Bulgaria’s banking industry is “stable” even after bad loans rose to 15 percent last year, central bank Governor Ivan Iskrov said.
While loan quality has deteriorated, lenders have an adequate level of provisions and capital, Iskrov said today in a speech in Sofia, the capital. Banks’ capital adequacy ratio is 17.5 percent, including a Tier 1 ratio of 15.7 percent, while their liquidity ratio is 26 percent, he said.
“The Bulgarian banking system remains stable and predictable,” Iskrov said. “Banks continue to generate a positive financial results even though spending on provisions has significantly increased in the past three years.”
Bulgaria, the EU’s poorest country in terms of economic output per capita, weathered the global crisis without borrowing from international lenders. It’s aiming to trim the budget gap to 1.35 percent of gross domestic product this year from 2.1 percent in 2011 to help contain fallout from the euro debt crisis.
Economic growth will probably slow to “about” 0.7 percent this year as the European Union faces a recession, Iskrov said. GDP may advance 1.4 percent in 2012, according to a Feb. 23 forecast by the European Commission.
Slower economic expansion will curb demand for new loans and hinder banks’ potential to generate profit and accumulate buffers, while overdue loans will put existing reserves under pressure, Iskrov said.
Slow insolvency and liquidation procedures increase the management cost of bad loan portfolios, reducing banks’ ability to provide new loans “at an acceptable cost,” he said.
To contact the reporter on this story: Elizabeth Konstantinova in Sofia at firstname.lastname@example.org
To contact the editor responsible for this story: James M. Gomez at email@example.com