The Bulgarian Economy and Financial System

The Bulgarian Economy and Financial System Annual review for 21 and expectations for 211 January 211 Strategic Development Department For internal use only

CONTENTS Macroeconomic development Continuing, though still fragile recovery of the world economy The recovery in the EU is marked with fears of sovereign defaults Bulgarian economy steps firmly on the road to recovery Productivity of the economy is improving 21 a year of adjustment of macroeconomic imbalances FDI inflow slowed down at the end of 21 The currency board remains stable Preserved fiscal stability and tax level Higher unemployment and weak consumption Household s financial wealth continues to increase Forecast for main economic indicators in 211 The share of sectors with dynamic growth increases Construction and property market Financial sector Banking system in the second half of 21 Profitability and bad loans in the banking system State and trends on the Bulgarian Stock Exchange (BSE) Non-bank credit and leasing companies Forecasts for Bulgarian bank system development 1

Continuing, though still fragile recovery of the world economy 6.% 4.% 2.%.% -2.% -4.% -6.% -8.% 11% 1% 9% 8% 7% 6% 5% 4% 3% 2% Gross Domestic Product 25 26 27 28 29 21 211 212 EU 27 USA Japan United Kingdom Unemployment, % EU 27 USA Japan United Kingdom I II III IV V VI VII VIII IX X XI 21 Source: Eurostat After the relatively fast post-crisis recovery, the growth of the world economy will slightly slow down during 211, but will remain stable The forecasts of the World Bank and the IMF are for real growth of the global Gross Domestic Product (GDP) between 3.9% and 4.8% for 21 and between 3.3% and 4.2% for 211 Countries from Asia will continue to have a leading role in the growth of the global economy at the expense of slower recovery in Europe and the USA Unemployment remained high during entire 21, since additional limitations of public expenses in some regions will lead to slower recovery and longer period of high unemployment Confidence of consumers and businesses will continue slowly to improve, increasing demand for goods and services Despite growing consumption and higher liquidity, the inflation will remain relatively subdued, except in some emerging countries Monetary policy as a whole will be orientated towards support of the economic recovery, as expectations are for a gradual increase of interest rates to more normal levels 2

The recovery in the EU is marked with fears of sovereign defaults 9 8 7 6 5 4 3 2 1 82 Czech Republic GDP per capita in PPS*, EU 27=1 65 64 55 52 46 44 +1 +1-4 -6-4 -1 Hungary Estonia Latvia Lithuania Romania Bulgaria 82 - GDP in PPS - change 29/28 9% 8% 7% 6% 5% 4% 3% 2% 1% % Government debt, % of GDP 74.% 78.4% Government debt 29, % of GDP Government debt 28, % of GDP 36.7% 35.% 29.5% 23.9% EU 27 Hungary Latvia Czech Republic Lithuania Romania Bulgaria 14.7% 7.2% Estonia As a result of the economic crisis the GDP in a number of countries, measured by PPS*, marked a decrease. Such fall was avoided only by more stable economies or those, in which the real GDP drop was much smaller The level of government debt increased significantly, and for some countries it markedly surpassed the size of their economies (e.g. Greece 126% ofбвп in 29) This led to stronger fears of sovereign defaults, which made the EU provide saving plans, so far to Greece EUR 11 bn, and to Ireland EUR 85 bn (about 5% of its GDP) There are still concerns for other countries, such as Portugal and Spain. Some doubts exist that the EU might not be able to handle a potential collapse of the Spanish economy due to its much larger size over EUR 1 trillion Parallel to these developments, also observed is decrease of external imbalances of some countries, which managed to convert from growth, based on internal demand to an export-led growth Despite economic troubles, most countries from Central and Eastern Europe showed a significant macroeconomic resilience and flexibility, and already most of them have recovered their competitiveness and potential for higher growth, including Bulgaria 3 * PPS purchasing power standard artificial currency unit used by Eurostat to measure national accounts aggregates, adjusting for price differences in various national currencies Source: European Commission reports, Eurostat

