UniCredit Sees Bad Loans in Bulgaria Reaching 10% in 2010

The share of bad loans in Bulgaria is currently above 5.0%. A loan is classified as non-performing when it has been overdue for more than 90 days.

The expected uptick in bad loans means that the Bulgarian banking system is facing 3.7 billion levs ($2.8 billion/1.9 billion euro) in asset write-downs due to the recession, a figure equal to 6.0% of the country’s gross domestic product in 2008, Kristofor Pavlov, chief economist and head of economic research at the group’s local unit, UniCredit Bulbank, said during a presentation of an overview of the banking system in central and eastern Europe.

The credit portfolio of Bulgarian commercial banks totalled 49.7 billion levs at the end of September, up 5.0% from a year earlier, according to latest data of the country's central bank.

The industry will be able to absorb these losses within three years, starting in 2009, and should expect full recovery to begin in 2011 when the country’s economy will return to positive growth, the report showed.

“Despite the crisis, the long-term potential of the banking sector in Bulgaria remains intact. This means that the sector will remain attractive for both existing and future players,” Pavlov said, adding that good risk management would be key for those players that want to profit from the long-term potential of the local financial services sector.

As regards interest rates, deposit rates are expected to fall back to the 2008 levels in 2012.

“As a whole, in the post-crisis period (2012-2015) we expect interest rates on deposits to be higher than the levels seen in 2003-2007, particularly as regards interest rates on household deposits,” Pavlov said.

Interest rates on loans will decline at a pace faster than deposit rates, he added.

(1 euro = 1.95583 Bulgarian levs)