THE ECONOMY AND THE BANKING SECTOR IN BULGARIA

Transcription

1 THE ECONOMY AND THE BANKING SECTOR IN BULGARIA SECOND QUARTER OF 2018 SOFIA

2 HIGHLIGHTS The Bulgarian economy recorded growth of 3,6% on an annual basis in Q1 2018, driven by the private consumption and business investments; The inflation stood at 2,4% year-on-year in Q2 2018; As of the end of Q the unemployment in Bulgaria was 4,9% - the lowest level since 2000; The budget surplus was 1,6% of GDP as of the end of June 2018; As of the end of Q the total assets of the banking system were at the amount of BGN 100,14 billion and they were 95,7% of GDP; In Q the net profit of the banking sector was BGN 533,8 million; The credit growth, the better quality of the credit portfolio, the lower impairments and declining interest rates influence the financial result of the sector; The credit activity remained moderate as it was higher for the households sector in Q2 2018; The average interest rates on new loans kept the tendency to decline; The average interest rates on new deposits with agreed maturity retained their low values. 2

3 C O N T E N T I. The Bulgarian economy..... page 4 1. Economic growth page 4 2. Inflation page 6 3. Labour market page 7 4. Public sector page 8 5. Capital market page 9 II. The banking sector in Bulgaria... page Balance sheet statement (Statement of financial position) page Assets.. page Liabilities.. page Equity... page Statement of profit or loss page Net profit page Net interest income page Net income from fees and commissions page Operating expenses and impairments..... page Financial indicators... page Liquidity... page Capital adequacy page Profitability... page Loans and deposits..... page Loans and deposits to households..... page Loans and deposits to non-financial corporations page Interest rates page Interest rates on deposits page Interest rates on loans page 24 3

4 Ireland Luxembourg Poland Slovenia Latvia Hungary Czech Republic Malta Romania Cyprus Estonia Bulgaria Lithuania Slovakia Austria Sweden Spain Netherlands Finland EA-19 EU-28 Germany Greece France Portugal Belgium Croatia Italy UK Denmark I. The Bulgarian economy Economic growth In Q the Bulgarian gross domestic product (GDP) rose to 3,6% compared to the same period of the previous year, according to the preliminary seasonal and calendar adjusted data of the National Statistical Institute (NSI). The average pace of growth for the 28 th European Union (UN) Member States was 2,4% on an annual basis in the period January-March % 10% 9% 8% 7% 6% 5% 4% 3% 2% -1% 0% 1% Economic growth in the EU and in the euro area in Q ,6% 2,5% 2,4% Source: Eurostat According to the preliminary data of the NSI, the economic growth in Q was driven by the private consumption and the gross fixed capital formation (investments of the business). In the observed period the private consumption, which includes the consumption of the households and non-profit institutions, serving households (NPISH), recorded growth of 3,6% on an annual basis and contributed to the yearly GDP growth by 2,4 percentage points (p.p.) compared to the registered 2,8 p.p. in Q The gross fixed capital formation grew by 10,2% on an annual basis. In Q the contribution of the business investments to the GDP was 2,1 p.p. compared to 0,7 p.p. three months earlier. The contribution of inventories was negative (-1,2 p.p.) compared to 2,3 p.p. in the final quarter of The final consumption of the general government, which grew by 1,6% Y-o-Y, contributed by 0,3 p.p. compared to 0,5 p.p. a quarter earlier. In Q the rate of growth of the export of goods and services increased by 5% on an annual basis from 2,1% three months earlier. Import slowed down its pace of growth to 4,6% Y-o-Y from 8,2% on an annual basis in Q The contribution of the net export was neutral for the GDP growth. The trade deficit was 1,6% of GDP compared with the deficit of 4,1% as of the end of

