Financial Crime World

Bulgaria’s Banking Sector Reports Resilient Performance Amid Economic Challenges

Despite the ongoing effects of the war in Ukraine and the monetary tightening cycle in Europe, Bulgaria’s banking sector has demonstrated remarkable resilience in 2022. The sector’s assets grew by 14.8% to BGN 155.4 billion (EUR 79.5 billion), driven by robust export growth, wage and social transfer increases, and a solid capital position.

Key Performance Indicators

  • Assets: BGN 155.4 billion (EUR 79.5 billion)
  • Loan-to-asset ratio: 59.6%
  • Cash balances: 21%
  • Securities: 15.2% (down from 16.7% in the previous year)
  • Total deposits: BGN 116.5 billion (EUR 72 billion), with households holding approximately two-thirds of the total deposits

Capital and Leverage Ratios

The banking sector’s capital and leverage ratios remained well above regulatory requirements, with a:

  • Common Equity Tier 1 ratio (CET1) of 19.9%
  • Total capital ratio of 22.2%

Net profit increased by 47.3% to BGN 2.079 billion (EUR 1.063 billion), driven by double-digit growth in the loan portfolio volume, rising interest rates, and reduced impairment charges.

Interest Rates

The average interest rates on new deposits and loans continued to rise gradually:

  • Average rate on deposits with agreed maturity from households: 0.33% (up 23 basis points)
  • Average interest rate on mortgage loans in BGN: 2.87%
  • Consumer loan APRs: 10.16% in BGN

Regulatory Requirements and Euro Adoption Preparations

The Bulgarian National Bank (BNB) identified eight banks as other systemically important institutions (O-SIIs) and set buffer levels between 0.50% and 1%. The counter-cyclical capital buffer will increase from 1% to 1.5% in 2023.

Financial Performance

The banking sector’s return on assets (ROA) increased to 1.4%, while its return on equity (ROE) grew to 12.3%. These figures indicate a solid financial performance, despite the challenging economic environment.

Conclusion

Bulgaria’s banking sector demonstrated remarkable resilience and adaptability in 2022, driven by a strong capital position, robust loan growth, and gradual interest rate increases. As the sector prepares for euro adoption and continues to navigate the ongoing economic challenges, it is likely that it will remain a key driver of economic growth in Bulgaria.