Bulgaria's central bank said that it is keeping the countercyclical capital buffer rate applicable to credit risk exposures in the country at 1.5%, to take effect as of April 1, 2023.
Last year, the BNB increased the countercyclical capital buffer rate applicable to domestic credit risk exposures at 1.0% in effect from October 1, 2022 and 1.5% from January 1, 2023.
"In view of the continuing elevated credit growth rates and given the uncertainty in the economic outlook, the countercyclical capital buffer rate at 1.5% for the second quarter of 2023 is aimed at strengthening the resilience of the banking system to pressure on profitability and capital position caused by potential rise in non-performing loans and impairments," the BNB said in a statement on Tuesday.
Loans to households have continued growing at elevated rates, in particular in the segment of loans for house purchase, the central bank noted.
Continuation of the observed pace of credit growth against the background of the current level of real interest rates may give rise to higher level of indebtedness, which given the prominent tendency toward change in the interest rate cycle could have adverse impact on borrowers’ debt-servicing capacity, leading to an increase of non-performing loans and impairments in the event of potential economic downturn, the BNB said.
"With regard to data related to the reference indicator for the countercyclical buffer, the credit-to-GDP ratio calculated according to the methodology published on the BNB website stood at 94.1% at the end of the fourth quarter of 2021. Its deviation from the long-term trend is negative (-30.1 pp), which corresponds to zero value of the reference indicator," the central bank also said.