5 Source: Eurostat, own calculations In comparison, the growth of the GDP in the EU in Q was also driven mainly by the private consumption and business investments, while the contribution of the net export was positive. In its quarterly report Economic Review the Bulgarian National Bank (BNB) foresees an acceleration of real GDP growth both annually and quarterly in the second and in the third quarter of 2018, with domestic demand contributing most to this effect. According to the central bank, the main factors which are expected to add to the gradual growth increase are the positive developments in the short-term economic indicators observed in the beginning of 2018, employment growth, increasing external and internal demand for goods and services and still low interest rates. According to the BNB, the balanced risks regarding the external environment and the possibility for faster growth of private consumption than the forecasted one create prerequisites for higher growth of the economy than the expected. Key indicators for the Bulgarian economy Q Q2 2018F 2019F 2020F 2021F 2022F Gross domestic product GDP (mln. BGN) GDP (real Y-o-Y growth, %) 1,9 0 0,9 1,3 3,6 3,9 3,6 3,5 - GDP (real Y-o-Y growth, %) - forecasts MF (April 2018) 3,9 3,8 3,7 3,7 - BNB (March 2018) 4, IMF (April 2018) 3,8 3,1 2,8 2,8 2,8 WB (January 2018) 3,9 4 3,9 - - EC (May 2018) 3,8 3, EBRD (May 2018) 3,6 3, Total final consumption 2 2-1,9 2,2 3,8 3,3 4,5 3,2 - Private consumption (of Households and NPISH) 2,0 3,0-2,5 2,7 4,5 3,6 4,8 3,6 - Final consumption of general government 2,2-2,0 0,6 0,1 1,4 2,2 3,2 1,6 - Gross fixed capital formation -4,4 1,8 0,3 3,4 2,7-6,6 3,8 7,2 - Export of goods and services 12,6 2,0 9,6 3,1 5,7 8, Import of goods and services 9,9 5,5 4,3 5,2 5,4 4,5 7,2 4,6 - Trade balance/gdp (%) -6,5-9,5-7,0-6,5-5,8-2,1-4 -1,6 - Foreign direct investments in Bulgaria (mln. EUR) 1 476, , , , ,9 1079,6 950,1 108,5 - Foreign direct investments/gdp (%) 3,6 3,1 3,3 2,7 5,5 2,2 1,9 0,2 - Harmonised index of consumer prices (HICP) (Y-o-Y change, average for the period) 3,4 2,4 0,4-1,6-1,1-1,3 1,2 1,6 2,4 Source: NSI, Eurostat, Bulgarian National Bank Forecasts: Bulgarian National Bank, Ministry of Finance, International Monetary Fund, World Bank, European Commission, European Bank for Reconstruction and Development 5

6 Romania Estonia Hungary Bulgaria Slovakia Latvia Belgium Lithuania Czech Rep. Luxembourg UK Spain France Austria Slovenia Croatia Germany Sweden EU-28 EA-19 Malta Portugal Cyprus Netherlands Italy Poland Finland Denmark Greece Ireland Inflation In Q the harmonized index of consumer prices (HICP) grew by 2,4% on an annual basis compared to 1,6% Y-o-Y in Q In June 2018 the inflation in Bulgaria was 3% Y-o-Y, which was higher than the average for the EU and the euro area. In June 2018 Bulgaria ranked fourth regarding the increase of HICP. The inflation dynamics in the period was mainly due to the price changes in the energy resources, changes in the administered prices, as well as seasonal factors, concerning food and services. In its quarterly report Economic Review the BNB pointed out that inflation is expected to increase gradually in the second and in the third quarter of 2018 driven mainly by the positive contribution of core inflation and administratively controlled prices. In its Spring macroeconomic forecast the Ministry of Finance (MF) foresees a rise in HICP to 1,8% at the end of 2018 and to 2,1% at the end of 2021, due to the assumptions for higher prices of food and oil on the international markets. The MF expects that the increasing domestic demand is going to play a role on the level of prices of services. 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% 3,0% HICP in the EU and the euro area in June 2018 (Y-o-Y % change) 2,0% 2,0% Source: Eurostat Source: NSI, Eurostat, Ministry of Finance 6

