Bulgaria’s banking sector is bracing for an increase in non-performing loans (NPLs), as the cost of covering potential bad debts has nearly doubled in 2024. According to the Bulgarian National Bank (BNB), the provisions for impairment of financial assets reached 578 million leva by the end of November, a significant rise compared to 275 million leva in the same period last year. This surge in expenses has been a concern for the central bank, which has repeatedly warned commercial banks about the growing risks of bad loans amid a credit boom and easy access to financing. To mitigate the situation, the BNB has tightened certain regulations, including stricter requirements for creditworthiness assessments and provisioning.

The increase in provisions has had a direct impact on the profitability of Bulgarian banks, which saw a notable slowdown in earnings growth last year. By the end of November 2024, bank profits amounted to 3.3 billion leva, a decrease of 32 million leva or 1% compared to the same period in 2023. While December may bring improvements, it is unlikely that banks will surpass the over 3.4 billion leva profit recorded the previous year. Over the past several years, the banking sector had seen impressive growth, with profits soaring by 50-70%.

Despite the rise in provisions for bad loans, the banking sector has managed to generate solid revenue. In the first 11 months of 2024, banks collected 6.119 billion leva in interest from loans, while interest expenses on deposits were only 1.056 billion leva. This resulted in a net interest income of over 5 billion leva, reflecting a 14% increase from the previous year. Additionally, net income from fees and commissions grew by 8%, reaching 1.466 billion leva.

In response to the growing profits in the banking sector, the caretaker government introduced a measure to impose an additional tax on banks’ excess profits to help cover the anticipated increase in public spending for 2025. This tax would target the profits arising from higher interest rates on loans while depositors continue to earn little to no return on their savings. Several other EU nations have implemented similar taxes, prompting the Ministry of Finance to forecast revenue of over 800 million leva from this measure.

However, just before the draft law on the state budget for 2025 was presented to the National Assembly, the government decided to remove the proposed tax. Former deputy Vladislav Panev revealed in an interview with Nova TV that he had been informed of a secret meeting between bank representatives and Delyan Peevski, leader of the DPS-New Beginning, where the request to drop the “excess profit” tax was made. Assen Vassilev, co-chair of "We Continue the Change" and former Finance Minister, confirmed that the caretaker cabinet’s draft budget had been largely influenced by Peevski.

Sources:

• Nova TV
• econ.bg