Petia Dimitrova: Banks will continue to lend actively, in line with economic recovery


25 November 2020


- We all know that 2020 was a challenge, but what are your expectations for 2021 – will banks be able to lend actively or will they focus on preserving their stability?
In recent months we have seen an increase in lending, as at the end of the third quarter of 2020 the volume of consumer loans stood at BGN 12.82 billion compared to BGN 12.56 billion in the second quarter and BGN 12.27 billion a year earlier. The real estate market also retains serious interest, with a 13 percent increase in requests for housing loans in the first eight months of 2020 compared to the same period in 2019.

Banks’ revenues declined only slightly in the second quarter and recovered fully in the third. The quality of loan portfolios remains good, which was helped by the loan deferral program. Businesses and households continue to actively seek new loans and increase their deposits.

All this was helped by the good economic performance. After an initial downturn in the second quarter, the economy began to recover and in the third quarter grew on a quarterly basis. Macrodata is optimistic in the third quarter – sales are recovering, unemployment rates have started to fall again, the average salaries are rising, albeit modestly.

If this trend continues, banks will continue to lend actively, in line with the economic recovery. A second long lockdown, however, would put much of the business to a serious test, as many companies have already exhausted their reserves, and would have a very negative impact on the economic recovery.

- What are the observations of the effect of the credit moratorium on your clients and what part returns to regular servicing of loans after its end?

The moratorium was an essential tool and helped many clients defer their debts during the lockdown and economic downturn. It fulfilled its role, mainly in the first months of the crisis. Initially, it was valid until June, but then the application period was extended until the end of September. Our observations are that in the last two months of the application period very few clients submitted documents for loan deferral, which means that by this time (August – September) companies and citizens have already begun to return to their normal daily lives.

There are still few customers who have actually left the grace period, but the first data are very encouraging. The vast majority of them have managed to return to normal repayment of their loans. However, a new economic lockdown will increase unemployment and leave many companies and individuals without income at the crucial moment when they are leaving the grace period. Accordingly, if there is no possibility for a new rescheduling of payments, some of them may experience difficulties and bad loans may start to grow again.

- Do you expect the interest rate levels to retain their record low levels or can we expect to see an increase?

Yes, we expect them to remain stable next year, as there are no fundamental grounds for interest rates to go up. This could occur if there is a sharp deterioration in the quality of the loan portfolio and banks raise their risk margins, but thanks to the moratorium, the banks’ programs and the measures taken to support the economy, this risk remains low.

Furthermore, the banking system is highly liquid – banks are looking for opportunities to place this liquidity, which is again a good sign of economic recovery.