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Finance, Accounting and Business Analysis 
Volume 3 Issue 2, 2021 

http://faba.bg 

Non-Performing Loans in Bulgaria and Alleviations for Debtors in  

Times of Covid-19 Pandemic 

Violeta Todorova*  

University of National and World Economy, Bulgaria 

Info Articles  
 

Abstract 

Keywords:  
Bulgarian banking system, capital 
adequacy,  non-performing loans, 
Covid-19 pandemic, moratoria on 
loan payments 

 

 
Objective: This paper is focused on examining the condition of non-performing 
loans (NPLs) in Bulgaria in the light of the COVID-19 pandemic. Its purpose is to 
present the serious threat that NPLs can be for economic and financial stability and 
to prove that adequate measures are taken in Bulgaria for reducing the share of  bad 
loans during the pandemic.  

Methodology: The study presents the dynamics in lending and share of non-
performing loans (NPLs) in Bulgaria by examining monetary statistics data for the 

period 2016-2021. Тhe statement presents basic measures and policies taken in 
Bulgaria for alleviation of borrowers in times of crisis and impaired economic 
stability. The empirical study is based on econometric model - a multiple linear 
regression model is performed for checking the correlation between NPLs and three 
key macroeconomic indices which are very tangible in times of crisis: government 
deficit/surplus, unemployment, GDP growth. For illustration of essential 
tendencies and results are used tables and graphs based on observations, 
comparative analysis and systematization.  

Results: The results show that up to the middle of 2021 the amount of NPLs in 
Bulgaria has not increased considerably as a result of the pandemic. It is due to the 
adequate measures taken by the government and the financial authorities which 
give the obligors the possibility to postpone their payments in future. Suspension of 
the payment moratoria and increase of unemployment may lead to higher amount 
of NPLs in Bulgarian banking system.  

 

  

   

*Address Correspondence:   
E-mail: vtodorova3@gmail.com 
 
 

 

 



Finance, Accounting and Business Analysis 3 (2) 2021 

132 

 

INTRODUCTION 

 

The COVID-19 pandemic inevitably has slowed down the economic performance of  Bulgaria. 

The gross domestic product (GDP) has contracted to - 4.2 % in 2020 as a result of the lockdown.1 The 

fiscal deficit widens to -3,4%2. The number of granted credits is smaller.  Despite the decrease оf non-

performing loans ratio in recent years, this situation may change due to the pandemic-driven economic 

contraction. Though, banks are generally well-capitalized and liquid. New waves of infections and new 

restrictive measures are expected. There is a big uncertainty in the course of the pandemic – uncertainty 

about health and life, jobs and wages, and of course, about loans.  

The increasing number of non-performing loans (NPLs) in the banks` portfolio can induce 

economic and financial distress. There is a broad consensus among researchers and scientists that the great 

value of NPLs has negative impact on the economy of the country concerned because they affect banks` 

balance sheet stability and profitability and put limitation on bank lending activities. Non-performing loans 

influence macroeconomic indicators such as GDP growth, unemployment and inflation, and their 

acceleration adversely affects the real economy (Klein 2013). Minimization of NPLs is necessary for a 

stable economic growth. Deteriorated loan portfolio of banks causes problems in the banking system and is 

a prerequisite for financial crisis (Messai and Jouini  2013).  

Example for serious crisis caused by NPLs is those of 2007-2009. In 2007, the citizens of one of 

the richest countries in the world, the United States, live well over their financial possibilities and this 

influences the whole world economy. The growing consumption forces Americans to borrow and consume 

as if their income has increased. As a result, savings are replaced by debts. Interest rates, taxes and 

increasing housing prices are very profitable for creditors while borrowers take new loans, not facing the 

reality. This credit boom is based on the presumption that housing prices will be increasing continuously in 

future (Stiglitz 2010). When the bubble bursts, the United States face serious financial and economic crisis, 

which extends over the whole world due to the domino effect.  

