Bad loans plaguing the books of Bulgarian banks crept up to 5.1 per cent at the end of July 2009, according to central Bulgarian National Bank (BNB).

At 2.49 billion leva, the volume is 8.5 per cent higher than in the previous month.

Although bad and restructured loans crossed what is seen as a healthy five per cent point, BNB downplayed concerns that the sector’s stability was at risk.

The latest stress tests by BNB revealed that if the IMF’s forecast of a seven per cent decrease in gross domestic product (GDP) for 2009 comes true, bad loans will increase to 16.5 per cent of all and yet the system will retain its stability.

In this case, banks will lose between 1.9 billion leva and 3.3 billion leva in write-downs and the capital adequacy will fall to between 14.5 per cent and 11.6 per cent.

Bad housing loans registered the fastest increase, soaring by 12.9 per cent to 435.8 million leva up to July, an increase of 287.6 million leva year-on-year.

Overdue consumer loans spiralled off by 9.3 per cent from June to 600.9 million leva, adding 318.1 million leva from a year before.

Bad loans to individuals surged by 668.5 million leva in the year up to July as bad corporate loans rose by 856.5 million leva to 1.35 billion leva, up 7.31 per cent on the month.

One reason for bad loans is the slowdown in banking lending in the aftermath of the credit crunch.

At the end of July 2008, bad loans accounted for just 2.15 per cent of banks’ combined portfolios but the sector’s neck-breaking 52.51 per cent growth has now been tamed to just 7.63 per cent.

Source: Dnevnik.bg