20.12.2021

INTEREST RATES ON LOANS WILL RISE

Interest rates on loans will rise by the end of the year. This is what financial intermediaries expect, according to the Finance Ministry's quarterly bulletin "Financial Sector: Estimates and Expectations". The opinions of financial intermediaries reflect their assessments and expectations arising from the situation with the COVID-19 pandemic.

The answers for maintaining interest rates still prevail, but in this issue the share of opinions on the increase increased significantly compared to the previous quarter at the expense of neutrals. In the third quarter there was a decrease in average interest rates for the period compared to the second quarter in corporate and housing loans and a slight increase in consumer loans, and in October there was a decrease compared to these values ​​in all three market segments, said the Finance Ministry.

A possible explanation for the expectations of the participants in the survey is a possible increase in credit risk in banks' portfolios. Factors for this would be the expected slowdown in the economy by the end of the year, as well as a gradual decline in the amount of loans approved for participation in the private moratorium on repayments of liabilities of non-financial corporations and households to banks.

Inflation expectations of respondents until the end of 2021 continue to rise and already point to a sharp rise in consumer prices. The distribution of responses is similar to that in the previous edition, with views on strong inflation rising. The moderate increase in consumer prices predicted by the survey participants in the third quarter exceeded expectations.

From 2.4% in June, the annual inflation rate (according to the HICP) reached 4% in September. Expectations for the fourth quarter have also been partially met, after the annual increase in the HICP reached 5.2% in October due to a significant increase in energy and food prices.

The participants in the survey predict that the rate of economic growth will slow down in the fourth quarter of the year. Banks are the most optimistic here as well, while 80% of investment intermediaries expect a slowdown in growth. The summarized result corresponds to the deterioration in October of the NSI business monitoring indicators on consumer confidence and the business climate in services, industry and trade.

Business optimism is growing for next year, but he is still cautious in his plans and sees risks to economic development that worry him. This shows the traditional survey of the Bulgarian Chamber of Commerce. It was held in the period November 8 - December 8, 2021 among 817 micro, small, medium and large enterprises across the country and from all sectors of the economy.

Financial intermediaries strongly express their expectations for an increase in intercompany indebtedness in the fourth quarter of this year compared to the previous one.

Higher international prices and difficult deliveries in some sectors could also lead to delays in payments between companies. Investment intermediaries, pension companies and management companies are the most pessimistic among respondents to the Finance Ministry's survey, while about 25% of commercial banks expect the level of intercompany indebtedness to remain.

A total of 42% of respondents expect an economic downturn in 2022, but in last year's survey pessimists were almost twice as many. 17% do not expect any change, and 31% are optimistic, which is three times more than last year.

The majority of respondents see the risks to the development of the Bulgarian economy in the expected increase in prices, fiscal and regulatory burden, as well as a decline in the number of jobs.

Respondents have the most serious concerns about the future regarding high energy prices and inflationary pressures (80-82%). 70% of respondents expect the covid crisis and the slowdown in global growth to have a negative impact on their business performance in 2022. There is serious pessimism about European environmental regulations, which are expected to have a negative impact on 53% of respondents.

Wage growth is projected by 49% of respondents, which is rather due to the expected increase in the minimum wage, and hence - an overall increase in labor costs.