7 Labour market In Q the level of unemployment, measured as a share of the working force, declined to 4,9% from 5,4% as it was at the end of Q The unemployment in Bulgaria was at its lowest level since 2000, when Eurostat started gathering statistical data about the country. The unemployment in the country was lower than the EU average for twelfth consecutive quarter. In the period Bulgaria was amongst the ten EU Member States with the lowest unemployment rate and fifth amongst the countries in the Central and Eastern European (CEE) region. As of the end of Q the number of unemployed in Bulgaria declined to 164 thousand from 180 thousand a quarter ago and from 210 thousand a year earlier. The level of the unemployed young people (under 25 years) decreased to 11,1% as of the end of 2018 compared to 11,8% three months earlier. The level of the youth unemployment was at its lowest level since the third quarter of 2008 (10,7%). At the end of Q the average level in the EU was 15,3%. Source: Eurostat, Ministry of Finance, NSI Note: * April 2018 ** May 2018 Key indicators for the Bulgarian economy Q Q2 Labour market Unemployment (as a share of the working force) (seasonally adjusted) 11,3 12, ,4 9,2 7,6 6,2 5,4 4,9 Employed (15+ years) (thousands) 2 965, , , , ,8 3150,3 3099,3 - Employed in "Finance and Insurance" sector (thousands), of which: 55 52,7 51,6 60,5 62,3 58,6 63, Employed in the banking sector (thousands) 33,9 33,5 32,8 31,7 30,7 30,4 30,1 - - Average montly gross wage in "Finance and Insurance" sector Source: Eurostat, Ministry of Finance, NSI, ECB 7

8 Public sector According to the Ministry of Finance preliminary data, as of the end of June 2018 the state budget had a positive balance of BGN 1,72 billion. The surplus equaled to 1,6% of the forecasted GDP. For July 2018 the MF forecasted a surplus of BGN 2,02 billion (1,9% of GDP). The amount of the budget revenues and grants according to the Consolidated Fiscal Programme for the period January-June 2018 was BGN 19,21 billion (18,4% of GDP). Compared to the same period last year, the tax and the non-tax revenues grew by 10,1% on an annual basis, while the revenues from grants were lower. The tax revenues, incl. those from social insurance contributions were by 10,2% higher compared to the end of June Budget expenditures (including the EU budget contribution of Bulgaria) for the first half of 2018 were at the amount of BGN17,5 billion (16,7% of GDP). In comparison, the budget expenditures for the same period of 2017 were BGN 15,74 billion. The MF explains the increase in expenditures by the higher amount of social and health care payments, the increase in the minimum pension in 2017, the higher staff costs and the increase in capital expenditures (mainly under EU fund accounts). As of 30 th of June 2018, the fiscal reserve totaled BGN 10,83 billion. Source: Ministry of Finance, Eurostat The share of the government debt to GDP declined to 24,1% as of the end of March 2018 from 25,4% as of the end of December Bulgaria is among the countries with the lowest government debt and it remains third after Estonia (8,7%) and Luxembourg (22,2%). The government debt to GDP ratio for Bulgaria is far below the EU average, which was 81,5% as of the end of Q The MF foresees a decrease in the debt-to-gdp ratio up to 23,3% as of the end of 2018 and a further decline to 19,4% as of the end of The Long-term Interest Rate for Convergence Assessment Purposes (LTIR) dropped to 0,99% as of the end of June 2018 from 1,05% as it was as of the 31 st of March For comparison, as of the end of June 2018 the LTIR in Romania was 4,95%, in Poland 3,21%, in Hungary 3,37%, in Croatia 2,20%, and in the Czech Republic - 2,14%. The level of the LTIR in Bulgaria is the lowest in comparison with the countries in the CEE region, members of the EU but not members of the euro area. 8

