Financial Crime World

Bulgarian Banking Sector Maintains High Levels of Stability and Profitability

The Bulgarian banking sector has continued to demonstrate stability and profitability despite operating in a challenging economic environment, according to recent data.

Impairment Coverage Ratio

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%. This is not surprising given Bulgaria’s banking system has traditionally been characterized by high provisioning levels.

Financial Results

The sector’s net interest income increased by 4.5% year-on-year to BGN 2.76 billion (EUR 1.41 billion) due to higher lending activity throughout the year. Net fees and commissions grew by 19.5% year-on-year to BGN 1.24 billion (EUR 634 million). The sector’s net profit reached BGN 1.416 billion (EUR 724 million), up from BGN 814.7 million (EUR 416.6 million) a year earlier.

Factors Contributing to Improved Financial Results

The Bulgarian economy’s gradual recovery from the COVID-19 pandemic has had a positive impact on the banking sector, with lower impairment expenses and accelerated lending activity contributing to improved financial results. Low interest rates and effective management of credit quality have also helped maintain profitability.

Key Performance Indicators

  • Return on Assets (ROA) increased to 1.05% in 2021, up from 0.66% a year earlier.
  • Return on Equity (ROE) grew to 8.5%, compared to 5.3% in the previous year.

Investment and Regulatory Requirements

Despite the challenging environment, the banking sector has continued to invest in digital transformation, cybersecurity, and process management, with a focus on achieving a green and sustainable economy. Regulatory requirements have also played a significant role in shaping the sector’s performance. The introduction of the net stable funding ratio (NSFR) as part of the Basel III framework has led to increased stability in the sector, with all Bulgarian banks complying with the requirement by September 2021.

Outlook

The Bulgarian banking sector’s high levels of stability and profitability are likely to continue, driven by the economy’s gradual recovery and the sector’s ongoing efforts to improve efficiency and adapt to changing regulatory requirements.