Banks in Bulgaria have reported a tightening of credit conditions for both businesses and households, primarily driven by increased interest rates. This tightening has been particularly evident in consumer loans, according to the Bulgarian National Bank’s (BNB) Economic Review for the third quarter of 2024.
Despite the stricter conditions, banks have slightly relaxed the maximum loan amounts for consumer loans. The primary reason behind the tightening of credit standards for both business and household loans in the second quarter of 2024, compared to the first, was a lower willingness by banks to assume risk. Additionally, higher borrowing costs for corporate loans and greater perceived risks in consumer lending contributed to the more restrictive credit environment.
The BNB survey on bank credit activity for the first and second quarters of 2024 highlighted that household demand for loans to purchase first homes was a key factor behind the rise in housing loan applications. For consumer loans, the most significant demand came from households seeking funds for current consumption.
Competition among banks has led to some easing of lending standards for households, although a lower risk appetite has been a major driver for the tightening of standards. The rise in housing prices during the first half of 2024 also supported the increase in housing loan volumes.
From January to August, both consumer and housing loans showed continued growth in newly granted volumes. Meanwhile, household deposits were bolstered by rising labor incomes, with many households preferring to save their spare funds in bank deposits. Overnight deposits played the most significant role in this growth, while term deposits with fixed maturity grew more slowly, partly due to modest increases in interest rates on new term deposits, particularly among smaller banks.
Bulgaria’s exports, however, faced challenges in the second quarter of 2024, largely due to weak economic activity in the Eurozone, the country’s main trading partner. This decline in exports was broad-based, with cereals and machinery being the largest negative contributors. The economic outlook for the global economy as of the middle of October suggests a continued slowdown in external demand, which is expected to further negatively impact Bulgarian export volumes, given the country’s high level of economic openness. (Novinite)