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Bulgarian Banking System Outperforms EU Average in Impairment Coverage Ratio

Despite operating in a challenging economic and regulatory environment, Bulgaria’s banking sector has continued to demonstrate stability, profitability, and high levels of capital adequacy and liquidity.

High Impairment Coverage Ratio

According to data from the Bulgarian National Bank (BNB), the impairment coverage ratio for gross non-performing loans (NPLs) stood at 72.1% as of the end of 2021, significantly higher than the EU average of 43.34%.

Factors Contributing to Robust Performance

The banking sector’s robust performance was driven by a number of factors, including:

  • Accelerated lending activity
  • Low interest rates
  • Effective management of credit risk

Financial Results

The net interest income increased by 4.5% year-on-year to BGN 2.76 billion (EUR 1.41 billion), while the net income from fees and commissions grew by 19.5% to BGN 1.24 billion (EUR 634 million). The sector’s financial results were also boosted by a decrease in impairment expenses and provisions, as well as one-off effects observed in the financial statements of some banks.

Economic Conditions

The state of the Bulgarian economy, which has been gradually recovering from the COVID-19 pandemic, continued to affect the activities and results of the banking sector.

Key Performance Indicators

As of December 31st, 2021, key performance indicators for the Bulgarian banking system include:

  • Return on Assets (ROA): 1.05%
  • Return on Equity (ROE): 8.5%

Interest Rates and Regulations

The average interest rates on new deposits and loans continued to decline, with the average interest rate on deposits with agreed maturity for households falling by 4 basis points to 0.10% from 0.14%. Regulatory requirements also played a significant role in shaping the sector’s performance. The implementation of Basel III regulations, including the net stable funding ratio (NSFR), required banks to maintain a level of stable funding equal to or greater than 100%. As of September 2021, all Bulgarian banks complied with this requirement.

EU Membership and Euro Adoption

The Bulgarian banking system is also subject to EU-wide regulations and requirements, including membership in the Single Supervisory Mechanism and the Single Resolution Mechanism. The country is working towards adopting the euro by January 1, 2024, and has a plan in place for achieving this goal.

Conclusion

Overall, Bulgaria’s banking sector continues to demonstrate resilience and stability, outperforming the EU average in terms of impairment coverage ratio and maintaining high levels of capital adequacy and liquidity.