September 30 (SeeNews) - Bulgaria's central bank said that it has increased the countercyclical capital buffer rate applicable to credit risk exposures in the country to 2.0% from the fourth quarter of 2023.
The measure is a response to the persistently high rates of credit growth and the increased economic uncertainty, against the backdrop of global interest rate rises, the Bulgarian National Bank (BNB) said in a statement on Thursday.
In December 2021, the BNB set the countercyclical capital buffer at 1.5% as of January 1, 2023, after lifting it by half a percentage point to 1.0% as of October 2022.
The increase in the countercyclical buffer rate is aimed at strengthening the banks' resilience to pressures on profitability and capital position, which are caused by higher volumes of non-performing loans and impairment charges, the central bank noted.
According to the central bank, the current strongly negative levels of real interest rates and the intense lending activity are elevated across all segments of the credit market. Prolonged periods of high credit growth may lead to higher levels of indebtedness, which in turn could reduce borrowers’ ability to service debts and cause a rise in non-performing loans and impairments in the event of a future economic downturn or a jump in interest rates on loans.
Borrowers' debt-servicing capacity could be further affected by the soaring energy prices, potential supply-chain disruptions, indirect effects of economic activity slowdown for main trading partners and weakening business sentiments, BNB added. The rapid rise in interest rates across many countries also entails higher debt service payments by borrowers.
"With regard to data related to the countercyclical buffer reference indicator, the credit-to-GDP ratio calculated according to the methodology published on the BNB website, stood at 96.1% at the end of the second quarter of 2022. Its deviation from the long-term trend is negative (-32 percentage points), which corresponds to zero value of the reference indicator," the BNB also said.
BNB is required to announce decisions on increases in the countercyclical capital buffer rate 12 months before they take effect.
Bulgaria's rate of non-government borrowing accelerated in August and was equivalent to 50.4% of Bulgaria's gross domestic product (GDP) forecast for 2022, most recent BNB data shows.