9 Capital market As of the end of June 2018 the main indices on the Bulgarian Stock Exchange (BSE) changed as follows: SOFIX declined by 2,3%, BGBX40 declined by 2,8%, BGREIT increased by 1,1%, and BGTR30 decreased by 2% compared to the end of March Although the Bulgarian index SOFIX recorded a drop in Q it continued to be the third with the lowest decline among the major stock market indices in the CEE region. As of June 30, 2018, the market capitalization on the BSE main market decreased by 2,3% on a quarterly basis to BGN 8,96 billion from BGN 9,17 billion. In Q the market capitalization was 8,6% of the forecasted GDP compared to 8,8% a quarter ago. During the period April-June 2018 the turnover on the stock exchange increased by 52,6% on a quarterly basis and by 38,2% on an annual basis to BGN 155,2 million. In Q the number of transactions recorded a decline by 40,7% on a quarterly basis and by 47,8% on an annual basis to In Q the banks, members of the BSE, performed 11,2% of the turnover and 7,1% of the total transactions on the regulated market (the principle of double reporting). In Q banks, members of BSE, concluded 7,3% of all transactions and 16% of the total turnover on the regulated market. Source: BSE, own calculations 9

10 Country Index 31 December March June 2018 Change in Q Year to date change 1 Macedonia MBI , , ,66 20,48% 31,27% 2 Slovenia SBITOP 806,52 817,45 886,88 8,49% 9,96% 3 Russia MOEX 2 109, , ,95 1,10% 8,83% 4 Croatia CROBEX 1 842, , ,49 0,64% -1,43% 5 Serbia BELEX 1 662, , ,52-0,88% -6,74% 6 Slovakia SAX 325,62 329,51 325,59-1,19% -0,01% 7 Bulgaria SOFIX 677,45 649,17 634,26-2,30% -6,38% 8 Greece ASE 802,37 780,50 757,57-2,94% -5,58% 9 Hungary BUX , , ,71-3,04% -8,25% 10 Poland WIG , , ,44-4,15% -12,22% 11 Czech Republic PSE 1 078, , ,20-5,31% -1,29% 12 Romania BET 7 753, , ,01-7,20% 4,30% 13 Turkey ISE , , ,07-31,12% -16,31% Source: BSE, Bloomberg, own calculations 10

11 bln. BGN II. The banking sector in Bulgaria The state of the external and internal economic environment continued to affect the banking sector positively. In its quarterly report Economic Review the BNB pointed that if the projected by the central bank growth in the economic activity for the second and third quarters of 2018 is realized, the non-government sector deposits are expected to accelerate slightly their growth rate. The BNB expects a moderate growth increase in credit to non-financial corporations and households under the influence of the favorable macroeconomic environment and the relative low interest rates on loans. Balance sheet statement (Statement of financial position) Assets The growth of assets in the banking sector at the end of Q was 7,7% on an annual basis reaching BGN 100,14 billion. The share of total assets of all 26 banks, operating in Bulgaria, to the projected GDP for 2018 was 95,7% as of June 30, The market share of the five biggest banks in terms of assets decreased to 58,4% from 59,1%, as it was at the end of Q The banks from the second group increased their market share slightly to 38,5% from 38,4%, as it was a quarter earlier. The share of branches of foreign banks grew to 3,1% from 2,5% of the amount of the total assets in the system. According to the BNB, the dynamics of the balance sheet items was also influenced by the inclusion in aggregated data of a new entity a foreign bank branch, earlier reported as a non-bank financial institution ,14 87,52 Total Assets 92,10 Source: BNB, Ministry of Finance, own calculations 97,81 97,57 100, Q Q2 Total assets of the banking system Assets to GDP (%) (right axis) 110% 105% 100% 95% 90% 85% 80% 11

