Bi-Weekly Report 9 – 22 February 2021

Amid a weak operating environment, due to COVID-19 fallout, Bulgarian banks’ profitability deteriorated sharply in FY:20

Despite broadly stable asset quality metrics, banks were prompted to increase provisioning in FY:20, in light of rising credit risk

Weaker net interest income and net non-interest income, together with higher operating expenses, put pressure on pre-provision income in FY:20

Profitability is set to remain under pressure in FY:21, with banks’ strong capital adequacy providing, however, a line of defense against potential losses

A massive increase in spending to weather the impact of the COVID-19 shock pushed up the budget deficit to a record-high of 8.1% of GDP in FY:20 from 2.0% in FY:19

The FY:21 budget deficit is set to narrow modestly to 4.9% of GDP, in line with its target

Monetary policy should remain accommodative throughout 2021