OECD advises Bulgaria to take measures against the rampant issuing of mortgage loans

The Organization for Economic Cooperation and Development (OECD) has advised Bulgaria to introduce additional measures in order to limit the credit boom in the housing segment. This is stated in the new economic forecast of the Paris-based organization.

In March, the annual growth of mortgage lending touched 23% after sustained growth in recent months. Nevertheless, the banks in Bulgaria are claiming that they are lending "responsibly" and "conservatively"

However, the OECD points out that

additional macroprudential measures should be implemented to slow down the rate of credit growth. These include "tightening loan-to-value ratios or measures to withdraw excess liquidity to reduce rising credit risk."

Last year, the Bulgarian National Bank (BNB) took measures to withdraw excess liquidity by raising the mandatory minimum reserves for banks in Bulgaria. This withdrew BGN 3.2 billion from the financial system, yet there were still no signs of a slowdown in the pace of mortgage lending.

This was also the reason why, at the beginning of this year, the governor of the BNB, Dimitar Radev, hinted that new measures aimed at borrowers were being considered. Such would be restrictions related to the loan-to-collateral value (LTV) ratio, the loan-to-disposable income (LTI) ratio and the total debt-to-disposable income (DSTI) ratio.

The International Monetary Fund in Bulgaria also recommended the introduction of similar measures at the beginning of the year.

The OECD, in addition, indicates that the dynamics of interest rates in Bulgaria will follow the monetary policy of the Eurozone.

Economic forecast

Nevertheless, the OECD raised its expectations for the Bulgarian economy by 0.8 points compared to its autumn report and thus, it already expects 2.5% growth this year.  For 2025, the organization raised its forecast by 0.1 points to 2.9% growth. Consumption growth is expected to slow but remains strong due to high wage growth and lending. However, the OECD emphasizes that despite expectations that inflation will slow this year to 3%,

high wage growth is an obstacle to a faster reduction in inflation."

The OECD also advises more prudent fiscal policy and implementation of the Recovery Plan commitments to reap its full benefits.

Continued political uncertainty puts planned reforms and investments at risk," states the organization’s reports.

Translated by Tzvetozar Vincent Iolov