High economic growth combined with a credit boom can be interpreted as a signal of economic 

"overheating" and therefore as a potential threat to the stability of the banking sector (Festic et al. 2009). In 

prospering economic times creditors grant many loans, including bad loans, result of the prevailing 

optimistic mood and expectations. In the next phase of the boom people believe that the economic cycle is 

eternal and are tempted to invest money which they do not actually own (Otte 2006). Their investments 

can survive if the expansion is endless. This may happen in a perfect world but the reality is different and 

such investments should be directed to a healthy and stable growth.  

Loans are expensive commodities bound up with taking certain economic risks. Their future is 

always unsure. For this reason both lenders and borrowers should be cautious. After the serious damages 

caused by the crisis of 2007-2009, NPLs have been observed carefully by policymakers and supervisory 

bodies. In the European Union, the European Banking Authority together with other EU bodies and 

institutions is responsible for the creation and implementation of an action plan for solving the problem 

with non-performing loans in the member states and keeping the value of NPLs to the reference level. 

Nevertheless, a number of banks in the EU member states have been experiencing high levels of non-

performing loans.3 

Unfortunately, the COVID-19 pandemic raises expectations for growth of non-performing loans. 

The confinement of the population leads to serious social and economic consequences. Many businesses 

and individuals are expected to face liquidity problems and difficulties in timely payment of their financial 

obligations. This could affect the stability of the credit institutions due to the possibility for additional 

expenditures, large number of defaults and increased capital requirements.  

This paper examines the actual situation with the amount of NPLs in Bulgaria after the 

development of the COVID-19 pandemic and tests the effect of key economic indicators on their value. 

The second section includes statistical information for the amount of NPLs in the countries of the 

European Union and comparative information for Bulgaria, multiple linear regression model showing the 

influence of macroeconomic variables on NPLs and description of measures taken in Bulgaria by banking 

and non-banking financial institutions for reducing debt burden. The results are summarized in the 

conclusion.  

 

METHODS 

 

Lending behavior of banks is related to economic activity and to key economic indicators. The 

 
1,2 Eurostat Official Statistics Data 
 
3 European Central bank, Banking Supervision, 2017. Guidance to banks on non-performing loans 



Finance, Accounting and Business Analysis 3 (2) 2021 

133 

 

supply of loans is influenced by the capital adequacy requirements for the credit institutions – a downturn 

in economic activity shrinks lending and increases capital adequacy ratios. 

This research includes information for the capital adequacy of the Bulgarian banking system, 

statistical information for the values of NPLs in Bulgaria before and after the burst of the COVID-19 

pandemic, measures taken by the Bulgarian government and Bulgarian National Bank for alleviation of 

borrowers and multiple regression analysis presenting the effect on NPLs of GDP growth, unemployment 

and government deficit/surplus.  

The independent variables are selected after literature review of the factors which influence NPLs. 

The effect of GDP growth and unemployment is proved in number of researches (Klein 2013; Beck, 

Jakubík и Piloiu 2013; Kupčinskas and Paškevičius 2017; Kuzucu & Kuzucu 2019). There is a consensus 

on the negative effect of GDP growth on NPLs - higher GDP presumes fewer bad loans and vice versa. An 

economic slowdown increases unemployment rate and bad loans increase as well. The positive correlation 

between public debt and NPLs is also found which suggests that fiscal problems may lead to a rise of 

problem loans (Makri , Tsagkanos  and Bellas 2014). Public debt increases fiscal burdens imposed on 

citizens and this deteriorates their repayment capacity (Ciukaj and Kil 2020).  

The quantitative data is in the form of numbers showing percentage annual values for Bulgaria of 

the following variables - Gross non-performing loans, domestic and foreign entities - % of gross loans; 

Government deficit/surplus, debt and associated data as percentage of GDP; unemployment rate; GDP 

growth rate – percentage change on the previous period. The data is in the form of time series derived from 

Eurostat Database. The multiple linear regression model is performed by using SPSS.  

 

 Banking system in Bulgaria and share of NPLs. 

