- Bank profits increased by 35% on an annual comparison basis in January-July 2021
- Partly, this is due to the low comparison base of pandemic-marred 2020
- Еarnings come from growing credit portfolio, higher income from fees on operations
The overall profit of Bulgaria's banking system reached 804 million levs (400 mln euro) in the first seven months of 2021, which is an increase of nearly 35% compared to the same period of 2020, reported Capital Weekly. The increase is due to the low comparison base of the pandemic-marred year 2020 when the economy was blocked and banks were charging provisions for future losses. Compared to the booming pre-crisis year of 2019, however, the profit is about 100 million euro lower.
In 2019 the profit exceeded 1 billion levs, so apparently the sector remains under the pressure of the corona crisis. Despite that, loans worth 9.2 billion levs are still under a repayment moratorium.
The year-on-year rise in earnings for January-July 2021 comes from a growing credit portfolio, increase in income from fees on operations, decrease of contributions for guarantee schemes, and lower impairment charges. Overall, banks' assets rose by 1 billion euro to record-high 65 billion euro.
A curious trend of the recent months is that banks have managed to reverse a prolonged erosion of net interest income. For the first seven months its worth is 1.575 billion levs, which is 45 million levs up compared to the same period last year.
A closer look shows that despite growing loan portfolios, interest income is not growing but stays close to 250 million levs per month on average.
The difference comes from a reduction of the average monthly interest expenses from 29 million levs in 2020 to 24 million levs, which is due to the tightened banks' policy to impose negative interest rates on large amounts held in accounts which already include individuals.
The net income from banking fees also increased, reaching 683 million levs in the first seven months of 2021 compared to 578 million levs in the same period in 2020.
This is partly due to the economic freeze in 2020 but not only: compared to the pre-pandemic 2019 the increase is 40 million levs. In four of the first seven months of 2021 the net income from fees exceeds 100 million levs per month. The same thing happened only once before, in December 2019. Moreover, the net income from fees hit a record high of 109.6 million levs in July.
The other two growth drivers of bank profits are lower impairment charges, which fell by 104 million levs, reaching 339 million levs, and also the drop in contributions for guarantee schemes.
Profit limitersOn the other hand, rising administrative costs weigh down on banks' profits. For January-July these costs amount to 996.5 million levs, up 45 million levs year-on-year. This is mainly due to the increasing costs for staff expenses which grow by 5 million levs per month.
The provisions accrued by state-owned Bulgarian Development Bank due to the government's anti-Covid measures also have a strong impact. They led the bank to loss in 2020 and in the first half of 2021.
Also, Interest-free loans for households and guarantee products for corporate loans granted through partner commercial banks are expected to bring losses and the bank preventively reports the increasing risk.