Many religions consider the trinity a symbol of divinity. If you are a Bulgarian banker and staring at the central bank statistics for February, it is highly likely that one particular ‘three’ would bring little joy. Specifically, the figure in question is the three-fold increase in the number of bad loans over the previous 12 months.

In February alone, the loans in the "non-performing and restructured" category have increased by 5.8 per cent, worth 258.7 million leva, reaching 4.7 billion leva at the end of February, the equivalent of 12.2 per cent of the total loan portfolio.

Bulgarian National Bank (BNB) statistics showed that 11.9 per cent of corporate loans, 11.6 per cent of mortgages and 13.6 per cent of consumer loans fell in the non-performing category.

Optimists will rejoice at the fact that in recent months the growth of non-performing loans has declined, both on an annual and monthly basis – from a nine per cent increase in January to 3.9 per cent in February for mortgage loans, for example.

It might look like good news, but Bulgarian bankers remained reserved when asked to comment on the issue. "Maybe the bottom and recovery is close, but it is very early to draw conclusions from one month," Cibank chief executive Petar Andronov said. The growth of non-performing loans in Central and Eastern Europe slowed down in the third quarter of 2009.

"At that time, Bulgaria was the only country where the rate of growth of the number of non-performing loans increased," he said. Bulgaria would inevitably follow the trend, but it was too soon to tell whether that was the case now.

DSK Bank chief executive Violina Marinova was equally skeptical about statical data and credited the slowdown in the growth of non-performing loans to the restructuring and renegotiation of some loans. "I would not say that there is a slowdown. It is too early to say that the situation is improving," she said.

By the numbers
The statistics do not make for happy reading. In February, the loan portfolio of Bulgarian banks shrank by 0.4 per cent, or 204.9 million leva to 49.7 billion leva. Corporate overdrafts shrank by 2.1 per cent for the month (192 million leva), but other corporate loans grew by 0.1 per cent (10.3 million leva).

The mortgages portfolio grew by 0.5 per cent (42.3 million leva), while consumer credits and other retail loans were down by 0.3 per cent and 2.4 per cent, respectively.
"There is still little demand from customers," according to Marinova. One reason was that banks were increasingly risk averse and more demanding of potential loan recipients, she said.

Andronov said that January and February were traditionally slower months for lenders, compared to December, which made the decline in lending unsurprising. Nevertheless, the results at the start of the year were somewhat better than expected. "Commerce and consumption are starting to recover, albeit painfully slowly. Retail loans are doing better compared to last year," he said.

At first sight, his words seemed to be backed by the numbers, which point towards an increase in corporate and retail loans. BNB, however, said that the statistics were influenced by the trend of Bulgarian subsidiaries to buy back loans.

At the height of the credit boom before the current downturn, financial institutions sold some of their portfolios to secure more funding for continued lending expansion. Now the trend has reversed and banks have bought back more than 1.5 billion leva worth of loans, according to BNB, which raised the question as to how much of the loan portfolio growth was due to new loans.

The bottom line showed that consumer loans grew by 6.5 per cent on an annual basis in February, while mortgage loans were 9.1 per cent higher than at the end of February 2009. Corporate loans recorded a small increase of 0.5 per cent, a slower rate that bankers said was due to rising requirements to secure a loan, as well as the reluctance of corporate entities to take on new debt.

"The big, export-oriented business is feeling the effect of the recovery on foreign markets. Medium and small businesses working for the domestic market are still facing serious problems," Andronov said.

Kapital weekly, issue 12