The COVID-19 pandemic finds the Bulgarian banking system in very good condition - with very 

high capital adequacy ratios, decreasing amount of non-performing loans and high profits in the period 

2017-2019. The state of emergency in the country is announced on 13 March 2020. Data published by 

BNB supervisory statistics shows that the capital adequacy for the whole banking system in Bulgaria in 

March 2020 is as follows: 19.44% Common Equity Tier 1, 19,82%  Tier 1 capital and 20,45 % total capital 

adequacy. According to the capital adequacy requirements of Basel III, the minimum level of Common 

Equity Tier 1 should be at least 4.5% of risk-weighted assets (RWA) , Tier 1 capital -  at least 6% of RWA 

and total capital adequacy - at least 8.0% of RWA. In December 2020 and in June 2021 the Capital 

Adequacy indices of the Bulgarian banking system are again at very high level which exceeds substantially 

the regulatory requirements. (See Table 1and Figure 1).  

 

Table 1 

 
Source: BNB 

 
  

March 2020 June 2020 September 2020 December 2020 March 2021 June 2021

Minimum 

required level 

under Basel III

Common Equity Tier 1 (%) 19,44% 22,10% 21,86% 21,69% 21,53% 21,96% 4,50%

Tier 1 capital  (%) 19,82% 22,51% 22,27% 22,10% 21,92% 22,35% 6%

Total capital adequacy(%) 20,45% 23,14% 22,93% 22,74% 22,54% 22,94% 8%

Capital Adequacy of the Bulgarian Banking System



Finance, Accounting and Business Analysis 3 (2) 2021 

134 

 

 
Figure 1 

 

Analysis  made by the Bulgarian Credit Rating Agency (BCRA)  in April 20204 presents both 

optimistic and pessimistic scenarios with expectations for a decline of the Bulgarian economy in 2020 in 

the  range of  2-10%. The government expects  3% decline in GDP when updating the state budget. As 

mentioned before – the real decline in GDP is somewhere in the middle -4.2 % according to data from 

Eurostat. BCRA predicts a serious negative impact on the cash flows of both individuals and legal entities. 

Payment disruptions in a number of economic sectors, receivables cycle extension, delays in debt 

obligations service, limited consumption and job losses, increase in defaults on households’ loans – all 

these expected consequences of the COVID-9 pandemic could enhance the risk for financial institutions. 

At the beginning of 2021 the banking sector in Bulgaria operates in an environment of restricted 

measures initiated against the COVID-19 pandemic. There is a partial recovery of the economic activity, 

which remains significantly lower compared to the same period of the previous year. The Bulgarian 

National Bank (BNB) warns5 in an address on the occasion of the banker`s day that there is high 

uncertainty for the financial position of corporations and households in the following months. The 

significant uncertainty surrounding the economic situation leads to an increase in the accrued 

impairments6 -  according to information from BNB this is among the major factors behind the decreased 

profits and lower profitability indicators of the banks compared with the previous year.7 The National 

Bank also recognizes the possibility of deepening the coronavirus crisis. This would worsen the economy 

and reverse the trend of decreasing the share of non-performing loans in bank portfolios.  

Lending in Bulgaria increases in the last five years as it can be seen in Table 2.  There is a 

continuous tendency for an increase in the number and amount of the loans granted through the years. 

Data shows that the pandemic has decreased the number of the granted loans by the banking financial 

institutions with 204 900 at the end of 2020 compared to the end of 2019. Though, the value of the granted 

loans in 2020 is up with more than 2,5 mln. BGN. In 2021 lending in Bulgaria continues to rise.  
 

                   

  

 
4 BCRA, 2020. Expected impact of the COVID-19 pandemic: Financial sector in Bulgaria 
5 Association of Banks in Bulgaria, 2020. Quarterly bulletin,  Issue № 64 
6 Impairment means reduction in the value of an asset because the asset no longer generates the benefits expected earlier due to changes in 
market value of the asset, business environment, government regulations, etc. Impairment occurs when an asset suffers a depreciation in fair 

market value. Impaired assets must be recognized as a loss on an income statement. The technical definition of impairment loss is a decrease 

in net carrying value of an asset and this decrease is greater than the future undisclosed cash flow of the impaired asset. (n.d.) In 
Investopedia.com dictionary. Retrieved from https://www.investopedia.com/terms/i/impairment.asp 
7 Association of Banks in Bulgaria, 2021. The economy and the banking sector in Bulgaria, Fourth quarter of 2020 

