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Bulgaria’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

Due to the unfavourable effects from the coronavirus pandemic, which led to negative contribution of the net export and business investments and despite the positive contribution of government expenditures and private consumption, Bulgarian GDP shrunk by 4.2% in 2020 (+3.7% in 2019).

In 2020, the unemployment rate increased to 5.1% from the historically low level of 4.2%. The average annual change of HICP in Bulgaria declined to 1.2% from 2.5% in 2019.

In 2020, the banking sector operated in the context of lower economic activity and in an environment of restrictive measures because of the pandemic. The loan moratorium, low and negative interest rates, increased impairment costs, lower income from fees and commissions, the slowdown in credit growth in the context of Covid-19 and declining profits also affected the banking system activity during the past year.

Despite being in the shadow of the economic and health crisis, in July 2020 the Bulgarian lev was included in the Exchange rate mechanism (ERM II), which is an important step for the country’s accession to the euro area. As of 1st of October, 2020, Bulgaria joined the Single Supervisory Mechanism launching the close cooperation between the Bulgarian National Bank (BNB) and the ECB, as the country also joined the Single Resolution Mechanism. As a result, five banks defined as significant, fell under the direct supervision of the ECB, which implies many new commitments for them.

At the end of 2020, there were 24 banks operating in Bulgaria, six of which were foreign bank branches. The top five banks held approximately 66.6% of all assets. At the end of 2020 the market share of domestic banks was 22.4% and the share of EU subsidiaries was 71.5%. The number of banks is decreasing due to the consolidation processes taking place in the sector.

The use of payment services in Bulgaria develops dynamically. The number of card payments initiated via virtual POS terminals has increased by almost 90% in the last five years. Cards continue to be a widely used payment instrument in the pandemic, preserving the upward trend in the volume of payments. The share of people using Internet for banking grew to 12.6% in 2020 from 8.6% a year ago, according to the National Statistical Institute data.

In 2020 the total assets of the banks increased by 8.6% year-on-year to €63.4 billion (BGN 124 billion). The share of loans and advances decreased to 58.9% compared to 65.7% at the end of 2019. The share of cash rose to 21.9% from 15.9% and the share of securities increased to 15.3% from 13%.

The loan portfolio growth of the banking system slowed down because of the pandemic and the loan moratorium. According to the BNB interest rate statistics, the average interest rates on new deposits and on new loans registered a slight decline compared to the previous year.

The total amount of loans outstanding to the non-government sector (non-financial corporations and households) rose by 4.5% to €31.26 billion (BGN 61.13 billion) from €29.9 billion (BGN 58.52 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 3%, reaching €18.22 billion (BGN 35.64 billion). By sectors, the highest amount of loans and deposits were in the trade, manufacturing and real estate industries.

As of the end of 2020, a total of 89,478 applications for deferral of loans at the amount of €4.13 billion (BGN 8.07 billion) were approved.

Deposits held by banks grew by 9.7% in 2020 and reached €47.8 billion (BGN 93.4 billion), or 78.7% of GDP, despite the low interest rate levels. Approximately two thirds of the deposits were held by the household sector (65.4%).

The downward trend regarding the share and the amount of NPLs continued, despite the challenges posed by the pandemic. As of the end of 2020, the amount of NPLs (excluding central banks and credit institutions) dropped to €1.7 billion (BGN 3.32 billion) in absolute terms, or to 4.8%. 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 impairment costs and accrued provisions, lending dynamics, lower incomes from fees and commissions, low interest rates, expenditure and credit portfolio management as well as some one-off effects influenced the financial result of the sector for 2020 as the net profit of the system dropped by 51.4% to €416.5 million (BGN 814.6 million). The net interest income decreased by 3.5% to €1.36 billion (BGN 2.65 billion) despite the increase in lending. The net income from fees and commissions declined by 6.1% to €532 million (BGN 1.04 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 2020, CET 1 for the whole banking system was 21.69% and the total capital adequacy was 22.74%. The LCR stood at 279%. In 2020, ROA decreased to 0.66% from 1.47% and ROE dropped to 5.31% from 11.6% a year ago.

In 2020, the banks paid €44.1 million (BGN 86.3 million) as a corporate tax, which represented 3.2% of all corporate tax revenues in 2020.

As of the end of 2020, 62,400 people were employed in the financial sector, and approximately half of them were in the banking sector.

Contributor: Svilen Kolev ebf_abb@abanksb.bg