The Vienna Initiative: Bulgaria records the largest decline in non-performing loans in CEE, but NPL ratio remains higher than the average in the region

Bulgaria has recorded the largest decline in non-performing loans (NPLs) among the counties in Central, Eastern and Southeastern Europe (CEE and SEE) in the first half of 2023, according to the latest report, published by Vienna Initiative, a financial stability monitoring and coordination body in the region, set out by the European Bank for Reconstruction and Development (EBRD).

The share of NPLs to total loans in CEE and SEE has fallen to 2.2% as of June 2023, a 0.3 percentage point year-to-year decline. In Bulgaria, the decrease is 1.5 percentage points to 3.8% and the level is again, as in previous reports, above the regional average. The only country with an increase in the share of overdue loans is Ukraine, where the level now reaches 38.9% (see the chart). NPLs are declining in most countries in absolute terms, by an average of 6.8% per year.

Overdue loans in a total of 17 countries in CESEE are declining at the highest rate since 2016, when the Vienna Initiative data was first published. In the first report the average NPL ratio across the region was 7.2%. The most noticeable decline in eight years has been in Greece – in June 2015, the NPL volume in the country accounted for 33.4% of the total gross loan portfolio, and in the same month of 2023 they accounted for only 7.5% of the total gross loans.

View ENG_VIenna Initiative_NPL Monitor_H2_2023 on

In the first half of the last year, a small number of transactions for the sale of overdue loans from banks to specialized companies were realized. The decline in NPLs during this period was mainly due to write-offs, restructuring, enforcement and recovery efforts, the report’s authors noted. In Bulgaria, receivables offered for sale in 2022 were worth BGN 507 million, double less compared to 2021, according to Debt Collection Agency’s data.The Vienna Initiative report warns that macroeconomic challenges remain, including rising interest rates and ongoing inflation. Bank assets are likely to be affected by further shocks in real estate lending, unsecured consumer lending, and groups that have benefited from support during the pandemic. Negative impacts are also expected from sectors vulnerable to inflation and commodity prices.

The report underlines that regulators and banking supervisors need to be vigilant for any signs of deteriorating asset quality or increasing NPLs in the financial sector. According to the Vienna Initiative, banks should be fully prepared for potential declines in asset quality by ensuring that they have robust credit risk monitoring and management, appropriate loan classification, accurate planning and adequate provisioning.

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