12 75% 70% 65% 60% 55% 50% 45% 40% Loans to non-government sector/gdp 67,8% 51,4% 49,1% 50,7% Market share in terms of assets as of the end of Q ,5% 3,1% 58,4% Source: BNB, own calculations First group Second group Third group As of June 30, 2018, 61,5% of the assets in the banking system were in the form of loans and receivables, totaling BGN 61,6 billion. Cash balances amounted to BGN 20 billion and comprised 19,9% of the assets. The share of investments in financial assets was 13,5% (BGN 13,5 billion). As of the end of March 2018 the share of loans and receivables was 62,9%, the share of the cash balances 18,9% and the investments in financial assets 13,4%. The determining factor of the level of financial intermediation in the economy the share of loans and receivables to the forecasted GDP for 2018 was 50,7%. Liabilities The liabilities in the banking system were at the amount of BGN 88,09 billion and rose by 8,7% compared to the end of the first half of The banks in the first group comprised 57,9% of the liabilities (BGN 51 billion), the second group 38,6% (BGN 34,01 billion), and branches of foreign banks 3,5% (BGN 3,07 billion). The growth was driven by the increase in deposits, which comprised 97,8% of the total liabilities. The share was unchanged compared to Q From the statement of financial position of the system it was evident that the amount of deposits grew by 8,7% on an annual basis to BGN 86,13 billion. The share of the provisions for loan losses which includes unsettled legal issues and lawsuits, credit commitments, guarantees, pensions, etc., accounted for 0,3%, or BGN 222,4 million in absolute terms. The share of financial liabilities, held for trading and other liabilities were respectively 0,1% and 0,8%. The share of all other remaining liabilities is negligible, complementing the sum up to 100%. 12

13 Equity As of the end of June 2018 the equity in the banking system increased by 0,6% Y-o-Y to BGN 12,05 billion. At the end of March 2018 the amount of equity was BGN 12,04 billion. The equity of the banks in the first group was at the amount of BGN 7,47 billion, and that of the second group BGN 4,52 billion. Source: BNB, own calculations Statement of profit or loss Net profit In Q the banking sector registered net profit of BGN 533,8 million compared to BGN 267,2 million registered in Q and BGN 372,8 million for the second quarter of the last year. As of the end of June 2018 the net profit was BGN 801 million compared to BGN 660,4 million for the period January-June 2017 as the increase was by 21,3% on an annual basis. The financial result of the system was influenced by the revenues from the core banking business, the low interest rates on liabilities, the lower impairment costs as well as some oneoff effects like received dividends and the inclusion of a new entity a foreign bank branch. Source: BNB 13

14 The first group of banks generated 70,9% of the profit at the end of Q2 2018, the second group 26,8%, and the third group 2,3%. In comparison, as of the end of Q the five biggest banks in terms of assets registered 71,4% of the financial result after taxes, the banks in the second group 28,6%, and the share of the third group was negative due to registered minor loss. Net interest income As of the end of June 2018 the net total operating income of the banking system was at the amount of BGN 1,996 billion compared to BGN 1,852 billion as of the end of June last year. The net interest income, which amounted to BGN 1,347 billion, comprised 67,5% of the net total operating income. The net interest income grew by 0,6% on an annual basis. For comparison, in the EU the share of the net interest income was 57% of the total operating income, according to the European Banking Authority (EBA) data as of the end of Q The net interest income is the difference between the interest income and the interest expenses. As of June 30, 2018, the interest income dropped by 2,6% Y-o-Y to BGN 1,497 billion. According to the BNB, the acceleration of the lending activity will lead to an increase of the interest income of the banking sector. The interest expenses were at the amount of BGN 150,1 million, which was by 23,8% lower on an annual basis. Net income from fees and commissions As of the end of Q the net income from fees and commissions grew by 6,1% Y-o-Y to BGN 517,8 million. It made 25,9% of the net total operating income of the system. The share of fees declined from 28,5% a quarter ago and from 26,4% a year earlier. According to the EBA data for the first quarter of 2018, the average share of the net income from fees and commissions in the EU was 28,3%. The income from fees and commissions rose by 7,9% on an annual basis to 601 million, and the expenses related with fees and commissions by 21% on an annual basis to BGN 83,3 million. Source: BNB, own calculations 14