March 2020

December 2020

March 2021

June 2021

Min level

19.44%

21.69%

21.53%

21.96%

4.50%

19.82%

22.10%

21.92%

22.35%

6%

20.45%

22.74%

22.54%

22.94%

8%

Capital Adequacy of the Bulgarian banking System

Total capital adequacy(%) Tier 1 capital  (%) Common Equity Tier 1 (%)

https://financial-dictionary.thefreedictionary.com/asset
https://financial-dictionary.thefreedictionary.com/market+value
https://www.investopedia.com/terms/i/impairment.asp
https://www.investopedia.com/terms/f/fairmarketvalue.asp
https://www.investopedia.com/terms/f/fairmarketvalue.asp


Finance, Accounting and Business Analysis 3 (2) 2021 

135 

 

 Table 2 

 
Source:BNB   

 

Аt the background of increased lending activity in the period 2016-2020 the share of         non-

performing loans in Bulgaria has decreased significantly (See Figure 2). As it can be seen from Figure 3, in 

2016 Bulgaria is among the leaders of non-performing loans in EU, according to data from Eurostat. In 

2019 Bulgaria takes the fourth place with a share of 6,5% gross NPLs (Figure 4). Trying to fulfill the 

recommendations of the European authorities, the country initiates amendments in bank capital adequacy 

and insolvency framework. The share of non-performing loans to total gross loans in Bulgaria decreases 

from 12,8% in 2016 to 5,9% in 2020. The report of the European Commission from 2020 European 

Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances notes 

that there has been “progress in banking sector and non-performing loans” in Bulgaria.  Banking sector has 

strengthened, banks are profitable and well capitalized and the share of non-performing loans has 

decreased. Nevertheless, Bulgaria is still among the countries with highest levels of NPLs in the EU.  
 

     
Data: Eurostat 

Figure 2 
 

 

 

 

 

12.2016 12.2017 12.2018 12.2019 12.2020 06.2021

number 2 741 743 2 746 507 3 065 552 3 117 690 2 912 790 2 919 616

thousand lv/BGN 49 176 457 50 828 566 54 739 350 58 826 557 61 503 859 67 761 797

LOANS TO NON-FINANCIAL CORPORATIONS, HOUSEHOLDS AND 

NON-COMMERCIAL ORGANIZATIONS SERVING HOUSEHOLDS 

12.8

10.2

7.7
6.5 5.9

2016 2017 2018 2019 2020

Gross non-performing
loans, domestic and  foreign entities - % of gross 

loans, Bulgaria

Gross non-performing
 loans, domestic and
foreign entities - % of gross loans



Finance, Accounting and Business Analysis 3 (2) 2021 

136 

 

 
Data: Eurostat 

Figure 3. The level of the NPLs in European Union countries in 2016 

 

 
Data: Eurostat 

Figure 4. The level of the NPLs in European Union countries in 2019 

 

The reference level of NPLs in EU is determined by the European Central Bank on the basis of 

consolidated banking data from domestic banking groups and stand-alone banks in the EU member states. 

Data for the reference levels of NPLs at the end of the year for the period 2014-2020 is presented in Table 3.  

At the end of 2020 the reference level of Gross non-performing loans and advances (% of total gross loans 

and advances) is 2.59 %.  Bulgaria always surpasses the reference level. Nevertheless, from 2016 to 2020 

there is a significant decrease in the amount of NPLs and endeavour for reaching the reference level. 
 