Bulgarian economy steps firmly on the road to recovery BGN bn 25 2 15 1 5 Gross Domestic Product GDP GDP growth, % (right scale) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 8% 6% 4% 2% % -2% -4% -6% -8% 29 21 Source: NSI After six consecutive quarters of decline on an annual basis in the third quarter of 21 the Bulgarian economy returned on a growth path, increasing by.5% (on a yearly basis) There was also second consecutive GDP increase on a quarter basis (.7%), which confirmed the forecasts that the country has already stepped on the road to recovery Increasing exports became a growth driver, increasing by 18.5% in the third quarter, while individual consumption remained contracted, falling by 5.9% compared to a year earlier Nevertheless, there are first signals that investments will also begin to increase, as their decline slowed to 5.3% compared to 15.6% decrease for the second quarter The expectations for 21 are the economy to register a slight increase between and.5%. Forecasts of IMF, EC and MoF are growth to increase to 2.5% - 3.6% in 211 Expected domestic demand recovery is one of the prerequisites for better results in 211, as well as better EU funds absorption A negative role could play the deepening of the debt crisis in Western European countries and any potential decline of consumption in these countries 4

Productivity of the economy is improving 4% 35% 3% 25% 2% 15% 1% 5% % -5% -1% -15% +18.5 Imports and Exports +2.1 I II III IV V VI VII VIII IX X XI Exports, change 21 on an annual basis, % Imports, change on an annual basis, % 4% 3% 2% 1% % -1% -2% -3% Industrial Production, Industrial New Orders I II III IV V VI VII VIII IX X XI 21 Industrial production, change on an annual basis, % Industrial new orders, change on an annual basis, % Exports maintained its upward trend since the beginning of the year, increasing during most months at a faster rate than imports. Exports rose by 31.8% yoy in November There is a significant increase in exported investment goods with 42.9% annual growth in third quarter Imports also continues to increase gradually, as until November it is by 11.7% above its last year level, and on a monthly basis it grew to its five years record high of 39.1% Supported by stronger external demand, industrial production continued to recover, reaching 5.6% growth on an annual basis in November In the third quarter the industry started also to create new jobs, as employment in the sector grew by over 4 thousand people on a quarterly basis There is also an improvement in labor productivity, which for the third quarter increased by 6.4% on an annual basis, increasing economic competitiveness However, the industry still remains below levels reached in the previous 2-3 years, as excess capacity gained during the crisis will decrease slowly due to relatively contracted demand and bank lending, as well as the increased commodity prices 5

21 a year of adjustment of macroeconomic imbalances EUR m 1 5-5 -1-1 5-2 -2 5 Current account and Trade balance I II III IV V VI VII VIII IX X XI 21 Current account Trade balance Steadily increasing exports and still weaker imports had a positive impact on trade deficit, which decreased by 45.4% yoy to EUR 2.1 bn (5.7% of GDP) in November After three consecutive months of surplus due to strong summer tourist season, the current account went back to a deficit of EUR 9.8 m until November With the gradual domestic demand recovery and investments inflow, the current account deficit will start gradually to increase, but will remain significantly below its peak levels before the crisis Source: BNB, NSI Gross external debt reported a slight decline to EUR 36 bn in October or by EUR 1.8 bn less than the end of 29, returning below the limit of 1% of GDP The main reason for contraction is due to strong reduction of private external debt to EUR 31.9 bn. Public external debt remained almost unchanged at a level of EUR 4.2 bn or 11.5% of GDP EUR bn 4 35 3 25 2 15 Private external debt Public external debt Structure of the external debt Tax revenues recovery due to economic revival will weaken the need of government debt issuance in the upcoming years, keeping its ratio to GDP one of the lowest in Europe 1 5 I'6 VI'6 I'7 VI'7 I'8 VI'8 I'9 VI'9 I'1 X'1 6

FDI inflow slowed down at the end of 21 4 Foreign Direct Investments 3 2 EUR m 1-1 -2-3 I II III IV V VI VII VIII IX X XI 21 FDI on a monthly basis Average for the period Source: BNB Still weak economic recovery of the country and existing global risks narrowed sharply the level of foreign direct investment (FDI) to EUR 849.7 m in November or by 67.8% below its level from a year earlier After a slowdown of their decline in mid-21, as of end of the year FDI inflow decreased sharply again, remaining below the average level for the period Despite their significantly lower amount, FDI cover several times the current account deficit, while in November 29 the coverage was 12.9% The total amount of foreign investments is expected to reach around EUR 1 bn in 21, as until Q3 over one quarter of them are aimed at manufacturing Investments in industry are expected to increase by 18% on an annual basis in 211, as with the largest share will be those in power and water-related industries, followed by industries producing intermediate goods Absorption of EU funds, especially in infrastructure construction, will be essential to overcome the downturn in the construction sector 7

The currency board remains stable 14 Short-term external debt and FX reserve 8 7 379 Fiscal reserve 12 1 7 6 6 EUR bn 8 6 4 BGN m 5 4 3 2 Short-term external debt FX reserve I VI I VI I VI I X 27 28 29 21 2 1 I II III IV V VI VII VIII IX X XI XII Source: BNB, MoF Despite the economic difficulties, the currency board remained stable, as foreign exchange reserves amounted to BGN 12.3 bn as of end-21, increasing slightly compared to the beginning of the year The internal devaluation in the form of frozen or reduced public and private expenditure, also contributed to preservation of the currency board system The short-term external debt coverage of foreign exchange reserves remained stable above the level of 1%, as after slight fluctuations in the middle of the year, reached its highest level for the past two years - 11.4% Coverage of imports by foreign exchange reserves remained significant, reaching 7.4 months as of end of November, remaining well above considered a normal level of three months Despite the gradual decline during the year, the fiscal reserve amounted to BGN 6 bn as of end of 21 - well above the projected minimum of BGN 4.5 bn, marked in the revised 21 state budget The annual decrease of fiscal reserve is 21.8%, partly due to repaid delayed payments by state to private businesses 8

Preserved fiscal stability and tax level 3% Budget balance 6 2% 4 1% 2 % -1% -2% I II III IV V VI VII VIII IX X XI XII оч. -2-4 BGN m -3% -6-4% -8-5% Budget balance, % of GDP Budget balance on a monthly basis (right scale) -1 Source: MoF Enhanced control of budget spending and improved revenue collection led to a smaller budget deficit than previously projected in the updated version of 21 budget According to preliminary MoF data it will be BGN 2.8 bn or 3.9% of GDP on a cash basis, respectively 3.6% of GDP on an accrual basis, mainly due to cost savings Although crossing the limit of 3%, the deficit in 21 is expected to be ones again one of the lowest in the EU, while at the same time the level of the main taxes remained unchanged For the next budgetary period, the aim of government is to go below the Maastricht limit. This will allow Bulgaria to apply for European exchange rate mechanism ERM II, which will further enhance the stability in the country Prudent fiscal policy, low government debt and sizeable fiscal reserves gave a reason to Standard & Poor s, Moody s and Japanese JCRA to affirm the country s credit rating as two of them changed also the outlook to positive, pointing that Bulgaria has the potential to shift to higher credit rating 9

Higher unemployment and weak consumption 11% 9.9% 1% 9% +2.95 8% 7% 6% 5% 4% % -2% -4% 6.5% Unemployment, % 29 г. 21 г. 9.24% 9.13% I II III IV V VI VII VIII IX X XI XII Turnover in Retail trade, % change on an annual basis XI XII I II III IV V VI VII VIII IX X 29 21 Despite the slight increase in unemployment in the last two months of the year to 9.24%, the overall trend in 21 was for a gradual decrease, supported both by seasonal factors and by the already started improvement of the industry Its level remains significantly lower than that of the most affected countries, such as Spain (2.6%) and those from the Baltic region (between 16% and 18%), as well as lower than the EU average (9.6%) With the gradual recovery of the economy the trend for reduction of unemployment will intensify, which will have a positive impact on domestic demand The turnover in trade finally started to slow down its decline in the middle of the year, reaching -4.8% on annual basis in October Despite fluctuations in different months, the business climate showed improvement during 21. Insufficient demand and still unsafe economic environment will continue to be the main problems for the Bulgarian business -6% -8% -1% -4.8% Despite the fragile recovery and still low consumption, inflation in the country returned to higher levels in the second half of the year, reaching 4.5% on annual basis, due mainly to higher food prices -12% -14% -12.7% Source: NSI Its retention on the planned levels during 211 will be difficult, given the expected rise in the prices of main raw materials, food and energy resources 1

Households financial wealth continues to increase BGN bn 66 65 64 63 62 61 6 59 58 57 56 Dynamics of total wealth Household wealth Financial wealth Average monthly w age, B GN 649 594 IX X XI XII I II III IV V VI VII VIII IX 29 21 Source: Industry Watch, NSI Financial wealth of households continued to grow, reaching BGN 38.1 bn by the end of September. Its growth rate remains double-digit - 11% on annual basis Household wealth decreases by around 6% on annual basis to BGN 1.3 bn, but its rate of decline slows down visibly compared to the previous quarter Real estate prices continue to slow down their decline, as for the third quarter the number of cities with positive growth in prices is almost equal to the ones with lower prices Average income per person declines in the third quarter by 2.2% on annual basis to BGN 932, but compared to the previous quarter it has grown by 2.9%. Individual expenses also drop on annual and rise on quarterly basis by around 5% BGN 845. Average salary in September increases by 9.3% on annual basis Despite that population s propensity to save remained high during the year, the average amount per person saved as deposit marked a decline of over 65% on annual basis to BGN 16.3 in the third quarter Despite that total savings of households in banks continue to grow, adding new BGN 3.3 bn until November on annual basis The share of bank deposits remains more than two thirds of the households financial portfolio, though its amount was by 1% lower in Q3 compared to the previous quarter 11

Forecast for main economic indicators in 211 K ey in d i cato rs / Ye ars 2 9 21 exp. 211 fo re ca st G ro ss D o m e st ic P ro d u ct (G D P ) in B G N b n 68.5 7.6 7 6.2 R ea l G D P g ro w th - 4.9%.2 % 3.% In d u s tr ia l p ro d u ct io n (% g ro w th o n a n an n u al b a sis) -1 3.4% -7.5 % 1.5% In f la tio n ( % g ro w t h o n an an n u al b as is ).6% 4.5 % 5.% C u rre n t a cco u n t b a la n ce (% o f G D P ) - 9.9%.8 % -2.2% G ro ss fo re ig n d eb t (% o f G D P ) 1 7.9% 99.6 % 94.9% B u d g e t b a la n ce ( % o f G D P ) -.9% -3.9 % -2.8% F o reig n d irec t in ve s t m en t s (E U R b n ) 3.2 8 1.5 2. F o reig n d irec t in ve s t m en t s (% o f G D P ) 9.4% 2.9 % 5.1% U n em p lo y m en t ( % ) 9.1% 9.2 % 8.% B as ic in t ere st r ate (% ) 2.4 %.2 % 1.3% B G N /E U R e xc h an g e rat e (a ve rag e fo r t h e ye ar) 1.95 58 3 1.955 83 1.9 558 3 B G N /U S D e xc h an g e rat e (a ve rag e fo r t h e ye ar) 1.3 6 1.47 1.4 The gradual recovery from recession will continue also in 211, as the GDP will intensify its real growth to 2.5% - 3% The industry will keep its upward trend supported mainly by increased external demand, since recovery is already observed in the export-oriented sectors Stabilization of the labour market will have a positive influence on internal demand. The average working salary will continue to grow, though with lower rates compared to pre-crisis ones As a result of the maintained financial stability in the country foreign investments will gradually increase. Improved absorption of EU funds will play a stabilizing role in the next years Some risks for the country could come from potential new slowdown of the world economy, as well as from increased inflationary pressure 12 Source: NSI, BNB, MoF, EC, IMF, BayernLB, forecasts of MKB Unionbank

The share of sectors with dynamic growth increases Export-oriented sectors are the first to recover from the crisis which is due to the growing volume of new orders from abroad. Companies, which are dependent more from the internal market, have still not overcome the consequences of the recession due to the limited demand in the country Sectors with dynamic growth Food production Machine building Metal products Chemical products Rubber and plastics Paper, cartoon and products from them Computer and telecommunication equipment, electronics and optical devices Lumber material and wooden products Furniture Automotive and trailer production Sectors with contracting volumes (yoy) Construction (positive growth only in November 21) Extraction of non-metal raw materials and construction materials Printing Sale and repair of automobiles Production of vehicles, without cars Apart from the above two groups, there is a growing number of sectors which become part of a third group the one of improving and recovering industries. In these the contraction on annual basis has almost stopped, though still there is no sustainable growth. Some of these sectors are: commerce, production of beverages, textile and clothing, transport and logistics, tourism Despite the positive signals in some industries, businesses continue to face a number of challenges, the biggest one of them being intercompany indebtedness. The largest debts are seen in construction and furniture industry, with larger companies seeing the highest growth in debts 13

Construction and property market Home price / Household annual income Ratio 8 7.2 7 6 5 4 3 2 years 4.3 4.1 Current level (Q2 21) 3.3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2 23 24 25 26 27 28 29 21 The downward trend of the ratio shows that the home purchase becomes more and more affordable for households Source: NSI Construction. While during the whole year the production output of sector Construction tended to contract, in November 21 the sector managed to register an increase on an annual basis. The main factors for this positive sign are the slowing down of the decrease in residential construction and mostly the accelerated growth in infrastructural construction. The new infrastructural projects for 211 are expected to maintain this growth Residential market. First signs of revival of the residential market are registered in the second half of 21 the number of completed deals for home purchases is over two times bigger than that in the first half of the year. At the same time, the potential for a further drop in the home prices is almost expired in most of the half district cities prices are even increasing. Among the cities with the most favorable conditions for a coming growth in prices are Sofia, Sofia-district, Stara Zagora, Kardzhali, Kyustendil, Pazardzhik, Pleven and Vratsa Business property market. The increasing supply of modern commercial areas put pressure over rents for a downward price movement and led to an increase of vacant space, especially in Varna and Rousse. The same process is happening on the office market too. The oversupplying of office and commercial area will turn into a major problem in 211, which solution will depend on how fast the economy of the country is recovering 14

Banking system in the second half of 21 1 4 1 2 1 8 6 4 2-2 -4-6 -8 Assets, loans and deposits monthly change of volumes BGN mln Assets Customer Loans Customer Deposits June'1 July Aug Sep Oct Nov'1 November is the sole month in the second half of 21 when the three main indicators of the banking sector registered growth at the same time. Loans are increasing in five of the shown months, deposits during four, while assets are rising in three of the months The stable increase of deposits for the period is a result mainly from the continual growth in deposits of individuals. Corporate deposits are also increasing, but yet their upward movement is not stable 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Assets, loans and deposits annual growth Assets Customer Loans Customer Deposits June'1 July Aug Sep Oct Nov'1 In contrast to the low and sometimes negative monthly growth in loans during the first half of 21, during the second half of the year the banking lending is accelerating. The main reason for this is the higher demand in the mortgage and corporate segment The biggest annual increase is registered by deposits (8.9% in November), which have accelerated their growth since September. Unlike them, the annual growth in loans has been slowing down, as in November it is 2.2% Source: BNB 15

Profitability and bad loans in the banking system 3 2 5 2 Comparison of indicators for profitability vs. a year earlier January-November 29 January-November 21 8 7 6 5 Increase of bad loans since the beginning of the year December 29 November 21 1 5 4 1 3 BGN mln. 5 Net interest income Income from fees and commissions Impairments for provisions Net income 2 1 BGN mln. Corporate Consumer Housing Total Loans Source: BNB Net income in the banking system contracted by 16.7% for the first eleven months of 21 against a year earlier. This is a result from the rise in the impairments for provisions by 22.9% for the period At the same time banks are even registering an increase (if only by a little) of the net interest income and income from fees and commissions by 2.7% and 2.9%, respectively. This increase, however, turned out to be insufficient in order to compensate for the rise of the impairments for provisions During the first eleven months of the year bad loans grow by as much as 73%, as in November 21 their share in the total credit portfolio amounts to 14.1% against 8.3% in December 29 The biggest increase in volume since the beginning of the year has been registered by bad corporate loans (98%), followed by housing (55%) and consumer loans (35%). Because of the weak economic recovery in the country and the slow speed of writing off the bad loans in the banking sector, their share has potential to continue its growth, although by a decreasing rate. As a result of the better collateral and lower risk, banks will continue to focus on mortgage lending 16

