Bulgaria's banking system is on track to surpass three billion leva in profits again this year, following the record-breaking 3.4 billion leva reported in 2023. According to the Bulgarian National Bank (BNB), commercial banks in the country had already posted a total profit of 3.0 billion leva by the end of October. However, the growth in profits this year is significantly smaller than in recent years, with a modest increase of 0.6%, or 17 million leva, compared to the same period in 2023.

In previous years, the sector saw substantial profit increases, including a 74% rise in 2021 to 1.4 billion leva, a 47% jump in 2022 to 2.1 billion leva, and a 61% surge in 2023 to the record level of 3.4 billion leva. This consistent growth has been fueled by higher revenues from banking fees and a significant expansion in lending activity, paired with gradual increases in interest rates. Meanwhile, interest rates on clients’ deposits have remained stagnant at near-zero levels.

From January to October this year, net interest income for commercial banks reached 4.615 billion leva, marking a 15% increase compared to the same period in 2022. Additionally, net income from fees and commissions totaled 1.328 billion leva, reflecting an 8% rise year-on-year.

A notable trend this year has been the significant increase in provisions set aside for potential bad loans. By the end of October, banks had allocated 515 million leva for this purpose, representing a 70% increase, or an additional 212 million leva, compared to the same point in 2023.

In response to the looming budget deficit for the upcoming year, Acting Finance Minister Lyudmila Petkova proposed a tax on banks’ excess profits as part of potential measures to generate additional revenue. This proposal aligns with the European regulation for a "temporary solidarity contribution," initially introduced in 2022 for oil and gas companies that had profited from high energy prices. The measure, which involves a 33% tax on excess profits calculated via a special formula, is projected to bring in an estimated 200 million leva for the state budget.

However, the Association of Banks in Bulgaria and the Bulgarian National Bank have expressed opposition to such a tax, warning it could lead to reduced lending activity, slowed economic growth, and diminished budget revenues. They argue that withdrawing capital from the banking system would have broader negative implications for the economy.

Sources:

• Bulgarian National Bank (BNB)
• econ.bg