  



Finance, Accounting and Business Analysis 3 (2) 2021 

137 

 

Table 3 

Gross non-performing loans and advances  

 [% of total gross loans and advances] 

Consolidated Banking data 

2014-Q4 2015-Q4 2016-Q4 2017-Q4 2018-Q4 2019-Q4 2020-Q4 

6.7155 6.8432 5.2916 4.0601 3.2059 2.7815 2.5865 

Source: European Central Bank 
                                                                                         

 Regression model 

The simple model of the multiple linear regression is generalized in equation 1.1.  The dependent 

variable is NPLs. The explanatory variables are GOV DEFICIT/SURPLUS, UNEMPLOYMENT and 

GDP GROWTH. After calculating the coefficients via SPSS is received equation 2.2 for a linear 

regression. The whole regression analysis is presented in Appendix 1. 

 

NPLs = b0 + b1* GOV DEFICIT/SURPLUS + b2* UNEMPLOYMENT + b3* GDP GROWTH 

+ ei                                                                                                                                         (1.1) 

 

NPLs = 0,782 – 0,117* GOV DEFICIT/SURPLUS + 1,232* UNEMPLOYMENT + 0,414* GDP 

GROWTH                                                                                       (2.2) 

 

Coefficientsa 

Model 

Unstandardized Coefficients Standardized Coefficients 

t Sig. B Std. Error Beta 

1 (Constant) ,782 ,805  ,971 ,369 

GOV DEFICIT/SURPLUS -,117 ,146 -,066 -,802 ,453 

UNEMPLOYMENT  1,232 ,093 ,954 13,208 ,000 

GDP GROWTH ,414 ,123 ,245 3,353 ,015 

       

a. Dependent Variable: NPLs 

 

The F-test shows that there is a regular multiple dependence between NPLs and GOV 

DEFICIT/SURPLUS, UNEMPLOYMENT, GDP GROWTH. The model is adequate and it can be used 

for research. The coefficient of correlation R=0.988, 0,7 < R=0.988<1 determines that there is very strong 

multiple dependence of NPLs  upon  GOV DEFICIT/SURPLUS, UNEMPLOYMENT, GDP 

GROWTH.  

The tests for Statistical significance of coefficients (T-test) show that coefficients GDP GROWTH 

and UNEMPLOYMENT are statistically significant. The coefficient GOV DEFICIT/SURPLUS is 

statistically insignificant. 

Both coefficients GDP GROWTH and UNEMPLOYMENT are positive, consequently there is a 

straight one-way dependence – increase of UNEMPLOYMENT and GDP GROWTH leads to an 

increase of NPLs. Increase of UNEMPLOYMENT with 1% leads to 1,232%   increase of NPLs. Increase 

of GDP GROWTH with 1% leads to 0,414 % increase of NPLs. 

Based on the regression analysis it can be inferred that an increase of unemployment and increase 

of GDP growth in Bulgaria may lead to а growth of the amount of NPLs in the country.  The influence of 

the government deficit/surplus on NPLs is not significant and it can be assumed that the growing deficit as 

a result of the pandemic will not lead to a burst of bad loans.   

 

Measures taken by the financial authorities for debt burden relief during the pandemic. 

Measures taken by the European authorities. 

European and national financial authorities play a crucial role in ensuring financial stability.  In 

March 2020 the European Central Bank announces a new Pandemic Emergency Purchase Program 

(PEPP) intended specifically for addressing the effects of the COVID-19 pandemic. This is  a new 

temporary asset purchase programme of private and public sector securities which aims to counter the 

serious risks to the monetary policy transmission mechanism.  

The European Central Bank recommends that banks should restrict dividend distribution and 

enhance their loss absorption capacity through their capital buffers.  

As a result of the expectation for possible imbalances in the economic and financial stability, the 



Finance, Accounting and Business Analysis 3 (2) 2021 

138 

 

European Banking Authority issues Guidelines on legislative and non-legislative moratoria on loan 

repayments applied in the light of the COVID-19 crisis (EBA/GL/2020/02)8. The aim of the Guidelines is 

to clarify that payment moratoria applied before 31 March 2021 do not trigger forbearance classification if 

they are based on applicable national law or on an approved industry-wide measures. Risk measurement is 

crucial in this situation of difficult economic circumstances, so the obligors expected to face longer-term 

financial difficulties and the quality of banks` portfolios should be observed carefully.  

