Bulgarian Bank System Bad Loans Hit Record High

Business » FINANCE | October 24, 2012, Wednesday // 13:45
Bulgaria: Bulgarian Bank System Bad Loans Hit Record High Bulgaria's central bank BNB. Photo by Sofia Photo Agency

Bulgarian bad and restructured loans rose to a record high at the end of April, amounting to over BGN 10 B, shows central bank data.

This marks an increase by BGN 130 M in comparison with the previous month.

Consumer loans marked once again a decrease, but not sufficient to make up for the sharp rise in corporate loans, which accounted for a record high 23.34% of total lending.

The Bulgarian banking system is concentrated, with most of the assets owned by large financial institutions from the eurozone. Greek banks control about 28% of banks' total assets in Bulgaria.

An International Monetary Fund (IMF) mission, which visited Sofia at the beginning of May, said the banking system remains well capitalized, liquid, profitable, and well supervised.

As growth slowed, gross non-performing loans (NPLs) rose in the first quarter of 2012 but their coverage by provisions remained high.

According to the IMF reforming the insolvency framework, including limiting backdated insolvencies, would help resolve the backlog of NPLs.

Bulgaria recently ranked third in terms of bad loans in an IMF ranking, encompassing all EU member states, almost on a par with Romania, Greece, Ireland, Latvia and Lithuania.

Western European countries, including the Czech Republic and Estonia (whose economies the IMF defines as advanced) have single-digit share of nonperforming loans.

IMF data shows that lenders in all Central and Eastern European countries have seen their loan quality deteriorate by two-digit percentage.

In the advanced economies of Austria, Belgium, Czech Republic, France, Italy and UK, the share of nonperforming loans in 2011 remained relatively unchanged over 2010, IMF data shows.

Despite the rising bad loans, however, Bulgaria's banking industry has managed to preserve its stability and boasts capital adequacy ratio of 17.5%, one of the most adequate levels in the European Union.

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