THE ECONOMY AND THE BANKING SECTOR IN BULGARIA

Transcription

1 THE ECONOMY AND THE BANKING SECTOR IN BULGARIA SECOND QUARTER OF 2017 Sofia

2 HIGHLIGHTS The Bulgarian economy recorded growth of 3,9% on an annual basis in Q1 2017, driven by the domestic demand; The inflation rose to 1,4% year-on-year in Q2 2017; As of the end of June 2017 the unemployment in Bulgaria was 6% - the lowest level since Q1 2009; The budget surplus is 1,8% of GDP as of the end of the first half of 2017; The total assets of the banking system rose to BGN 93,02 billion as of the end of Q and they were 95,7% of GDP; The net profit of the banking sector in the first half of 2017 was BGN 660,4 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 continued its improvement in Q2 2017; The average interest rates on new deposits with agreed maturity retained their low values; The average interest rates on new loans keep the tendency to decline. 2

3 C O N T E N T I. The Bulgarian economy..... page 4 1. Economic growth page 4 2. Inflation page 7 3. Labour market page 8 4. Public sector page 9 5. Capital market page 10 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 fees and commissions income 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 23 3

4 Ireland Romania Slovenia Estonia Hungary Malta Poland Czech Republic Latvia Luxembourg Bulgaria Lithuania Finland Denmark Sweden Cyprus Netherlands Slovakia Spain Portugal Germany EA-19 Croatia EU-28 Austria Italy Belgium France Greece UK I. The Bulgarian economy Economic growth In Q the Bulgarian gross domestic product (GDP) rose to 3,9% compared to the same period of the previous year, according to the preliminary data of the National Statistical Institute (NSI). The Bulgarian economy grew faster compared to the average pace in the 28 th European Union (UN) Member States for tenth consecutive quarter. The European economy expanded by 2,4% year-on-year (Y-o-Y) in the January-March 2017 and Bulgaria was at the eleventh place in the EU in terms of the economic growth rate in Q % 6% 5% 4% 3% 2% 1% 0% Economic growth in the EU and euro area in Q ,9% 2,5% 2,4% Source: Eurostat, NSI, Ministry of Finance 4

5 According to the preliminary data of the NSI, the economic growth in Q was driven by the domestic demand, and mainly by the private consumption, which recorded growth of 6,5% on an annual basis. In the observed period the private consumption, which includes the consumption of the households and non-profit institutions, serving households (NPISH), contributed to the yearly GDP growth by 4,1 percentage points (p.p.) compared to 1,6 p.p. in Q The final consumption of the general government, which expanded by 8% Y-o-Y, contributed by 1,4 p.p. compared to the contribution by 1 p.p. a quarter earlier. During the period January-March 2017 the gross fixed capital formation (investments of the business) grew by 1,3% on an annual basis after three consecutive quarters of declines. The contribution to GDP is 0,3 p.p. In Q the rate of growth of the export of goods and services slowed down to 5,8% on an annual basis from 6,4% three months earlier. Import grew by 10,1% Y-o-Y. The trade deficit was 1,4% of GDP, which explains the negative contribution to the economic growth by the net export /the difference between export and import/. Source: Eurostat, own calculations Current forecasts of different national and international financial organizations and institutions assume slower pace of economic growth in 2017 and The forecasts vary between 2,8% and 3,2% for this year and they vary between 2,7% and 3,2% for the next year. In its quarterly report Economic Review the Bulgarian National Bank (BNB)forecasts a slower GDP growth in the second and in the third quarter of The Central bank points out that the still low price of oil on the international markets, the improvement of the labor market conditions in Bulgaria and the rising domestic and external demand for goods and services favor the 5

