The BNB warns of the risk of overdue payments on bank loans

The risks that banks in Bulgaria face in their credit portfolios are growing, despite the fact that the tightening of the monetary policy is being transferred to interest rates slowly, according to the latest report of the BNB “Banks in Bulgaria”. With the high liquidity of the banking system, interest rates on deposits do not change significantly against the background of their growth in the euro area. The BNB notes that due to the rise of reference indices, loans for non-financial enterprises become more expensive. For households there is no tightening for now.

According to BNB’s data, in the second quarter of 2023, the volume of non-performing loans (NPL) decreased slightly due to multidirectional changes in the individual segments of the total loan portfolio. For example – in the household’s lending sector there are write-offs, and in the corporate loans for the real business – an increase in unserved ones.

In the second quarter of the year the gross credit portfolio of the banking system increased at a higher rate than the first – from 2.8% the growth reached 3.7%. However, the decline in the cases of NPL is delayed – in three months they have decreased by only 0.2 percentage points to 4.5% of all (see the chart).

The quality of bank assets is improving, thanks to the collection of debt, write-offs and their sale, says the report. The total credit portfolio of the banks reached BGN 108 billion at the end of June, 6.3% more than in March. The growth of loans granted to households, as well as corporate loans to the non-financial sector, was the largest.

The ability of debtors to service loans on time may weaken due to fluctuations in energy prices, the risks of problems in supply chains and the expected slowdown in external demand, the Central bank warns. This will lead to a rise in NPL and more impairment charges. The global trend of rising interest rates will affect the financial condition of borrowers, the report added. The recommendation of the Central bank is that credit institutions adhere to a conservative policy and provide adequate plans for the possibility of an exacerbation of economic risks and negative trends.

Since the beginning of 2023, there has been a decrease in the volume of loans in Stage 2 (officially they are not yet overdue for more than 90 days, but there is a risk of becoming non-performing), and regardless of this, their share remains at a relatively high level.

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