At the end of July 2017, the Bulgarian National Bank (the “BNB”) issued its report for the first quarter of 2017 (the “Report”). The Report outlines the state of the Bulgarian economy, focusing primarily on the banking system.
According to the BNB, favourable trends in the local and international economic environments give rise to positive expectations in the Bulgarian financial sector. However, this poses a challenge for credit institutions to adapt their business models for this period of economic recovery, to prioritise certain market segments, and to reconsider their product and pricing strategies.
The Report states that there is no noticeable change in the profitability of banks compared to the last quarter of 2016. However, there are uncertainties related to the need to change current business practices and increase activity in some fields, especially lending to SMEs and real estate mortgage crediting.
The level of liquidity in the banking system remains high. The BNB has identified the need for some banks to seek out more profitable, as well as more volatile, alternatives for investments. This, in turn, suggests that banks must carefully consider and analyse their internal strategies and risk assessment in order to manage their existing liquidity. The Report states that this is crucial to ensure compliance with a potential change in business models and expectations, which may arise due to macroeconomic processes. Lastly, the Report suggests that banks stick with conservative crediting standards, in order to avoid the accumulation of credit risk when lending eventually intensifies.