02.12.2022

BNB WITH A FORECAST FOR INTEREST RATES ON LOANS AND DEPOSITS

The trend of increasing interest rates in the Eurozone is expected to be quickly transferred to interest rates in Bulgaria, which will cause them to increase both on loans and on deposits in our country. This is what the Bulgarian National Bank predicts in its Economic Review.

In the sector of non-financial enterprises, the weighted average interest rate reached 0.91% as of September 2022, mainly under the influence of the increase in interest rates on new time deposits of companies in dollars. The interest rates on company deposits in BGN and in Euro also rose, becoming positive from August and reaching 0.04% and 0.19% respectively as of September. In the case of household deposits, the trend for the rise of interest rates on new time deposits was upward from the middle of the year, but the increase was less pronounced and by September 2022 the interest rate reached 0.26% (at a level of 0.09% as of December 2021) and 0.12% as of June 2022).

Inflation in the fourth quarter of 2022 and in the first quarter of 2023 should follow a gradual slowing trend, the Bulgarian National Bank predicts. Factors for this are expected to be the substantial increase in labor costs per unit of production, the growth of private consumption, as well as the suspension of some fiscal measures.

We expect the unfavorable development in the external environment in terms of global economic growth and the tightening of global financial conditions to lead to a more significant deterioration of the prospects for the Bulgarian economy in the fourth quarter of 2022 and in the first quarter of 2023, the bank also says.

In the first nine months of 2022, there is a tendency to accelerate the annual growth of deposits of the non-governmental sector in the banking system. This dynamic is due to the growth of company deposits, which was contributed to by the weakening of the investment activity of companies in the conditions of increased uncertainty in the economic environment and the growth of the nominal gross operating surplus in the industry sector. The cancellation in the third quarter of the year of the fee for maintaining cash balances above a certain amount by the large commercial banks is a factor with a possible influence on stopping the tendency to slow down the annual growth of household deposits, the bank indicates.

In the first nine months of the year, both firms and households continued to save mostly in local currency. At the same time, from the end of the first quarter, a more significant increase was also observed in the deposits of non-financial enterprises in foreign currency (mainly in euros), and on an annual basis the growth of the deposits of companies in foreign currency amounted to 25.0% as of September.

Annual growth in credit to the non-government sector continued to accelerate in the first eight months of 2022, which was more pronounced in corporate credit. Rising commodity prices and continued difficulties in global supply chains have spurred firms to look to banking for working capital and stockpiling.

The rise in corporate lending rates that began in September, reflecting the reversal of the interest rate cycle in the Eurozone, likely contributed to the observed slowdown in annual business credit growth at the end of the third quarter of the year.

The growth of credit to households continued to follow a trend towards a smooth acceleration under the influence of the still low levels of interest rates and the continued acceleration of consumer price inflation, which created the conditions for increased demand for financial resources for the purchase of real estate and durable goods for the purpose of storing value. An increase in economic activity on an annual basis was reported in all main economic sectors and to the greatest extent in the mining and processing industry sub-sector.

Employment increased by 1.3% year-on-year mainly due to the increase in the number of employed persons in the service sector. Compensation per employee accelerated significantly, supported both by rising consumer prices amid limited domestic labor supply and by increased demand for labor amid rising economic activity from high inflation on consumer purchasing power, and also and reduced consumer confidence given the high level of economic uncertainty, reports the Bulgarian National Bank.