Bulgarian National Bank

Bulgarian banks report a 34.7% y/y net profit rise to BGN 906.5 m for the 10M 2014. In October only, the 28 banks made BGN 111.5 m, which is almost 86% y/y growth. Total assets of the banking system remain at BGN 85.5 b while the share of the top 5 banks by assets increase from 56.7% to 57.2%.

First Investment Bank  Q3 report below analysts expectations 

First Investment Bank (5F4 BU), in the meantime, 3rd largest in Bulgaria in terms of assets, underperforms with 9M 2015 net profit down 58.8% y/y to BGN 9.95m due to rising loan provisions and write offs, and lower than anticipated net interest margin. The former was anticipated as the bank reported lower provisions when the rest of the banks were actively cleaning their balance sheets in the previous two years. Net interest income stood at 3.9%, way below ELANA Trading analysts 2015 expectations. Provisioning is also below expectations as well as overall profitability.

Read an equity report on First Investment Bank by ELANA Trading analysts

Forecasts for Bulgarian banks

Credit activity in Bulgaria will soon rise with the same rate as deposits, according to UniCredit Bulbank chief economist Kristofor Pavlov. Expectations for post-2018 are credit growth rate to even surpass that of deposits. The expected shift is to drive down interest rates on credit faster than those of deposits and that in turn to improve banking system interest spread with 13-20 bps in 2016. Currently, the bank forecasts individual deposits growth rate at 5.1% for 2015 and 3.6% for 2016. Individual loans growth is expected to turn positive in 2016 at 1.4% and 2.5% in 2017.

Economic indicators showing recovery substantiate credit growth expectations. Both the loose monetary policy within the Eurozone and within the country are expected to further foster economic growth and subsequently credits.

Introduction of negative interest rate on excess bank reserves

Bulgarian National Bank surprised the banking sector on 27 November with a new ordinance on the minimum required reserves maintained with the central bank by the local banks due to come into effect as of 4th January 2016.
Apart from introducing a definition of ‘excess reserves’ of Bulgarian banks held with the BNB, a negative interest rate on excess reserves is said to be introduced when the interest rate on the deposit facility of the ECB is negative. Zero interest rate remains applicable to excess reserves when the interest rate on the deposit facility of the ECB is positive or zero.

Check latest equity research from ELANA Trading