SOFIA (Reuters) - Bulgarian banks will have to accumulate more capital in 2023 to counter a build-up of systemic risks linked to persistently high levels of borrowing and increased economic uncertainty amid the war in Ukraine, the central bank said.
The Bulgarian National Bank late on Thursday set the rate for the counter-cyclical capital buffer at 2.0% starting in October 2023, up from 0.5% at present. Lenders will have to put aside 1.0% from Oct. 1 this year and 1.5% from January 2023.
"Prolonged periods of high credit growth may give rise to higher level of indebtedness, which could reduce borrowers' debt servicing capacity," the bank said in a statement.
"High credit growth could lead to an increase of non-performing loans in the event of economic downturn and significantly rising loan interest rates," it added.
Energy prices across the European Union have soared since Russia invaded Ukraine in February and the West responded with sweeping sanctions.
The central bank said high energy prices, potential disruptions to supply chains as well as side effects from a slowdown of economic activity in Bulgaria's main trading partners, could impair borrowers' ability to pay back debt.
The global trend of rapidly rising interest rates also entails higher debt service payments by borrowers, the bank said.
EU member Bulgaria, which plans to join the euro zone in 2024, has pegged its currency, the lev, to the euro. The country's main interest rate has been set at zero since 2016.
Bulgarian banks' gross loan portfolio had increased by 1.6% at the end July on a monthly basis to 82.3 billion levs ($41.18 billion), central bank data showed.
The banks, many owned by EU lenders, are overall well-capitalised, and the increase of the buffer is not expected to prompt any of the 18 firms to raise additional capital.
($1 = 1.9985 leva)