Macro Analysis /
Bulgaria

Banking System Overview H2'19

    First Financial Brokerage House
    16 April 2020
    Gross loans grow by 8.8% yoy; the banking system has significant buffers to sustain any potential crisis The banking system seems to be well prepared to preserve its strength and to remain profitable despite the economic consequences of COVID-19 restrictions. The crisis triggered by COVID-19 and its restrictions would without any doubt have negative consequences on the overall economy and the banking system. However, we believe that the moratorium on bank payments would have positive short-term effect on the profitability and the stability of the system by increasing interest income and F&C income, while reducing provisioning charges. Gross loans increased at the highest pace over the last few years +8.8% YoY (+BGN 5.4bn) with retail segment (+9.6%) significantly outgrowing the corporate segment (+4.9%). H2’19 new business volumes registered 12.1% growth compared to the respective period of 2018 with new consumer loans rising 17.7%, mortgage loans increasing 12.6% and corporate loans growing 11.5%. The overall decline of the interest rates continued in the second half of the year. The corporates were the biggest gainer as the interest rate on BGN denominated corporate loans on new business was down to 2.95%, while interest rate on BGN mortgage loans declined to 3% in Q4. The NPE’s ratio was down to lowest level in over 10 years of 9.23% of gross loans. H2’19 became the turning point for the banking sector as H2’19 net income declined 13.7% YoY on lower net interest income, lower FX gains and increase of other operating expense.