BNB with a warning to banks – affects households

The liquidity position of the banking sector remains stable. The levels of the liquidity coverage ratio and the net stable funding ratio are significantly above the regulatory requirements, and the deposit pool is growing steadily under the influence of income growth.

Nevertheless, credit institutions should manage their liquidity in accordance with the high degree of uncertainty and the probability of changes in the volume and structure of deposits caused by potential adverse changes in the financial condition of enterprises and households. This is stated in the three-monthly edition of the BNB “Banks in Bulgaria”, quoted by Pariteni.bg.

According to the analysis, in the short term, the rapid growth of credit volumes has a positive impact on interest income and net interest income of the banking sector, and their dynamics are the basis of the increase in profitability indicators reported during the year, along with smaller impairment charges.

Nevertheless, prolonged periods of high credit activity create prerequisites for an increase in indebtedness and accumulation of credit risk in the balance sheet of the banking system, which may lead to an increase in non-performing loans and impairment costs in the event of unfavorable trends in the economic environment, warns the BNB .

According to the bank, in the coming months, the tightening of monetary conditions in the euro area is expected to be transmitted with a lag to interest rates in the country, although only partially given the prospects for an upcoming reversal of the global interest cycle. The process of increasing the minimum required reserves, which the BNB has undertaken since the middle of 2023, is expected to have an influence on the increase in interest rates in the country.

During the period October – December 2023, deposits in the banking system increased by BGN 6 billion (4.2%) to BGN 147.3 billion, which is mainly due to increased household deposits (by BGN 3.6 billion, 4.5% ) and non-financial enterprises (with BGN 1.5 billion, 3.4%). During the period, there was also an increase in the deposits of other financial enterprises (by BGN 290 million, 7.7%) and credit institutions (by BGN 707 million, 7.2%), while those of the “state government” sector decreased (by BGN 94 million, 2.4%).