Bulgarian National Bank foresees accelerated increase in interest rates in the coming months

The process of rising interest rates in the country will accelerate in the coming months, the Bulgarian National Bank (BNB) forecasts in its "Banks in Bulgaria" quarterly bulletin. The central bank warns that there are prerequisites for risk accumulation in the balance sheet of the banking system.

The banking sector operates in an environment of high inflation and significant uncertainty, BNB's Banking Supervision Department said in its analysis for the last quarter of last year.

"Short-term risks in the economic environment were mitigated by the observed easing of supply chain bottlenecks, as well as by the dynamics of energy prices on international markets, which declined from the levels reached in the previous months," BNB said.

They predict that the global process of rising interest rates will be felt more seriously in the country in the coming months.

"Although in the immediate term the rapid increase in credit volumes has a positive impact on the profitability of the banking sector, prolonged periods of high credit growth create preconditions for an increase in indebtedness and accumulation of credit risk in the balance sheet of the banking system."

This may lead to a deterioration in banks' loan portfolios. They are generally very liquid and well capitalised.

"Nonetheless, credit institutions should manage their liquidity in accordance with the high degree of uncertainty and the likelihood of changes in the volume and structure of deposits arising from adverse changes in the financial position of enterprises and households," BNB wrote.

Source: BNR