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Bulgaria’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

Driven by private consumption, government consumption, business investments and despite the negative contribution of the net export, Bulgarian GDP recorded in 2019 a faster real growth of 3.7% (3.1% in 2018).

In 2019, the unemployment rate declined to the historically low level of 4.2%. The average annual change of HICP in Bulgaria remained broadly unchanged at 2.5% in 2019 (2.6% in 2018).

The favourable state of the Bulgarian economy, characterized by low unemployment, increasing incomes, stable fiscal position and the lack of excessive imbalances had a positive impact on the Bulgarian banking sector. It was also marked by several tendencies: consolidation processes, increasing growth in deposits, continuing increase in lending accompanied by higher revenues, decrease in non-performing loans (NPLs) and growing digital challenges. The expected positive developments regarding the establishment of close cooperation between the Bulgarian National Bank (BNB – the Central bank of Bulgaria) and the ECB and the participation of the Bulgarian lev in ERM II also played a key role.

At the end of 2019, there were 25 banks operating in Bulgaria, six of which were foreign bank branches. The top five banks held approximately 62.1% of all assets. At the end of 2019 the market share of domestic banks was 21.7% and the share of EU subsidiaries was 72.1%. The number of banks is constantly decreasing due to the consolidation processes taking place in the sector.

The volume of cashless payments has been growing steadily. Between 2015 and 2018 the amount of card payments initiated through virtual POS terminals increased more than twofold. In 2018, 31.1% of the credit transfers were initiated electronically, which represents two thirds of the total value of all credit transfers. According to preliminary data from the BNB for 2019 and 2020, that trend has been maintained. The number of people using Internet for banking grew to 8.6% in 2019 from 7.4% the previous year, according to the National Statistical Institute data.

In 2019 the total assets of the banks increased by 8.2% year-on-year to €58.4 billion (BGN 114.2 billion). The share of loans and advances increased to 65.7% compared to 63.3% at the end of 2018. The share of cash dropped to 15.9% from 19.3% and the share of securities increased to 13% from 12.3%.

The loan portfolio of the banking system grew at a moderate pace due to the continuing favourable economic conditions, low interest rates and competition. According to the BNB interest rate statistics, the average interest rates on new deposits remained low and the interest rates on loans declined compared to the previous year.

The total amount of loans outstanding to the non-government sector (non-financial corporations and households) rose by 7.4% to €29.92 billion (BGN 58.52 billion) from €27.87 billion (BGN 54.51 billion), according to the BNB monetary statistics. In the last year the outstanding loans to non-financial corporations, including SMEs, which represent 99.9% of all enterprises in the country, increased by 5.9%, reaching €17.7 billion (BGN 34.62 billion). By sectors, the highest amount of loans and deposits were in the trade, manufacturing and construction industries.

Deposits held by banks grew by 9.7% in 2019 and reached €43.54 billion (BGN 85.16 billion), or 71.8% of GDP, despite the low interest rate levels. Approximately two thirds of the deposits were held by the household sector (65.3%).

The banks have used the favourable momentum to continue cleaning their loan portfolios intensively as evidenced by the decline in the share and the amount of NPLs. As of the end of 2019, the amount of NPLs (excluding central banks and credit institutions) dropped to €2.01 billion (BGN 3.94 billion) in absolute terms, or to 5.94%. Although the level of NPLs is above the EU average, the higher level of coverage for gross non-performing loans by provisions compared with the average level of the EU countries is typical for the Bulgarian banking system.

The higher credit growth, accompanied by increased revenues from payment services, the better quality of the loan portfolio, the lower impairments, the declining interest rates and some one-off effects influenced the financial result of the sector for 2019 as the adjusted net profit of the system grew by 11.6% to €819 million (BGN 1.6 billion). The net interest income increased by 0.1% to €1.4 billion (BGN 2.75 billion) despite the increase in lending. The net income from fees and commissions increased by 3.8% to €566 million (BGN 1.11 billion).

The capital position of the banking sector continued to be marked by a significant capital surplus above the regulatory requirements for the capital adequacy and leverage ratios, at a system and local level, as well as in comparison with the average levels of European banks. At the end of 2019, CET 1 for the whole banking system was 19.04% and the total capital adequacy was 20.16%. The LCR stood at 269.9%. In 2019, on adjusted basis, ROA increased to 1.47% from 1.36% and ROE rose to 11.6% from 10.4% a year ago.

In 2019, the banks paid €84.5 million (BGN 165.3 million) as a corporate tax, which represented 6.1% of all corporate tax revenue in 2019.

As of the end of 2019, 67,300 people were employed in the financial sector, and approximately half of them were in the banking sector.

Contributor: Svilen Kolev ebf_abb@abanksb.bg