Banks in Bulgaria take advantage of the moment and intensely clear their portfolios. This is what the chairman of the Association of Banks in Bulgaria (ABB) Petar Andronov commented in the newsletter for the first quarter of the organization. At a favorable moment Andronov understands economic growth above the average for Europe, coupled with low unemployment, income growth and fiscal stability.
The banker is not as optimistic about the current year and warns of a change in the interest cycle coupled with a slowdown in the economy. As an argument Andronov brings the signals from the external environment and the monetary policy that the central banks are leading.
Bankers Predict Delays in Debt Consolidation
More than a year in Bulgaria there is talk of an expected increase in interest rates. The initial forecasts were to happen from the second half of 2018, now the expectations are offset for the second half of this year. Andronov says that banks are already preparing their clients for unfavorable changes. An important event for the banking system will be the announcement of the results of the stress tests of several Bulgarian banks, which is expected to happen in July. Asset quality assessment is done by the European Central Bank with the help of the BNB.
Stress tests do not expect surprises and shocks in the banking sector, but as a rule they may lead to increased sales of uncollected receivables to collector companies. Compared to the 3-4 year period, banks are now selling much larger packages of bad debts. Last year the biggest deal was concluded between UniCredit Bulbank and the Receivables Collection Agency (ASB) – for nearly 250 million euros of non-performing loans. At the end of September, the total level of bad loans in the portfolios of Bulgarian banks was 8.8%, with a tendency to decrease. ABB’s Bulletin Peter Andronov reminds that at the end of 2014, non-performing loans were 16.9%. The level remains above the EU average, but the Bulgarian banking system has a higher level of coverage with depreciation of non-performing loans compared to the Union’s indicators, says Andronov.
BNB Governor Dimitar Radev warns of accumulating credit risk in banks, given the ongoing expansion of borrowed funds. The risk would be to slow down economic activity or conditions that are worse than those in recent years, Radev said. There are signs of problems and increased uncertainty in the eurozone and beyond. This could bring negative effects to Bulgaria, the BNB Governor thinks.
According to Petar Andronov, banks have maintained their strict criteria for funding. According to him, commercial banks are careful not to give “unreasonable” loans to businesses and individuals, and work with clients who are really solvent. Shortly after the announcement of the bank bulletin, the property agency “Address” reported its observations on the housing market – the last quarter of last year , mortgage deals declined for the first time in three years. So far, the property market has been moving from low interest rates and affordable loans, but an increase in interest rates will lead to a decline in demand. From Address, which are among the largest real estate agencies, believe that if the downturns continue, prices will also go down. At the same time, customers are relying on an increasing percentage of borrowing funding, the agency adds.