Lending in the Bulgarian banking sector is growing, and non-performing loans (NPL) in some segments are decreasing, according to the data from the monetary statistics of the BNB at the end of May. The overall growth of granted loans was 13% on an annual basis, with the increase in loans to households being much stronger than in the corporate sector. Much of the growth among households is due to housing loans, which have grown by 24.45% year-on-year (see the chart).
Despite fears that the strong increase in mortgage lending creates risks in the system, BNB data do not show such a picture so far. The loans determined by BNB as bad and restructured are total BGN 3.56 billion (excl. financial companies), a 1% decrease in value on an annual basis. As a share of the total portfolio in the banking sector, they decreased from 4.61% to 4.09%.
Mortgage NPL noted a significant drop – in May last year they dropped to below BGN 300 million, and now they are less than BGN 243 million. Consumer NPL are also decreasing and by May their value is lower than BGN 900 million. There is a slight increase only in NPL and restructured company loans.
The BNB does not see a serious problem with lending and repeatedly points out that the banking system is stable, but the risk of a worsening economy remains. BNB recently announced that it will keep the countercyclical capital buffer at 2% for the third quarter of 2025, the same as it is now, as of October last year. The buffer is a type of guarantee for the stability of the system and the credit market, and through it the volume of granted loans can be indirectly influenced.
“In the short term, the increase in credit volumes has a positive effect on the profitability of the banking sector, but prolonged periods of high credit growth create prerequisites for a potential increase in indebtedness and accumulation of credit risk in banks’ balance sheets. In the event of unfavorable trends in the economic environment, the ability to service obligations may weaken, leading to an increase in non-performing loans and impairment costs,” the BNB warns.
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