The less pronounced economic slowdown than initially anticipated with regard to the adverse effects stemming from the war in Ukraine and the monetary tightening cycle in Europe predetermined the activities in the banking sector in 2022. Despite the high inflation and external shocks, the Bulgarian economy continued to expand, supported by robust export growth, the wage and social transfer increases. The higher-than-expected economic growth inevitably impacts on the results and activities in the banking sector. Last year was characterized by lower impairments and accrued provisions, accelerated lending activity, rising interest rates and improvement of the financial results of the banking sector.
As of December 31st ,2022, 25 banks were operating in Bulgaria, including 7 foreign banks’ branches. The total assets of the banking system increased by 14,8% to BGN 155,4 billion (EUR 79,5 billion) compared to 2021.
The share of loans and advances to the total assets of the banking system increased to 59,6% compared to 58,2% at the end of 2021. The percentage of cash balances remained at 21%, and the share of securities decreased to 15,2% from 16,7% a year ago.
The total amount of deposits in the banking system continued to rise. As of the end of December 2022, the total volume reached BGN 116,5 billion (72% of the projected GDP), picking up by 14,3% y-o-y. Public confidence in the banking system remained robust amid the high households’ propensity to save. The households held approximately two-thirds of the total deposits in the banking system (61,9% as of the end of December 2022).
In 2022 the Bulgarian banking sector continued to have a solid capital position maintaining capital and leverage ratios well above the regulatory requirements at a systemic and local level as well as in comparison with the average levels for the European banks.
At the end of 2022 the common equity tier 1 ratio (CET 1) for the whole banking system was 19,98%, and the total capital adequacy was 20,88%. The capital adequacy ratios of the banks in Bulgaria are above the average levels calculated for the European banks, which were 14,74%, and 18,68%, respectively, according to the ECB data as of the end of Q3 2022.
The liquidity coverage ratio (LCR) was 235,0% compared to 274,1% at the end-Dec’21. According to the latest ECB data, the LCR for the banks participating in the Single Supervisory Mechanism was 162,03% as of September 2022.
The top five banks according to the classification of the Banking Supervision Department at the BNB (so called first group of banks) hеld 67,2% of the assets in the banking system. As of the end of 2021, their share was 66,9%. As of 31st December 2022, the market share of the banks in the second group declined from 30,1% to 29,4%. The share of the banks in the third group, including foreign branches, increased from 3% to 3,4%.
Over the last year, the amount of non-performing loans (NPLs) continued to decline. As of December 31, 2022, the amount of non-performing loans (past due 90 days, excluding items Central Banks and Credit Institutions) declined to BGN 2,7 billion (EUR 1,4 billion), or to 3,18% as a share.
Nevertheless, the ratio of non-performing loans in Bulgaria remained higher than the EU average, the Bulgarian banking system maintained a coverage ratio of non-performing loans above the EU average
At the end of 2022, the coverage ratio of non-performing loans in the Bulgarian banking system stood at 77,6%. According to the latest ECB data as of the third quarter of 2022, the coverage ratio of non-performing loans in European banks was 42,82%
Despite operating in a challenging economic environment amid the war in Ukraine and Covid 19 effects, the banking sector continued to be stable and preserved solid capital and liquidity position. The main trends for the banking sector in 2022 were defined by the accelerated processes of digitalization of banking products and services, as well as the achievement of goals related to the green and sustainable economy transition and meeting the regulatory requirements.
The net interest income increased by 17% on an annual basis (after an increase by 4,1% on an annual basis at the end of 2021) to BGN 3,2 billion (EUR 1,65 billion) as of the end of December 2022 amid the higher lending activity throughout the year. As of the end of 2022, the net fee and commission income grew by 15,2% on an annual basis (after an increase by 19,5% at the end of 2021) to BGN 1,4 billion (EUR 731 million). As of 31st of December 2022, the net profit of the banking system was BGN 2,079 billion (EUR 1,063 billion) compared to BGN 1,416 billion (EUR 724 million) a year ago.
The less pronounced economic slowdown than initially anticipated with regard to the adverse effects stemming from the war in Ukraine and the monetary tightening cycle in Europe have determined the results of the banking sector. The financial result has been affected by the double-digit growth in loan portfolio volume in all business segments, implied directly in the net interest income and the net fee and commission income, the rising interest rates on some loans and the slower pace of interest rate growth on deposits, as well as the reported impairment reduction.
As of December 31, 2022, the Return on Assets (ROA) increased to 1,4% from 1,1%, recorded as of December 31, 2021. Over the same period, the Return on Equity (ROE) grew to 12,3% from 8,9%.
The previous year was characterized by a gradual upward trend of the average interest rates on new deposits and loans. The average interest rate on deposits with agreed maturity from households (new business) in BGN increased by 23 basis points from 0,10% at the end of 2021 to 0,33%. The increase on new deposits in euro was by 119 basis points from 0,08% to 1,27%. The average interest rate on deposits with agreed maturity from non-financial corporations (on new business) in BGN picked up from -0,19% to 0,43% and in EUR increased from 0,06% from 0,47%, respectively.
At the end of December 2022, the annual percentage rate, reflecting the interest plus other charges, on mortgage loans in BGN slightly increased from 2,86% at the end-Dec’21 to 2,87%, and in EUR from 3,16% to 3,61%. The APR on consumer loans in BGN was 10,16% and 4,94% in EUR compared to 9,04% and 3,33%, respectively, at the end of the previous year. The average interest rates on loans to non-financial corporations (new business) in BGN increased from 2,39% to 3,12%, and in EUR from 2,17% to 3,92%.
The impact of a number of regulations and regulatory requirements also influenced the performance of the banking sector. In October 2022, the BNB identified eight banks as other systemically important institutions (O-SIIs) and the levels of the buffer for O-SIIs were set between 0,50% and 1%, effective from January 1, 2023. The increase of the counter-cyclical capital buffer from 1% to 1,5%, effective from 1 January 2023, will further influence the capital indicators of the system. The activity of the banking system was also influenced by the preparation for the coming euro adoption.
Consolidated data for the banking system in Bulgaria as of December 31st, 2022
Balance sheet statement (Statement of financial position) – key positions:
