The slackened lending standards in the fight for market shares and overestimating households’ solvency are the major risks Bulgarian banks will be facing in 2008, the central bank said in its latest review.
The soaring household debt and the fierce chase after market shares can create higher risk, the analysts warned.
Banks had earmarked 4.5 bln Bulgarian levs ($3.6 bln/2.3 bln euro) to cover the lending risk in fourth-quarter 2007, up by 545 mln levs ($440 mln/279 mln euro) from the previous quarter.
The local lenders still have stable sources of income with loan interest income making up the major part. However, this is not enough to guarantee the financial stability at home as the global markets are ridden by a serious crisis. This restricts banks’ access to resources and capital support, according to the central bank.
Bulgarian banks broke a ten-year record in 2007 posting a combined profit of 1.144 bln levs ($924 mln/585 mln euro), up 42 pct year-on-year.
The return on assets and return on capital ratios are higher than the EU averages standing at 2.35 pct and 23.75 pct, respectively.
In February lending growth subsided by 2.9 percentage points. Yet the 60.3 pct year-on-year growth is far from the central bank’s 30-40 pct target. The corporate lending pace slowed down by 5.8 percentage points year-on-year. Banks gave out 1.1 bln levs ($889 mln/562 mln euro) worth of new loans in February.
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