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The economic crisis and the negative effects of the coronavirus-imposed quarantine already have a visible effect on the financial performance of the banking system. Undoubtedly, the data published by BNB for the first quarter of 2020 confirm the words of BNB Governor Dimitar Radev that the banking sector in our country is stable, well capitalized and highly liquid. But the superlatives are here, although this is a very good result for the current situation in the country.
However, it cannot be overlooked that almost all the financial results of our banking system are deteriorating. Growths slow, and in some places they become recessions, and recessions increase where they existed.
Here are some examples. Let’s start with the assets. At the end of March 2020, they were BGN 115.1 billion and compared to the end of 2019 they increased by BGN 900 million or 0.8%. For comparison, during the same period of 2019 (the first quarter), bank assets grew by BGN 2.7 billion or by 2.5 percent. Growth has slowed at times.
While still much higher than regulatory requirements, liquidity coverage, which stood at 261% at the end of March 2020, is still less than 269.9% at the end of 2019. This decline is even more pronounced. if we compare the liquidity coverage of the banking system with that of March 2019, when it was 289.1 percent. However, this is an indicator that demonstrates the resistance of the banking system to pressure to withdraw funds from credit institutions.
Regarding loans (excluding advances), BNB statistics show that during the first three months of 2020, the gross loan portfolio of the banking system increased by BGN 0.7 billion (1.1%) to BGN 67.0 billion. loans to households (for BGN 478 million, 2.0%), corporate loans (for BGN 307 million, 0.8%) and general government (for BGN 17 million, 1.9%). And for the same period in 2019, the growth of the gross loan portfolio was BGN 856 million or 1.4 percent. The increase in loans to households was BGN 346 million – 1.6%, for companies – BGN 505 million or 1.4% and for the general government sector – BGN 30 million or 4.1%. The growth is evident only in household loans, which is also due to the preference of banks to grant loans to the sector since 2018. Companies and the general government, although with a slight decrease in growth.
And when it comes to loans, we must not lose sight of the fact that the banking system continues to succeed in reducing the proportion of non-performing loans, both in gross amount (without deducting the value of the guarantee) and in net worth. At the end of March 2020, the gross amount of loans and delinquent advances was BGN 6 billion, and with the collateral deducted it was BGN 3.1 billion. A year earlier, these values were BGN 6.71 billion for the gross amount and BGN 3.28 billion for the net amount. This appears to be a major improvement. However, in the context of the current situation, the issue of doubtful loans and their management deserves special attention and comment.
Liabilities, or so-called borrowed funds, also see a drop in growth.
According to the BNB, deposits in the banking system amounted to BGN 97.5 billion at the end of March 2020, increasing by BGN 0.3 billion (0.3%) in the first quarter of the year. Household deposits increased (in BGN 544 million, 0.9%), the general government (in BGN 233 million, 8.8%), as well as those of other financial corporations (in BGN 204 million, 5.9%). Company deposits decreased (in BGN 589 million, 2.1%) and those of credit institutions (in BGN 107 million, 2.0%). A year earlier, in the first quarter of 2019, the image is as follows: deposits in the banking system increased by BGN 1.8 billion (2.0%) to BGN 91.5 billion. In households, the growth was BGN 899 million (1.7%), for credit institutions – by BGN 443 million (8.6%), for other financial companies – by BGN 361 million (11.2%) , for the government – for BGN 77 million (2.8%) and companies – for BGN 14 million (0.1%)
There has been a noticeable drop in household cash inflows, while companies have begun withdrawing liquidity withdrawals and reducing their deposits with banks. In the second quarter of 2020, it is likely that these processes will deepen, and if there is a significant decrease in the funds of individuals and companies in banks, this will be a very serious test for the sustainability of credit liquidity. our institutions
In this context, the banking system’s earnings are expected to be BGN 296 million as of March 31, 2020, a decrease of BGN 13 million (4.2%) compared to the first quarter of 2019. This decrease was largely due the doubling of provisions or the so-called impairment of the loan. For the first quarter of 2020, these expenses were BGN 153 million, compared to BGN 86 million the previous year. This growth is perfectly logical, since the cost of provisions depends not only on the regular service of the loan, but also on the economic environment in which the borrowers find themselves. In fact, in the current situation, it is a miracle that the banking sector is reporting such a small drop in earnings and is not excluded at all by the end of 2020, if regulatory relief were to cease to exist, those earnings would disappear entirely.
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