolio. Consumer loans for households, as well as those for corporate customers, are mainly problematic. But in mortgage loans data shows even a slight decline in non-performing debt (see the chart).
In the last months some economists have warned of overheating of the housing loan segment and the creation of a property bubble, which will have a negative impact on the entire banking system. According to the Central bank’s latest report, prolonged periods of high credit activity create conditions for an increase in indebtedness and accumulation of credit risk and growth in non-performing loans. The expectations of the BNB are that the increase in interest rates in the Euro area will be transferred to Bulgaria with a delay, but only partially. In mid-2023, the BNB increased the minimum required reserves of commercial banks in order to slow the growth of lending.
The decline in overdue loans last year was due to sales of portfolios of specialized companies and write-offs, according to the BNB. The supervision pays attention to the high proportion of credits in Phase 2 – these are loans that are not officially non-performing, but are at risk of becoming so. The advice to commercial banks is to apply adequate provisioning.
At the end of March, the NPL value in the banking system, with over 90 days past due, was BGN 2.445 billion (EUR 1.25 billion) – 10.63% growth compared to December. As a share, this is 2.14% of the banks’ credit portfolio. Another nearly BGN 1.83 billion (EUR 0.936 billion) are overdue, but for a period shorter than 90 days. In terms of absolute value, the most problem loans are among non-financial enterprises, i.e. real business. It accumulated nearly BGN 1.5 billion (EUR 0.767 billion) NPL, over 15% growth for the quarter. More than 7% is the increase in overdue household consumer loans, and 7% down is the change in mortgage loans.
It should be considered that consumer loans are somewhat tied to mortgages – often banks grant consumer credit to a mortgage for additional financing of a property purchase, as well as for repairs. These numbers also include ordinary consumer loans, as well as part of commodity loans. Some banks have separated their consumer lending into non-banking companies and their data are not included in the banking statistics, but are reported in that of the non-banking financial companies specialized in lending.
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