6 growth of consumption, investment activity and export, thus speeding up the growth and the import. The positive contribution of the domestic demand and the export to the real GDP growth expected by the BNB will be partly offset by the increase in the negative contribution of the import. In its annual report Facts & Figures, published in July 2017, the European Banking Federation (EBF) points out that the growth of the European economy will continue in 2017 on the back of the balance between the positive and negative risks. The positive development of the European countries should have a positive impact on the trade relations with the main trading partners of Bulgaria, which also fosters the growth in the national economy. Source: NSI Key indicators for the Bulgarian economy Q Q2 2017F 2018F 2019F 2020F 2021F Gross domestic product GDP (mln. BGN) GDP (real Y-o-Y growth, %) 1,9 0 0,9 1,3 3,6 3,4 3,9 - GDP (real Y-o-Y growth, %) - forecasts BNB (March 2017) 2,8 2, MF (April 2017) 3 3,1 3,2 3,2 - IMF (April 2017) 2,9 2, ,5 WB (June 2017) 3 3,2 3,3 - - EC (May 2017) 2,9 2, EBRD (May 2017) 3, Total final consumption 2 2-1,9 2,2 3,8 1,8 6,8 - Private consumption (of Households and NPISH) 2,0 3,0-2,5 2,7 4,5 2,1 6,5 - Final consumption of general government 2,2-2,0 0,6 0,1 1,4 0,6 8 - Gross fixed capital formation -4,4 1,8 0,3 3,4 2,7-4 1,3 - Export of goods and services 12,6 2,0 9,6 3,1 5,7 5,7 5,8 - Import of goods and services 9,9 5,5 4,3 5,2 5,4 2,8 10,1 - Trade balance/gdp (%) -6,5-9,5-7,0-6,5-5,9-3,9-1,4 - Foreign direct investments in Bulgaria (mln. EUR) 1 476, , , , ,8 701,7 98,9 - Foreign direct investments/gdp (%) 3,6 3,1 3,3 2,7 5,6 1,5 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 0,8 1,4 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 6

7 Lithuania Estonia Latvia UK Czech Republic Hungary Austria Sweden Spain Belgium Germany Luxembourg EU-28 EA-19 Poland Italy Bulgaria Croatia Malta Netherlands Portugal Slovakia Greece Cyprus Slovenia Finland France Romania Denmark Ireland Inflation In Q the harmonized index of consumer prices (HICP) increased by 1,4% on an annual basis compared to the rise of 0,8% Y-o-Y in Q In June 2017 the inflation in Bulgaria was 1,1% Y-o-Y, which is lower than the EU average. The inflation dynamics in the period was mainly due to changes in the administered prices like those of the natural gas, water and electricity, price changes in the energy resources, fuel as well as seasonal factors, concerning food and services. 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% -0,5% -1,0% HICP in the EU and euro area in June 2017 (Y-o-Y % change) 1,4% 1,3% 1,1% Source: Eurostat In its spring macroeconomic forecast the Ministry of Finance (MF) foresees a rise in HICP to 1,2% at the end of 2017 and to 1,8% in Source: NSI, Eurostat, Ministry of Finance 7

8 Labour market The level of unemployment, measured as a share of the working force, continued to decline and reached its lowest level for more than 8 years. In the second quarter of 2017 the unemployment in Bulgaria fell to 6% from 6,4% on quarterly basis and compared to the average of 7,7% in the EU. The unemployment in the country was lower than the EU average for eight consecutive quarter. In parallel, the average gross wage in the country continued to grow and as of the end of Q its pace of growth increased to 9,1% on an annual basis from 8,2% for the whole In the sector of Finance and Insurance, in which NSI includes banks, insurance companies and other non-bank financial institutions, the number of employees continued to decline and reached 57,3 thousand as of the end of Q of 30,4 thousand are in the banking sector, according to the data of the European Central Bank for 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 6,4 6 Employed (15+ years) (thousands) 2 965, , , , , ,7 - Employed in "Finance and Insurance" sector (thousands), of which: 55 52,7 51,6 60,5 62,3 58,6 57,3 - Employed in the banking sector (thousands) 33,9 33,5 32,8 31,7 30,7 30,4 - - Average montly gross wage in "Finance and Insurance" sector Source: Eurostat, Ministry of Finance, NSI, ECB 8

