Non-performing loans (NPLs) to households have been growing, while the risks of asset quality deterioration have remained, according to the new Banks in Bulgaria report, published by Bulgarian National Bank (BNB). The report covers the third quarter of 2023, when the share of NPLs in Bulgarian banks has stood at 4.4%, a slight decline compared to June. The gross credit portfolio, however, has grown by 3.2%, which means that the NPLs have fallen as a share, but their absolute value has grown.
In the latest bulletin of the Association of Banks in Bulgaria, BNB Governor Dimitar Radev gives a clear signal that the central bank is considering tightening mortgage lending with measures aimed at customers. Until now the regulator’s measures were mainly aimed at the minimum reserves of the commercial banks, and there were only guidelines for their customers.
Radev points out that “the continued strong growth of mortgage loans at the end of 2023, however, creates conditions for an increase in household indebtedness, albeit from a relatively low level, and for a rapid accumulation of credit risk in the balance sheet of the banking system, which may require the implementation of additional macroprudential measures by the BNB in 2024.” As an example of measures, he notes the imposition of requirements on borrowers that banks should be obliged to apply when they grant loans to households. For now, there is no explanation of exactly what the measures might be, as they may only affect certain groups of borrowers and only certain types of loans.
In its own report, the BNB notes that write-offs on loans to non-financial companies also increased in the third quarter. The share of Stage II loans remains relatively high in view of the likelihood of credit risk materializing in the short term. According to the Central Bank, the ability to service credits is likely to decline due to commodity price fluctuations, risks of a slowdown in external demand and an expected rise in lending interest rates. On the positive side, inflationary pressures are easing. Credit growth to non-financial companies slowed down due to tightening interest rate conditions and more moderate demand for working capital.
In households, however, the credit activity is high, especially in mortgage lending. The BNB warns that this creates prerequisites for accumulation of credit risk. Also noteworthy is the large share (over 40%) of loans where the repayment is over 40% of the borrower’s disposable income. The average amount of the new loans granted rises to BGN 180 000 (EUR 92 033) in the third quarter of 2023, compared to BGN 156 000 (EUR 79 762) average in 2022, due to the higher real estate prices. In addition, longer repayment terms increase risks.
The Central Bank recommends to the commercial banks to take a conservative approach to their lending activities, assessing the creditworthiness and solvency of the debtor in addition to collateral. BNB advises this should be assessed under current conditions and in the event of any adverse changes in the term of the contract.
дход при кредитната си дейност, като освен обезпечение, да оценяват и кредитоспособността и платежоспособността на длъжника. Съветът е това да се оценява при настоящите условия и при евентуални неблагоприятни промени в срока на договора.