Bulgaria posts biggest drop in CESEE NPL ratio in H1 - EBRD

NPL stock in Bulgaria slid 1.5 percentage points to 3.8% of the overall debt, EBRD said in its half-yearly NPL Monitor report prepared under the Vienna Initiative framework.

Despite macroeconomic headwinds, bad loans across the CESEE region fell by an annual 6.8% on average since the most recent NPL Monitor issued in June, while NPL ratios went down to an average of 2.2%, EBRD said. NPL volumes in the region stood at 27.9 billion euro ($30.1 billion) at end-June.

Albania, with 8.4%, followed by Serbia and Kosovo, with 5.8% and 1.2% respectively, were the only countries that saw increases in NPL volumes at the end of the first half of 2023. However, none of the monitored countries saw an increase in the NPL ratio over the same period.

In relative terms, Croatia, where NPL volumes fell by 23.9%, was the country that showed the second-highest reduction in NPL stocks after Latvia with 26.2%. Croatia preceded Bosnia and Herzegovina, where the relative NPL decrease was 17.7%.

Write-offs as well as restructuring, enforcement and recovery of loans are estimated to have been a key factor for the decline across the board, with sales of distressed debt by banks to third-party investors accounting for only a fraction of the decline, according to the European lender.

"While inflation and interest-rate hikes have not yet led to a significant decline in asset quality, there have been increasing indicators of this trend over the past three quarters. Persistent inflation, rapid monetary policy tightening and geopolitical uncertainty could potentially trigger new shocks, leading to further corrections in asset prices, in turn impacting credit risk and possibly NPLs," EBRD noted, citing European Central Bank warnings that warns that the real economic impact of tighter financial conditions has yet to fully materialise.

Below are details on 12-month changes in the NPL profile of ten SEE countries as at June 30, 2023:

The Vienna Initiative is a framework for safeguarding the financial stability of emerging Europe co-founded by the EBRD, EIB, the European Commission, IMF and the World Bank. It was launched at the height of the first wave of the global financial crisis in January 2009. The initiative brings together all the relevant public and private sector stakeholders of EU-based cross-border banks active in emerging Europe, which own much of the banking sectors in the region.

($ = 0.9274 euro)