9 Public sector According to the Ministry of Finance preliminary data, in the first half of 2017 the budget had a positive balance of BGN 1,75 billion (EUR 895 million). The surplus equaled to 1,8% of GDP. For July 2017 the MF forecasts an increase of the surplus to BGN 1,96 billion (EUR 1 billion, or 2% of GDP). The amount of the budget revenues and grants according to the Consolidated Fiscal Programme for the period January-June 2017 was BGN 17,48 billion (EUR 8,94 billion, or 18% of GDP). It grew by 6,8% on an annual basis after eliminating the baseline effect in 2016, related to the reimbursement from the European Commission (EC) of some expenditures incurred by Bulgaria at the end of 2015 when was the peak of project payments for the previous programming period. Tax proceeds grew by 7,8% on an annual basis. The non-tax revenues remained closer to the revenues for the first six months of last year. Budget expenditures (including Bulgaria s EU budget contribution) for the first half of 2017 were at the amount of BGN 15,74 billion (EUR 8,05 billion, or 16,2% of GDP). In comparision, the budget expenditures in the first half of 2016 were BGN 14,64 billion (EUR 7,49 billion). The MF explains the rise in the expenditures with the higher social security and health insurance payments, a baseline effect on the expenditures related with pensions due to their increase as from July 2016, expenditures on subsidies and growth of insurance payments. As of 30 th of June, 2017, the fiscal reserve totaled BGN 13,2 billion (EUR 6,75 billion). Source: MF, Eurostat The share of the government debt to GDP declined to 28,6% as of the end of March 2017 from 29,5% as of the end of Bulgaria is among the countries with the lowest government debt and it ranks third after Estonia and Luxembourg. The level of the government debt to GDP ratio for Bulgaria is below the EU average, which was 84,1% as of the end of Q It can be expected that the ratio will decrease further by the end of 2017 after the 5-year Eurobonds matured in July and that the issue policy of the government does not foresee any issues on the international capital markets in The Long-term Interest Rate for Convergence Assessment Purposes (LTIR) decreased to 1,696% as of the end of June from 17,3% as it was at the end of March, For comparison, as of the end of June 2017 the LTIR in Romania was 3,67%, in Poland 3,19%, and 2,99% in Hungary. 9

10 Capital market As of the end of June 2017 compared to the end of March 2017 the main indices on the Bulgarian Stock Exchange-Sofia (BSE) increased as follows: SOFIX by 11%, BGBX40 by 7,5%, BGREIT by 4,8% and BGTR30 by 6,3%. In the second quarter, as it was in the first quarter, the growth of the Bulgarian index SOFIX ranked four among the major stock market indices in the region of Central and Eastern Europe, after crossing the mark of 700 points for the first time since October As of June 30, 2017, the market capitalisation increased to 9,8% of the forecasted GDP for 2017 from 9,1% as of the end of Q In the period April-June 2017 the BSE s turnover grew by 30,7% on a quarterly basis and by 107,1% on an annual basis to BGN 112,25 million (EUR 57,4 million), while the number of transactions increased by 7,5% for three months and by 102,2% for twelve months to In Q the banks, members of the BSE-Sofia, performed 6,8% of all transactions and 7,3% of the turnover on the regulated market. Country Index 31 December 31 March 30 June Year to date Change in Q change 1 Greece ASE 643,64 666,06 823,74 23,67% 27,98% 2 Turkey ISE , , ,40 12,88% 28,49% 3 Hungary BUX , , ,42 11,29% 10,01% 4 Bulgaria SOFIX 586,43 633,99 703,46 10,96% 19,96% 5 Slovakia SSI 318,57 304,91 328,84 7,85% 3,22% 6 Poland WIG , , ,36 5,37% 17,90% 7 Slovenia SBITOP 717,59 774,70 796,40 2,80% 10,98% 8 Macedonia MBI , , ,34 1,39% 6,91% 9 Czech republic PSE 921,61 981,15 980,41-0,08% 6,38% 10 Romania BET 7 072, , ,36-2,65% 11,07% 11 Serbia BELEX 1 569, , ,38-3,82% -1,72% 12 Russia MICEX 2 232, , ,50-5,83% -15,82% 13 Croatia CROBEX 1 994, , ,57-6,22% -6,48% Source: BSE-Sofia, Bloomberg, own calculations 10

