site.btaBD Bank Analysis: Bulgarian Banking System Passed through Serious Shock, Interest on Creditsand Deposits Is Going Down

ESD 15:27:30 08-09-2014
MY1527ES.115
115 DEVELOPMENT BANK - BANKING SYSTEM - ANALYSIS

BD Bank Analysis: Bulgarian Banking System Passed
through Serious Shock, Interest on Credits
and Deposits Is Going Down


Sofia, September 8 (BTA) - At the end of June the Bulgarian
banking system went through a serious shock, with two of the
system's commercial banks being subject to a run on deposits, a
financial analysis for the second quarter of 2014 prepared by
the Bulgarian Development Bank (BDB) and published Monday
showed.

An independent valuation by the International Monetary Fund is
pending. The bank system remains well-capitalised and liquid,
but devaluation costs are expected to rise over the coming
months. This will reduce the profit of commercial banks as a
whole, the analysis finds.

GDP express evaluations show that in the second quarter of 2014
its growth gathered speed but still remains below preliminary
expectations.

The monthly data about the dynamics of sales in main economic
sectors show that growth slowed down in June and the July
business climate indicators deteriorated, probably under the
influence of increased economic and political insecurity.

Observations of the workforce for the second quarter a positive,
the level of unemployment dropping to 11.5 per cent and the
number of employed continuing to grow for a second consecutive
quarter. Expectations for a more significant pick-up of the
labour market over the coming months are moderate because the
country's economic growth may be more limited in the third and
fourth quarter, BDB forecasts.

Average salary increase continues to be delayed as a result of
the existing insecurity about the future business climate and
negative inflation. The average salary in the private sector has
remained practically unchanged in nominal terms compared to the
second quarter of 2013, the analysis shows.

The document also accounts for the first signs of a turning
trend in price dynamics. The 12-month consumer price index is
expected to begin returning to positive values over the coming
months. The 12-month balance account of payments continues to be
positive. The annual growth of exports and imports remains low.
Insecure environment is the main reason for the small volumes
of attracted foreign direct investments, the analysis says.

At mid-year the state budget has a deficit of 995.6 million leva
(1.2 per cent of expected GDP). This means a half-year deficit
amounting to some two-thirds of what has been provided by the
State Budget Act, mainly due to reduced collection of indirect
taxes and blocking of part of the payments under two operational
programmes. Serious efforts will be called for over the coming
months to achieve the budget balance set down in the law, except
of it is not revised, the document states.

At end-June the fiscal reserve amounted to 5,900 million leva.
Its increase was largely due to the 5-month securities issued at
the end of the month. The fiscal reserve is expected to
increase additionally as a result of the June 26 issue of
euro-bonds.

Interest on credits and new business deposits are continuing to
decline, but interest on deposits is more essential, the
analysis says. As a result of this, interest spread has
increased, which is one of the factors contributing to the
positive financial result of the banking system./SN/BR