Bulgarian Central Bank to Enforce Guidelines on Bad Loans by End of 2017

Bulgaria's central bank is gearing up to enforce stricter rules intended to help reduce non-performing loans (NPLs) at the country's banks by the end of the year, deputy central bank governor Dimitar Kostov said on Wednesday.

The level of bad loans has declined gradually over the past few years, but recent reports by the International Monetary Fund and the European Commission said that they remain a problem for Bulgaria.

Bulgaria's financial system has steadied after the collapse of its fourth-largest lender in 2014, and Kostov said solid provisions, capital buffers and banks' profitability meant NPLs did not pose an immediate threat to the banking system.

 "We intend to clarify and state our supervisory expectations on what we consider a good practice along the guidelines of the European Central Bank," Kostov told a financial seminar.

The guidance will aim to strengthen loan-loss provisions, boost transparency, increase NPL write-offs and encourage more realistic collateral valuation.

Non-performing exposures have fallen to 12.1 percent of all loans at the end of June, central bank data showed, down from 13.2 percent at the end of 2016. But they are still above the European Union average of about 5.5 percent.

Kostov said he expected NPLs to continue to decrease and that the central bank was strengthening its supervisory capacity to keep the lenders in check.

The economic growth for Bulgaria, which the central bank estimates at 3.6 percent for this year, will also help to reduce the level of bad loans.

The ratio of NPLs have been falling across central and eastern Europe in the past two years, a European Bank for Reconstruction and Development (EBRD) official said, and added more work has to be done to ensure sustainable...