11 bln. BGN II. The banking sector in Bulgaria Balance sheet statement (Statement of financial position) Assets The banking sector s assets growth at the end of Q was 4,9% on an annual basis to BGN 93,02 billion (EUR 47,56 billion) 1. The share of total assets of all 27 banks, operating in Bulgaria, to the forecasted GDP for 2017 was 95,7% as of June 30, The market share of the five biggest banks in terms of assets declined to 56,4% from 57,3%, as it was at the end of March The banks from the second group increased their market share to 41,3% compared to 40,4% a quarter earlier. The share of branches of foreign banks was 2,3% of the amount of the total assets versus 2,2% as of the end of March Total Assets 92,10 87,52 85,14 92,93 93, Q Q2 106% 104% 102% 100% 98% 96% 94% 92% 98,6% Assets to GDP 104,4% 99,4% 95,6% 95,7% Market share in terms of assets as of the end of Q ,3% 2,3% 56,4% First group Second group Third group Source: BNB, own calculations 1 The official exchange rate is fixed at 1 EUR = 1,95583 BGN. 11

12 As of June 30, ,8% of banking system s assets were in the form of loans and receivables, totaling BGN 57,5 billion (EUR 29,4 billion). Cash balances in BGN amounted to 17,3 billion (EUR 8,85 billion) and comprised 18,6% of the assets. The share of investments in financial assets (held-to-maturity, held for trading and available-for-sale) was 14,5% (BGN 13,5 billion, or EUR 6,9 billion). As of the end of March 2017 their share was 60,6%, 20,3% and 14,3%, respectively. The indicator, which defines the level of financial intermediation in the economy the share of loans and receivables to the forecasted GDP for 2017, is 59,2%. Liabilities The banking system s liabilities were at the amount of BGN 81,04 billion (EUR 41,44 billion) and rose by 5,5% compared to the end of Q The first group of banks comprised 55,9% of the liabilities (BGN 45,3 billion), the second group 41,5% (BGN 33,6 billion), and branches of foreign banks 2,6% (BGN 2,1 billion). The growth was driven by the increase in deposits, which were 97,8% of the total liabilities. The share was unchanged compared to a year ago. From the statement of financial position of the system it was evident that the amount of deposits grew by 6,1% on an annual basis to BGN 79,22 billion (EUR 40,51 billion). The share of the provisions for loan losses which includes unsettled legal issues and lawsuits, credit commitments, guarantees, pensions, etc., accounted for 0,2%, or BGN 192,7 million (EUR 98,53 million) in absolute terms. The share of financial liabilities, held for trading and other liabilities were respectively 0,3% and 1%. The share of all other remaining liabilities is negligible, complementing the sum up to 100%. Equity As of the end of June 2017 the equity in the banking system increased by 1,7% on a quarterly basis to BGN 11,98 billion (EUR 6,13 billion) from BGN 12,19 billion (EUR 6,23 billion). The dynamic of the position was mainly due to changes in profit and dividends. The equity of the banks in the first group was at the amount of BGN 7,16 billion (EUR 3,66 billion), and that of the second group BGN 4,79 billion (EUR 2,45 billion). Source: BNB, own calculations 12

