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Bulgaria’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

Driven by private consumption and business investments, in 2018 Bulgarian GDP recorded slower real growth of 3.1% compared to 3.8% in 2017. Nevertheless, the economic growth in Bulgaria was above the average for the EU economy for the fourth successive year.

In 2018 the unemployment rate declined to the historically low level of 5.2%. Mainly due to price changes in the energy resources and higher internal demand, the average annual change of HICP in Bulgaria increased to 2.6% in 2018 compared to 1.2% in 2017.

The favourable state of the Bulgarian economy, characterised 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.

At the end of 2018, there were 25 banks operating in Bulgaria, five of which were foreign bank branches. The top five banks held approximately 59.4% of all assets in the banking system. At the end of 2018 the market share of domestic banks was 22% 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 2017 the number of card payments initiated through virtual POS terminals increased by 43%, and their amount grew by 91%. In 2017, 56% of the credit transfers were initiated electronically, which represents two third of the total value of all credit transfers. According to preliminary data from the Bulgarian National Bank (BNB – the central bank of Bulgaria) for 2018 and 2019, these trends have been maintained.

In 2018 banks’ total assets increased by 7.9% year-on-year to €54 billion (BGN 105.6 billion). The share of loans and advances increased to 63.3% compared to 61% at the end of December 2017. The share of cash dropped to 19.3% from 19.9% and the share of securities decreased to 12.9% from 14.3%.

The loan portfolio of the banking system grew at a moderate pace due to the favourable economic environment, low interest rates, competition and higher loan demand. According to the BNB’s interest rate statistics, average interest rates on new deposits remained low in all sectors and currencies in 2018, and 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 to €27.87 billion (BGN 54.51 billion) from €25.87 billion (BGN 50.63 billion), according to the BNB monetary statistics. In the last year the outstanding loans to non-financial corporations, including small and medium-sized enterprises (SMEs), which represent 99.9% of all enterprises in the country, increased by 5.4%, reaching €16.7 billion (BGN 32.69 billion). By sectors, the highest amount of loans and deposits were in the trade, manufacturing, construction and real estate industries.

Deposits held by banks grew by 7.3% in 2018 and reached €39.7 billion (BGN 77.66 billion), or 72% of GDP, despite the low interest rate levels. Approximately two thirds of the deposits were held by the household sector (66.4%).

The banks have used the favourable momentum to clean their loan portfolios intensively as evidenced by the decline in the share and the amount of NPLs. As of 31 December 2018, the amount of NPLs (excluding central banks and credit Institutions) dropped to €2.3 billion (BGN 4.54 billion) in absolute terms, or to 7.5%. Although the level of NPLs is still 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 2018 as the adjusted net profit of the system grew by 12% to €736 million (BGN 1.44 billion). Adjusted net interest income decreased by 0.6% to €1.36 billion (BGN 2.66 billion) despite the increase in lending. The adjusted net income from fees and commissions increased by 4% to €530 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 2018, CET 1 for the whole banking system was 18.99% and the total capital adequacy was 20.38%. The Liquidity coverage ratio stood at 294.1%. In 2018, return on assets increased to 1.6% from 1.2% and return on equity grew to 12.1% from 9.3% a year ago.

In 2018, the banks paid €72 million (BGN 140.8 million) as a corporate tax, which represented 5.7% of all corporate tax revenue in 2018.

As of the end of 2018, 65,400 people were employed in the financial sector, and approximately half of them were in the banking sector.

Contributor: Svilen Kolev ebf_abb@abanksb.bg