15 Operating expenses and impairments As of the end of Q the administrative expenses, which include overhead expenses, were by 5,1% higher compared to the same period of 2017 as they reached BGN 827,1 million. The total operating expenses, as a sum of the administrative expenses and depreciation, increased by 4,6% on an annual basis to BGN 912,2 million. The banking system made less impairments in comparison with the same period of the previous year. The impairments have dropped by 20% Y-o-Y to BGN 207 million. As of the end of Q Cost-to-Income ratio for the banking system declined to 45,7% from 53,6%, as it was at the end of Q and compared with the EU average which was 64,8% as of the end of Q1 2018, according to the EBA data. Source: BNB, own calculations 15

16 Financial indicators Liquidity The liquidity buffer and net liquidity outflows calculated according to Regulation (ЕU) No. 575/2013 and Commission Delegated Regulation (EU) 2015/61 were BGN 24,6 billion and BGN 7,8 billion, respectively, at the end of Q The liquidity coverage ratio (LCR) was 315,19% compared to 327,9% as of the end of Q According to the ECB data, as of the end of Q the LCR for the banks in the Single Supervisory Mechanism stood at 142,45%. Source: BNB Capital adequacy The capital position of the banking sector continues to be marked by a significant capital surplus above the regulatory requirements for the capital adequacy and leverage ratios. As of the end of Q the common equity tier 1 (CET 1) of the banking system declined to 19,34% from 20,41%, as it was at the end of Q For the first group of banks the level of the indicator dropped to 19,31% from 20,84%, and for the second group to 19,4% from 19,8%. On a system level the total capital ratio for the Bulgarian banking system decreased to 19,79% from 20,86%, as it was at the end of As of the end of March 2018 the level for the banks in the first group was 19,88% and 19,62% for the banks in the second group compared to 21,48% and 20% a quarter earlier. According to the BNB, the decrease of the ratios was due to regulatory changes, including the application of the International Financial Reporting Standard 9 (IFRS 9), a rise in the total amount of risk exposures and a decline in the total equity. The levels of the capital adequacy indicators for the banks in Bulgaria are above the average for the European banks which, according to the ECB data, as of the end of March 2018 were 14,05% for CET 1 and 17,72% for the total capital ratio. 16

17 Source: BNB, ECB Source: EBO Profitability As of June 30, 2018, the Return on Assets (ROA) was 1,6% compared to 1,12%, recorded as of March 31, 2018 (the average for the European banks was 0,44%, according to the ECB data for Q1 2018). The value of the indicator was 2,05% for the first group of banks and 1,1% for the second group as of the end of June Due to the increase of the net profit the Return on Equity (ROE) was 13,1% as of the end of Q compared to 8,8% as of the end of the first quarter (according to the ECB data as of the end of Q the average ROE was 6,63%). For the first group of banks in Bulgaria the ratio was 15,4% and for the second group 8,95%, as of the end of Q

18 Source: BNB, own calculations Source: BNB, own calculations Loans and deposits In Q the lending activity remained relatively high. In its quarterly issue Banks in Bulgaria the BNB pointed that bank lending to non-financial corporations have increased slower than credit to households, as household lending appears to be the fastest-growing segment in the credit market, contributing most significantly to the rise in loans to the non-government sector last year. 18