13 Statement of profit or loss Net profit In Q the banking sector registered net profit of BGN 372,8 million (EUR 190,6 million) compared to BGN 468,2 million (EUR 239,4 million) for the same period of That was a drop of 20,4% on an annual consolidated basis. Last year s financial result of the system was influenced by one-off effects, one of which was the extraordinary revenue for the banks from the deal between Visa Europe and Visa Inc. The one-off effect, valued by the BNB at the amount of BGN 186 million (EUR 95,1 million), occurred in June Without it, in Q the net profit of the sector rose by 32,1% Y-o-Y and as of the end of the first half of 2017 it was at the amount of BGN 660,4 million (EUR 337,7 million). Compared to the first six months of 2016 the statistics of the BNB registered a drop by 14,6%, but excluding the one-off effects there was an increase by 12,4% on an annual basis. The financial result of the system is influenced by lower operating expenses, lower impairment costs, the revenues from core business and net interest income which is influenced by the lower interest rates. Source: BNB The first group of banks generated 63,5% of the profit in the January-June 2017 period, the second group 36,6%, while the third group registered a loss, which lowered insignificantly the consolidated net profit. In comparision - as of the end of March 2017 the fifth biggest banks in terms of assets registered 66,8% of the financial result after taxes, the banks in the second group 33,8%, and the share of the third group was negative. 13

14 Net interest income As of the end of June 2017 the net total operating income of the banking system was at the amount of BGN 1,85 billion (EUR 946 million) compared to BGN 2,07 billion (EUR 1,06 billion) as of the end of June last year. The net interest income, which was BGN 1,34 billion (EUR 658,1 million), contributed to 72,3% of the net operating income. The net interest income declined by 5,2% Y-o-Y. The net interest income is the difference between the interest income and interest expenses. As of June 30, 2017, the interest income dropped by 8,3% Y-o-Y to BGN 1,54 billion (EUR 787,4 million). The interest expenses were at the amount of BGN 197,1 million (EUR 100,8 million), which was by 25,3% lower on an annual basis. Net fees and commissions income As of June 30, 2017, the net income of fees and commissions grew by 9,3% Y-o-Y to BGN 488,3 million (EUR 249,7 million). It made 26,4% of the net total operating income of the system. The income from fees and commissions rose by 8,6% on an annual basis to 557 million (EUR 284,8 million), and the fees and commissions expenses by 3,8% to BGN 68,8 million (EUR 35,2 million). Source: BNB, own calculations Operating expenses and impairments As of the end of Q the administrative expenses, which include overhead expenses, were by 1,1% lower as they decline to BGN 787,3 million (EUR 402,5 million), compared to the first six months of The total operating expenses, as a sum of administrative expenses and depreciation, also declined by 1,1% on an annual basis to BGN 872 million (EUR 445,8 million). In the period January-June 2017 the banking system made less impairments compared to the same period of the previous year. They have dropped by 22,2% Y-o-Y to BGN 259,4 million (EUR 132,6 million). The average Cost/Income ratio for the banking system dropped to 47,1% from 49%, as it was at the end of Q

15 Source: BNB, own calculations Financial indicators Liquidity Although as of the end of June 2017 the liquid asset ratio, calculated in accordance with the BNB Ordinance 11, decreased to 36,92% from 38,8% as of 31 st of March 2017, it remained high. In the liquid assets structure the cash and cash balances of the banks at the BNB had a share of 51,8% as of the end of June The liquid asset ratio for the first group of banks was 36,13%, for the second group 36,73%, and for the third group 56,45%. Source: BNB 15

16 Capital adequacy As of the end of Q the common equity tier 1 (CET 1) of the banking system was 20,86% compared to the average of 13,74% for the European banks, according to the ECB data for the first three months of For the first group of banks the indicator was 21,49%, and for the second group 20,01%. 22% CET 1 17% 21% 20% 20,86% 16% 15% 19% 18% Q4 Q1 Q2 Q3 Q4 Q1 14% 13,74% 13% First group Second group Banking system EU (right axis) Source: BNB, ECB On a system level the total capital ratio for the Bulgarian banking system increased to 21,34% as of the end of Q In comparison - the average value for the banks in the Single Supervisory Mechanism stood at 17,45% for the same period. As of the end of March 2017 the level for the banks from the first group was 22,16% and 20,22% for the banks in the second group. 23% 22% 21% 20% 19% 18% Source: BNB, ECB Total capital ratio Q4 Q1 Q2 Q3 Q4 Q % 20% 21,34% 19% 18% 17,45% 17% First group Second group Banking system EU (right axis) 16%

