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Bulgaria's banking system: stable and highly liquid

By September 2011, bad loans added up to 7,950 million leva, which translates into a share of 14.45 per cent

3E news
27-12-2011 09:41:00

Bulgaria's banking system is stable and highly liquid, but 2012 will be yet another difficult year for banks, bankers say, looking back on the outgoing year. "This year was difficult for the real economy and, under the circumstances, banks underperformed as well," Association of Banks in Bulgaria (ABB) Executive Board Chairperson Levon Hampartzoumian said in a BTA interview.


"We nevertheless managed to implement banking services modernization projects like, say, mobile banking," he noted. "Regardless of the ongoing difficulties in the Eurozone and in Europe, the banking system in Bulgaria showed that it is resilient and sufficiently solidly built to hold out against external and internal shocks," Hampartzoumian pointed out.


"The worst problem in Europe is the unpredictability, the uncertainty about exactly how the crisis will be resolved," he commented. "This poses obstacles to corporate investment, consumers get more timid in consumption and save, which does not help the economy." The banker noted that at present saving is preferred to borrowing. In recent days, Hampartzoumian sees a will of the Eurozone countries to address the problems.


The technical aspect of this is a matter of difficult negotiations, but he hopes for fast solutions. "In 2011 the Bulgarian banking system operated under pressure from the raging crisis, which deepened in the Eurozone, but the banks in this country preserved their buffers," Bulgarian National Bank (BNB) Governor Ivan Iskrov said at his annual meeting with bankers on December 6.


By September 2011, bad loans added up to 7,950 million leva, which translates into a share of 14.45 per cent, Iskrov reported. The BNB Governor argued that there are "more than enough" buffers against bad loans. Until September 2011, the banking sector set aside provisions amounting to 5,600 million leva.


"The average capital adequacy approximates 18 per cent, which is far above the minimum requirements, at that set under standards which are considerably more conservative than the European ones," Iskrov pointed out. The capital of the banking system already exceeds 10,000 million leva, according to central bank statistics.


The amount of the capital in the system above the regulatory minimum (the so-called capital surplus) was 2,900 million leva by September 2010. "The profit generated by the banks is another source of capital buffer," Iskrov said. By October 2011 that profit added up to 514 million leva. For the full year, the banking system is expected to post a profit in the order of last year's 627 million leva, but this depends above all on the pace of depreciation charges until the end of the year, the BNB reasoned.


At nearly 26 per cent, Bulgarian banks' general liquidity ratio is very high under global criteria. By October 31, 2011, the five largest banks in Bulgaria, ranked by BNB according to total assets, were UniCredit Bulbank, DSK Bank, United Bulgarian Bank, Raiffeisenbank (Bulgaria) and Eurobank EFG Bulgaria.


Now that Greece's EFG Eurobank Ergasias SA and Alpha Bank SA have announced their merger into Alpha Eurobank, their operations in Bulgaria: Eurobank EFG Bulgaria and the Alpha Bank branch, are expected to rank among the top in terms of assets in this country. "Bank mergers are inevitable, especially in bad years," Hampartzoumian commented to BTA. "Governments will undoubtedly back their banks. I don't rule out banks' consolidation, which is a good move," Iskrov said for his part.

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