19 As of the end of June 2018, according to the BNB monetary statistics, the total outstanding amount of loans to the non-government sector (non-financial corporations and households) rose to BGN 53,08 billion from BGN 52,6 billion as it was at the end of the previous quarter. In Q the amount of loans on new business for the non-government sector increased by 6,9% Y-o-Y to BGN 5,09 billion. The Loans to non-government sector-to-gdp ratio was 50,7% at the end of Q compared to 49,1% at the end of Q Source: BNB, own calculations Forecast: BNB, March 2018 As of the end of Q the share and the amount of non-performing loans continued to decline. As of June 30, 2018, the amount of non-performing loans (excluding Central Banks and Credit Institutions) declined to BGN 5,56 billion. The share of non-performing loans in the banking system dropped to 9,44% from 9,58%, as of the end of March 2018, according to the calculations based on the data of the Banking Supervision Department at the BNB. The share of non-performing loans to non-financial corporations declined to 11,5%, compared with 11,8% at the end of the previous quarter. For the same period the ratio in the segment of consumer loans decreased to 6,73% from 7,1%. The share of non-performing housing loans grew to 7,2% from 6,5%, but the increase is lower compared to 7,4% a year ago. According to the BNB, the tendency for the better quality of the assets in terms of the stable drop of the share of the non-performing and restructured loans, was mainly due to the continued decline in terms of the non-performing loans in gross and in net value. As of the end of June 2018 the level of non-performing loans of non-financial corporations declined to BGN 5,56 billion from BGN 6,79 billion in the same period of the previous year. In the segment of consumer loans the amount dropped to BGN 688,7 million from BGN 705,1 million and regarding the segment of housing loans the level increased to BGN 725,6 million in comparison with the level of BGN 593,4 million at the end of March The impairment coverage ratio of gross non-performing loans in the Bulgarian banking system was 62,7% as of the end of Q compared to 47,2% for the European banks, according to 19

20 the ECB data for the first quarter of According to the BNB data, the net amount of nonperforming loans and receivables (after netting them with the allowances for loan losses) also dropped and at the end of the period it amounted to BGN 3,524 billion or 4,4% of the net total amount of loans and receivable (compared to 4,6% at the end of March 2018). In the first group of banks the share of non-performing gross loans declined to 10,3% as of the end of the second quarter of 2018 compared to 10,7% a quarter ago, while for the banks in the second group the ratio was kept - 8,21%. Source: BNB, ECB, own calculations 20

21 Deposits, attracted by the banks, continued their growth. As of the end of June 2018 the total amount of outstanding deposits in the banking system reached BGN 74,39 billion after recorded annual growth of 8,5%, despite the low interest rate levels on deposits. The deposits growth was faster compared to the growth of 5,6% which was recorded at the end of March Source: BNB, own calculations Forecast: BNB, Ministry of Finance Loans and deposits to households As of the end of June 2018 the outstanding amount of consumer loans grew by 15,1% to BGN 8,74 billion. In Q consumer loans on new business increased by 17,6% on an annual basis to BGN 1,33 billion, as 99% of those loans were denominated in BGN, and the remaining 1% in EUR. Source: BNB, own calculations 21

22 The outstanding amount of housing loans registered an annual increase of 9% to BGN 9,95 billion. As of the end of June 2018 the amount of housing loans on new business increased to BGN 850,4 million, which is by 1% more compared to the second quarter of During the period 93% of the new loans for house purchases were agreed in BGN, and 7% in EUR. As of the end of Q the total amount of deposits to households and NPISH grew with a faster pace 7% compared to the growth of 5,5% at the end of Q1, Deposits from households were BGN 49,02 billion as they were 46,4% of GDP. The household sector comprised 65,9% of all deposits in the banking system. Source: BNB Loans and deposits of non-financial corporations As of June 30, 2018, the outstanding amount on deposits from non-financial corporations increased by 15,6% Y-o-Y to BGN 22,69 billion. The outstanding amount on loans to non-financial corporations grew by 3,8% to BGN 32,05 billion. Except overdrafts, loans to non-financial corporations recorded a growth of 3,7% on an annual basis, reaching BGN 20,97 billion. Loans to non-financial corporations on new business increased by 4,4% on an annual basis in Q to BGN 2,9 billion. The share of new loans, agreed in BGN, was 50%, in EUR - 49%, and the rest (1%) was the share of new loans in USD. Source: BNB, own calculations 22