17 Profitability As of June 30, 2017, the value of Return on Assets (ROA) was 1,44% compared to 1,27%, recorded as of March 31, 2017 (the average for the European banks was 0,46%, according to the ECB data for Q1 2017). The value of the indicator was 1,6% for the first group of banks and 1,31% for the second group as of the end of June ,8% 1,6% 1,4% 1,2% 1,0% 0,8% 0,6% 0,4% 0,2% 0,0% Source: BNB, own calculations The Return on Equity (ROE) was 10,9% as of the end of Q compared to 9,5% as of the end of Q (according to the ECB data as of the end of Q the average ROE was 7,1%). For the first group of banks the ratio was 11,5% and for the second group 10,1%, as of the end of Q % 12% 10% 8% 6% 4% 2% 0% Source: BNB, own calculations ROA by banking groups 17 1,60% 1,31% Q1 Q2 Banking system First group Second group ROE by banking groups 11,47% 10,06% Q Q2 Banking system First group Second group 1,44% 10,9%

18 Loans and deposits The lending activity continued to increase in Q after it showed more distinct signs of revival last year. As of the end of June 2017, according to the BNB monetary statistics, the total outstanding amount of credit to the non-government sector (non-financial corporations and households) rose to BGN 50,22 billion (EUR 25,68 billion) from BGN 49,09 billion (EUR 25,1 billion) as it was at the end of December In Q the amount of loans on new business for the non-government sector decreased by 15,5% Y-o-Y to BGN 4,54 billion (EUR 2,32 billion). The ratio Loans to non-government sector/gdp was 51,7% compared to 51%, registered at the end of March Source: BNB, own calculations Forecast: Ministry of Finance, April

19 As of the end of Q the share and the amount of non-performing loans continued to decline compared to a quarter earlier and a year earlier. As of June 30, 2017, the amount of non-performing loans (excluding Central Banks and Credit Institutions) declined to BGN 6,79 billion. The share of non-performing loans in the banking system dropped to 12,22% from 13,17% as of the end of March 2017, according to the calculations based on the data of the Banking Supervision Department. The share of non-performing loans to non-financial corporations declined to 14,99% from 15,91% three months earlier. The decline in the segment of consumer loans was to 9,89% from 10,69%, and regarding loans for house purchases the decrease was to 7,38% from 7,59%. As of the end of June 2017 the level of non-performing loans to non-financial corporations declined to BGN 4,95 billion (EUR 2,53 billion) from BGN 5,3 billion (EUR 2,71 billion) three months earlier. In the segment of consumer loans the amount dropped to BGN 892,3 million (EUR 456,2 million) from BGN 944,3 million (EUR 482,8 million) and regarding the segment of housing loans to BGN 661,8 million (EUR 338,4 million) from 665 million (EUR 340 million) as they were in Q In the first group of banks the share of non-performing loans declined to 14,07% compared to 15,06% a quarter ago and to 16,25% 12 months ago, while for the second group of banks the ratio fell to 9,95% versus 10,85% as of the end of March 2017 and 12,43% as of the end of June Source: BNB, ECB, own calculations 19

20 Deposits, attracted by the banks, continued their growth. As of the end of June 2017 the total amount of outstanding deposits in the banking system reached BGN 68,54 billion (EUR 35 billion) after 5,6% Y-o-Y growth despite the historically low levels in the interest rates. The deposits growth is slower compared with the growth of 8,4%, which was recorded at the end of March Source: BNB, own calculations Forecast: BNB, March 2017 Loans and deposits of households As of the end of June 2017 the outstanding amount of consumer loans grew by 4,6% to BGN 7,58 billion (EUR 3,88 billion), which is the highest level since August In Q consumer loans on new business increased by 25,6% on an annual basis to BGN 1,13 billion (EUR 578 million), as 98% of them were denominated in BGN. Source: BNB, own calculations 20