State and trends on the Bulgarian Stock Exchange (BSE) Change of some benchmark indexes in the region Central and Eastern Europe Index Change for 21 Change for 28-21 Bulgaria SOFIX -15.2% 1.% Greece ASE -35.6% -2.9% Poland WIG 18.8% 73.4% Romania BET 13.% 81.6% Russia RTS 24.2% 18.5% Slovakia SSI -13.7% -35.9% Serbia BELEX -2.2% 7.% Turkey ISE 1 25.% 145.7% Hungary BSE.5% 74.2% Croatia CROBEX 5.7% 23.% Czech Rep. PSE 9.6% 42.7% Source: Investor.bg Movement of SOFIX benchmark for the period 28-21 Currently, the Bulgarian equity market is among the weakest in Central and Eastern Europe, as for the period 28-21 the main benchmark index SOFIX registered a slight increase of only 1%. This is the third worst performance in the region after that of the benchmarks of Greece and Slovakia After regaining 19.3% of its value in 29, SOFIX registered a new decrease in 21 15.2%. Thus, the beginning of the recovery is still postponed, as the expectations are that it will happen in the current year, if the economic situation continues to improve In 21, the turnover of BSE continued to dwindle, which led, as expected, to a wave of returned licenses by a big number of investment brokers and asset management companies. During the year one of the popular public companies Moststroy filed for bankruptcy, which caused its shares to plunge. The speculation that the bankruptcy was purposely intended additionally drew back the attractiveness of the domestic market for foreign investors In 211, the state is expected to offer its shares in the companies from the energy sector on BSE, which will increase its liquidity. The shares of the stock exchange operator are already publicly traded, which will allow it to receive a market value and would help in attracting a strategic investor in it 17

Non-bank credit and leasing companies 2.5 2. 1.5 1..5. BGN bn. 2.2 11.% Nonbank credit companies 1.763 12.6% 14.2% 15.1% 16.% 1.729 1.753 1.743 Total takings Share of non-performing Sep'9 Dec March June Sep'1 18% 16% 14% 12% 1% 8% 6% 4% 2% % 6. 5. 4. 3. 2. 1.. BGN bn. 5.341 12.9% Leasing companies 4.98 16.4% 15.9% 4.737 17.4% 18.4% 4.449 4.271 Total takings Share of non-performing Sep'9 Dec March June Sep'1 Source: BNB 2% 18% 16% 14% 12% 1% 8% 6% 4% 2% % At the end of the third quarter of 21, the credit portfolio of nonbank credit companies decreased by.5% to BGN 1.74 bn, after the sole increase of 1.4% registered in the previous quarter. The contraction in September, however, is the lowest so far. The decrease on an annual basis is in the size of 2.8%, while in June it was 24.4% In Q3, the share of non-performing loans in the nonbank sector increased and they already amount to 16%. The increase is driven both by the new contraction of the portfolio and the consecutive increase of bad loans in volume. Their size as of September is BGN 278.2 m. The business of the leasing companies also continues to contract its volumes, as in September the takings in the sector decreased by 4.% qoq to BGN 4.27 bn. Nevertheless, the drop is losing speed because the contraction in the previous quarter was in the size of 6.1%. The annual drop is in the size of 2.%, while in June it was 21.1% The lack of enough new dealings in the leasing sector leads to an additional increase in the share of nonperforming loans. As of September, they already form 18.4% from the total portfolio, while in terms of volume they increase to BGN 785.5 m. 18

Forecasts for Bulgarian bank system development INDICATORS (in %) 27 28 29 Nov'21 211 F Assets 4.% 17.7% 1.9% 2.4% 3.% Corporate Loans 76.5% 31.2% 2.6% 3.5% 3.% Retail Loans 58.8% 33.8% 7.5% -.2% 5.7% Mortgage Loans x 4.2% 8.4% 3.% 6.5% Consumer Loans x 28.5% 6.7% -3.1% 5.% Total Loans 69.9% 32.1% 4.3% 2.1% 4.% Corporate Deposits 44.9% -1.4% -5.7% 3.8% 2.5% Retail Deposits 37.% 16.8% 12.% 1.1% 6.% Total Deposits 4.9% 7.5% 3.7% 7.4% 4.6% In 21, the banking system registered a higher annual growth in assets and corporate loans, while corporate deposits marked the first increase from two years. At the same time, the growth is slowing down in mortgage loans and retail deposits. Consumer loans registered contraction in 21 In relevance to the expectations for economic revival, there is a strong possibility for accelerating the growth of all loans and assets in 211, while deposits may lose momentum, as a result of the higher growth rates in 21 In 21, the banking sector continued to register dwindling profits and growing volumes of bad loans. Moreover, the number of banks with negative profit increased. The peak of bad loans is expected to be reached in 211 up to levels of 15% - 16%, after which a gradual decrease to more healthy levels of 6% - 7% should follow The difficult market environment and weak results were the main reasons for Bank Leumi to cease its operations in Bulgaria, while others like the Slovenian NLB West-East are considering this in the near future. Despite this, the Ukrainian Regional Investment Bank started operations in the country and the Turkish Isbank is expected soon to do the same. 19