23 Interest rates The downward dynamics in the interest rate levels on new loans continued in Q The interest rates on new deposits kept their low values. The high level of attracted funds in the banking system, the low bank funding costs, the competition between the banks, the high liquidity and the overall good economic environment were the main factors for the decline in the interest rate levels and the demand of loans. In its quarterly report Economic Review the BNB expects that the interest rates on new time deposit and loans will stay close to their current levels in the third quarter of Interest rates on deposits In Q the interest rates on newly agreed time deposits retained their low levels. As of the end of June 2018 the average interest rates on deposits with agreed maturity to nonfinancial corporations on new business in BGN rose by 13 basis points to 0,31% from 0,18% as they were at the end of June Compared to the end of March 2019 there was an increase from the reported 0,11%. The decline in the interest rates in EUR was by 12 basis points to 0,07% (as of the end of June 2018) from 0,19% (as of the end of June 2017). Compared to a quarter ago the decline was by 14 basis points from 0,12% as of the end of March Deposits with agreed maturity on new business in BGN to households decreased to 0,18% on an annual basis (as of June 2018), compared with 0,24% at the end of June Compared to the end of March 2018 there was an increase compared with the recorded levels of 0,16%. Regarding deposits with agreed maturity on new business in EUR the annual drop was by 3 basis points to 0,20% from 0,23% (as of the end of June 2017). Since the last quarter there was a growth by 4 basis points to 0,16%. Source: BNB 23

24 Interest rates on loans The downward trend in the interest rate levels on loans continued. As of the end of Q the average interest rates on housing loans declined to 3,42% for the loans agreed in BGN, and to 3,78% for those in EUR, compared to 3,58% and 3,86%, reported a quarter earlier. For comparison, as of the end of Q the average levels of the interest rates on housing loans in BGN and in EUR were 3,92% and 3,95%, respectively. Regarding consumer loans as of the end of June 2018 the average interest rates on loans agreed in BGN decreased to 8,35%, compared to 7,80% at the end of the first quarter of 2018 and 7,74% a year earlier. The interest rates on consumer loans agreed in EUR as of the end of June 2018 decreased to 3,90%, in comparison with 4,50% three months ago and 5,02% a year earlier. Source: BNB As of the end of June 2018 the annual percentage rate /APR/, which includes the interest rate component and the component of all other fees and commissions, dropped to 3,98% for housing loans in BGN and to 4,02% for housing loans in EUR from 4,35% and 4,27% a year earlier. The level of the annual percentage rate on consumer loans was 10,26% and 4,12%, respectively for loans in BGN and in EUR. The average interest rates on new business on loans to non-financial corporations fell to 3,84% for loans in BGN and to 3,12% for loans in EUR compared to 4,03% and 3,92%, a year earlier. The drop on loans to non-financial corporations agreed in US dollars was to 5,06% from 5,95%. 24

25 Source: BNB 25

26 Disclaimer This document is for information purposes only. It is prepared by Banking Policy and Analyses Division of the Association of Banks in Bulgaria, using materials and data, published by the National Statistical Institute (NSI), Eurostat, the Bulgarian National Bank (BNB), the Ministry of Finance (MF), the European Central Bank (ECB), the European Banking Authority (EBA), the European Commission (EC), the International Monetary Fund (IMF), the World Bank (WB), the European Banking Federation (EBF) and the European Bank for Reconstruction and Development (EBRD). The information in this publication is general in nature. It cannot be perceived as a recommendation for buying or selling financial instruments or securities and it is not a proposal or prospectus within the meaning of the Law on Public Offering of Securities, the Law on Markets in Financial Instruments or other related regulatory acts, including foreign ones. Neither the Association of Banks in Bulgaria, nor its members cannot be held responsible for the accuracy or completeness of this information. All historical rates, statistical data and graphs are up to date, up to and including August 6, 2018, unless otherwise stated. The views provided are those prevailing as of August 6,