21 The outstanding amount of housing loans registered an annual increase of 4,4% to BGN 9,1 billion (EUR 4,65 billion). As of the end of June 2017 the amount of housing loans on new business increased to BGN 740 million (EUR 378,4 million) which is by 48,8% more compared to the second quarter of During the period 100% of the new loans for house purchases were agreed in BGN. As of the end of Q the total amount of deposits to households and NPISH grew with a slower pace 5,7% compared to the growth of 6,6% for the whole As of the end of June 2017 deposits from households were BGN 45,8 billion (EUR 23,4 billion), which was 47,3% to GDP. The household sector comprised 66,8% of all deposits in the banking system. Source: BNB Loans and deposits of non-financial corporations As of June 30, 2017 the outstanding amount on deposits from non-financial corporations increased by 9,7% Y-o-Y to BGN 19,63 billion (EUR 10,04 billion). The outstanding amount on loans to nonfinancial corporations grew by 2,1% to BGN 30,95 billion (EUR 15,82 billion). Except overdrafts, loans to non-financial corporations recorded growth of 0,7% on an annual basis, reaching BGN 21,53 billion (EUR 11 billion). The new business on loans to non-financial corporations decreased by 32,9% in Q to BGN 2,67 billion (EUR 1,37 billion). The share of new loans, agreed in BGN, was 59%, in EUR - 40%, and the rest (1%) was the share of new loans in USD. Source: BNB, own calculations 21

22 Interest rates The downward dynamics in the interest rate levels on new loans, observed in recent quarters, continued in Q2 2017, while the dynamics in the interest rates on new deposits is retained. 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 are among the main factors for the decline in the interest rate levels and the demand of loans. Interest rates on deposits In Q the interest rates on newly agreed time deposits retained the reached low levels. As of the end of June 2017 the average interest rate on deposits with agreed maturity for households on new business in BGN declined by 39 basis points to 0,44% from 0,83% as of the end of June 2016 and by 23 basis points compared to the end of 2016 when it was 0,67%. The decline in euro was by 36 basis points Y-o-Y to 0,3% (as of the end of June 2017) from 0,66% (as of the end of June 2016). A drop in the interest rates on new deposits was not observed. Compared to a year earlier the average interest rate on deposits on new business with agreed maturity for non-financial corporations fell to 0,18% as of the end of June 2017 as they were 0,35% at the end of June 2016 and to 0,19% from 0,4% regarding deposits in EUR. Source: BNB 22

23 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 the historically low levels of 3,93% for loans agreed in BGN, and to 3,92% for those in EUR. The average interest rate on consumer loans in BGN fell to the historically low levels of 7,78% as of the end of June 2017 compared to 9,51% at the end of the second quarter of last year. The interest rates on consumer loans in EUR fell to the historically low levels of 5,07% compared to 6,69% a year ago. Source: BNB As of the end of June 2017 the annual percentage rate, which includes the interest rate component and the component of all other fees and commissions, dropped to 4,37% for housing loans in BGN and to 4,24% for housing loans in EUR from 5,40% and 6,18% respectively a year earlier. The decline was to 9,66% for consumer loans in BGN and to 5,59% for consumer loans in EUR. As of June 30, 2016, the annual percentage rates were 10,42% and 7,42%, respectively. The average interest rates on new business on loans for non-financial corporations fell to 3,79% for loans in BGN and to 3,83% for loans in EUR compared to 4,28% and 5,09%, a year ago. Source: BNB 23

24 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), the Bulgarian National Bank (BNB), the Ministry of Finance (MF), the European Central Bank (ECB), the European Commission (EC), the International Monetary Fund (IMF), the World Bank (WB) 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 2, 2017, unless otherwise stated. The views provided are those prevailing as of August 2 nd,