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Banks Face Greater Risks Amid Shift in Macroeconomic Landscape
As the European macroeconomic landscape undergoes significant changes, Bulgarian banks are bracing themselves for greater dynamics in asset and liability values, as well as returns. The reversal of the interest-rate cycle and anticipated shifts in central bank policies will play a crucial role in shaping financial conditions in the country.
Inflation Expectations
The global macroeconomic situation is expected to continue placing inflation at the forefront. In Bulgaria, price growth is forecast to peak in the first half of 2022 before declining below December 2021 levels by year-end. The exact nominal levels will depend on a combination of anti-inflationary and pro-inflationary factors, including energy prices and foodstuff costs.
Key Factors
- Energy prices
- Foodstuff costs
Budget Discussions
The upcoming discussions on Bulgaria’s 2022 budget are likely to provide valuable insights into the country’s macroeconomic trajectory. Key topics for the banking sector include:
- Annual and medium-term framework
- Debt management
- Incomes policy
- “Contingent liabilities” in the energy, transport, and social security sectors
Challenges Ahead
In 2022, banks will need to strike a balance between expanding lending opportunities and addressing economic uncertainty driven by inflation and pandemic-related risks. Maintaining asset quality will be a top priority for each institution.
Top Priorities
- Expanding lending opportunities
- Addressing economic uncertainty
- Maintaining asset quality
BNB Support
The Bulgarian National Bank (BNB) is committed to implementing measures to mitigate and neutralize risks in the banking sector, focusing on preserving and strengthening capital reserves and loss-absorbing capacity. The BNB has already increased the countercyclical capital buffer to 1.5% and confirmed the systemic risk buffer at 3%.
BNB Measures
- Increased countercyclical capital buffer to 1.5%
- Confirmed systemic risk buffer at 3%
Euro Adoption Project
The BNB is also pushing forward with Bulgaria’s euro adoption project, which involves more than just the banking sector. The institution has mobilized efforts to implement the Euro Adoption Plan, which was adopted by the Coordination Council on June 30, 2021.
Key Objectives
- Implementing the Euro Adoption Plan
- Mobilizing efforts across sectors
Conclusion
2022 promises to be a challenging but opportunity-filled year for Bulgarian banks. Despite the complexities ahead, the sector’s strong foundation and achievements in 2021 position it well to meet these challenges and seize new opportunities.