Bulgarian banks’ annual profits exceeded 1.5 billion euro, again

The total profit of Bulgarian banks for the period January – October 2024 reached 1.5 billion euros, according to data of the Bulgarian National Bank (BNB). This will be the second year in the history of the country’s financial system that this psychological threshold has been passed. Last year, Bulgarian banks reported a record profit of 1.7 billion euros.

The financial system's impressive financial results have attracted the attention of politicians, who have talked about excess profits in the sector, which could be taxed more to plug the growing budget deficit of Bulgaria.

However, the information from the central bank shows that the profit rate of the banks is slowing down. As of October, the annual increase was only 0.6%, which in nominal value is 8.5 million euros.

The large profits of the banks in the last 2-3 years have been impacted by the generous lending environment, especially in the housing sector, as well as by the spread between rising interest rates on loans and zero rates on deposits.

Additional taxation

Additional taxation on the banks was discussed as part of the supposed measures of the country’s acting finance minister to control the imposing budget deficit that is taking shape. Banks predictably opposed this, arguing that it "restricts their lending options and worsens the availability and terms of loans" and that it creates "risks to economic growth".

Since the beginning of the year, banks that are part of large international groups bear a higher tax burden due to the new minimum global tax of 15%. According to the data of the Association of Banks in Bulgaria for the first nine months, tax expenditures amount to 206 million euros and a growth of 50.4% is reported.

The BNB is also against this, and at a business forum last week, its deputy governor Petar Chobanov described such a measure as a "crisis".

Bad loan costs

The BNB's report is notable for mentioning high impairment costs, which are basically incurred as provisions for possible bad loans. By the end of October, these costs reached 257 million euros, or 70% more than those reported for the same period last year.

More detailed BNB data from September showed that First Investment Bank and tbi bank incurred the biggest impairment costs, respectively 70.5 million euros and 50.5 million euros for the first nine months. tbi bank explained this to Economic.bg with the substantial growth of its loan portfolio, while maintaining its quality. FIB did not respond to our inquiry.

Translated by Tzvetozar Vincent Iolov