Bulgaria’s banking system has been marking positive results for the second consecutive year. The trend will also continue in 2015, because in the first trimester it registered a 30% increase year on year, economist Grigor Sariyski from the Economic Research Institute at the Bulgarian Academy of Sciences told Radio Bulgaria.

However, regardless of this trend, there is no reason for strong optimism. In 2015 the interests on bank deposits dwindled to around 1.6% from 2.6% in end 2014, which was due to the tightened credit regulations and the insufficient credit supply.

In other words, the good financial results in the banking sector are not due to the increase of the institutions’ credit activity. It was caused by the reduction of their expenses on interest rates paid on deposits, which amounted to 29%. The higher profit of the Bulgarian banks was due to higher revenues from various taxes and commissions which grew with around 12%.

However, the positive trends regard only several large commercial banks, Mr Sariysky said. The rest have difficulties stemming from the reduction of the interest on the bank deposits to around 1%, because many depositors may withdraw their money kept in smaller banks and open deposits in Bulgaria’s large banks. People are inclined to deposit their money and receive low interest in strong banks, Mr Sariyski said.

“Currently the Bulgarian depositors break their bank deposits into several smaller accounts. Thus, they will be guaranteed by the Deposit Insurance Fund and can be shifted from one bank to another, if depositors are not satisfied with the financial indicators or the ownership of a given bank. For instance, some banks owned by Greek companies experience limited flow of bank deposits.”

Grigor Sariyski added that banks which experience difficulties due to lower profitability may be bough by other financial institutions or merge with other commercial banks. In his view, there will be at least one purchasing deal in Bulgaria’s banking sector by end 2015.

Mr. Sariyski also said that consumer borrowing may rise due to the campaigns of the National Revenue Agency, the water and sewerage companies, the energy distribution companies and the thermal power plants to collect money owed by Bulgarian citizens and companies.

“Perhaps, people will start to take more loans, in order to finance old debts owed to the National Revenue Companies and the utility companies”, Grigor Sariyski forecasted.

With regard to company credits the investment attitudes are not so optimistic. Foreign Direct Investments continue to dwindle. In the first quarter of 2015 they decreased by 8%. The structure of the investments also deteriorates: in 2014 German investments in Bulgaria fell by EUR 300 million. The main investment flow comes from offshore countries and some smaller non-EU states.

With regard to the forthcoming stress tests of Bulgaria’s banking system Mr. Sariyski said that he did not expect any significant changes. He added that the problems of the country’s banking system are not caused by the structure of the assets in given credit institutions. In his view, they are due to problems in the regulatory body - the Bulgarian National Bank and the legislation which delayed the payment of the guaranteed bank deposits at the bankrupt Corporate Commercial Bank and affected negatively the confidence in Bulgaria’s banking system.

English version: Kostadin Atanasov