Title: Bulgarian Banks’ Profits Dip Amid Rising Credit Risk
The Bulgarian National Bank (BNB) reported that the banking system’s profit for the first eleven months of 2024 stood at BGN 3.3 billion, a 1.0% decrease compared to the same period in 2023. The primary reason for this decline is the significant increase in provisions for credit losses, which have surged by 275 million BGN (90.9%) year-on-year.
Analysts at BNB attribute this increase to higher provisions for financial assets that are not measured at fair value through profit or loss, primarily loans. The provisions for credit losses reached 578 million BGN in the first eleven months of 2024, compared to 275 million BGN in the same period last year.
Two main factors typically drive such an increase in provisions: deterioration in the quality of the credit portfolio, i.e., higher delinquencies, and a more pessimistic outlook on business conditions, leading to an increased risk of default among large population groups due to job losses or reduced income.
Bulgarian Households’ Debt Surpasses BGN 45 Billion
According to a recent report, Bulgarian households’ debt has exceeded BGN 45 billion, with an annual growth rate of over 20%. This rapid increase in debt levels, coupled with the rising provisions for credit losses, suggests a potential credit crunch in the Bulgarian economy.
Banking Sector’s Assets and Liabilities
In November 2024, the banking system’s assets increased by BGN 1.2 billion (0.6%) to BGN 183.6 billion. Over the past year, this represents a growth of nearly BGN 20 billion. This increase is primarily driven by a rapid rise in deposits from individuals. In the last 12 months, total deposits in the banking sector have grown by BGN 15 billion to BGN 155.4 billion.
Banking Sector’s Role in Economic Growth
Despite the challenging economic and political environment, banks continue to be a significant driver of economic growth in Bulgaria. They achieve this by actively providing credit at relatively low costs. In November 2024, the banking system’s total gross loans and advances increased by BGN 1.1 billion (1.0%) to BGN 119.2 billion. Meanwhile, loans to credit institutions decreased by BGN 475 million (4.7%) to BGN 9.6 billion. The banking system’s gross loan portfolio grew by BGN 1.6 billion (1.5%) to BGN 109.6 billion.
Compared to a year ago, the gross loan portfolio has grown by BGN 9 billion. The significant increase in newly issued loans is due to the way the gross loan portfolio is calculated, which subtracts principal repayments on existing loans.
High Liquidity Levels in the Banking Sector
Despite significant changes in the banking sector’s liquidity position, the liquidity ratio remains very high. As of 30 November 2024, the liquidity coverage ratio stood at 266.8%, down from 255.7% at the end of October. The liquidity buffer decreased to BGN 48.4 billion, while net outflows of liquidity decreased to BGN 18.1 billion.
Growing Capital Base
The banking sector’s capital base continues to grow, primarily driven by capitalizing on banks’ profits. As of the end of November 2024, the banking system’s capital base stood at BGN 22.7 billion, an increase of BGN 287 million (1.3%) from the end of October. A year ago, the capital base was BGN 19.9 billion.
Sources: Bulgarian National Bank, Money.bg
SEO Keywords: Bulgarian banking sector, banking profits, credit risk, Bulgarian households’ debt, banking assets, economic growth, liquidity, capital base.