According to the general payment moratoria „forbearance“ means temporarily postponement of 

capital payments and/or interest payments of a loan for borrowers in financial difficulty. Credit 

institutions are required to categorize the exposures as performing or non-performing according to the 

requirements. Very important issue is the performance of individual assessment of the payment capacity of 

the borrower and granting forbearance measures for each specific case with no consideration of diminished 

financial obligation. The following conditions must be fulfilled: 

• The reason for the moratorium is a response to a financial problem created as a result of the COVID-

19 pandemic and it is announced and applied before 31 March 2021.  

• Both legislative and non-legislative moratoria have to be based on a broad initiative. Institutions are 

encouraged to coordinate their activities.  

• Countries which have banking associations may delegate the coordination of the moratorium scheme 

to such association.   

• The moratorium has to be applicable for a large number of obligors affected by the crises caused by 

the pandemic, regardless of their creditworthiness. 

• The creditworthiness of the obligors is not decisive for applying the general payment moratoria 

because it should be in force for those who faced financial difficulties before the pandemic and for 

those who didn`t have faced such difficulties as well. The forborne exposures must maintain this 

classification.  

• The moratorium is not obligatory and can be applied after request from the obligor presenting the 

consequences from the pandemic for the debt. The decision of the application must be taken before 

31 March 2021. 

• The conditions of the moratorium are standardized for all obligors affected by the pandemic. 

Separate moratorium scheme with different conditions can be elaborated for specific group of 

obligations, for example consumer loans, mortgage loans, etc.  

• The moratorium makes amendments only in the schedule of the payments. Its objective is to resolve 

problems with short-term liquidity shortages. It can postpone or reduce payments for specified period 

of time. This may extend the duration of the loan payment or may lead to higher payments after the 

end of the moratorium. The other conditions of the loan should stay unchanged, especially the 

interest rate. The only reason for changes in the interest rate of the loan payment scheme can be the 

need of compensation for losses due to payment delays as a result of applying the moratorium. Such 

changes in the interest rate would neutralize the impact of the net present value of the credit 

obligation. Change in the interest rate related to changes in the benchmark rate is not considered a 

change in the terms and conditions of the loan.  

• The moratorium is not applicable for new loans granted after the date of the moratorium. In this 

context, the use of existing credit lines and renewal of revolving loans is not a new loan. This 

constraint aims to ensure that the moratorium is used for payment problems arising as e result of the 

COVID-19 pandemic. The original date on which the moratorium was launched should be used for 

making the decision for treatment of the loan according to the conditions of the general payment 

moratoria.  

• Regardless of the application of the conditions of the moratorium for obligors with payment delays as 

a result of the pandemic, credit institutions are allowed and encouraged to grant new loans to both 

new and existing clients. The new lending should be based on adequate individual assessment of the 

creditworthiness of the borrower. The application of the moratorium for the new loans should not be 

necessary.  

The postponement of the loan payments in the future means higher risk of insolvency for the 

borrower. This can influence bank`s capital adequacy and overall stability. The exceptional circumstances 

created by the lockdowns strengthen the need for proper risk assessment. For limitation of the risk faced by 

banks, the EBA puts constraint on the length of the postponement of the payments in future – the general 

payment moratoria can be up to 9 months. This means that loan payments can be postponed several times 

but totally for 9 months.  

The institutions have to identify all obligors who make use of the moratorium. Institutions should 

 
8 European Banking Authority, 2020 



Finance, Accounting and Business Analysis 3 (2) 2021 

139 

 

also assess borrower`s unlikeliness to pay in relation to the general payment moratoria because this would 

indicate the obligors under a moratorium that have long term solvency issues. All actions taken by 

institutions under the general payment moratoria should be made in a transparent public manner.  

Other measures recommended by the European Banking Authority are:  

- Guidelines on Covid -19 measures reporting and disclosure  - presenting reporting and disclosure 

requirements to monitor the use of payment  

moratoria;  

- Guidelines on loan origination and monitoring – their aim is to present standards for credit risk 

taking and granting loans of high credit quality; 

- Guidelines on Credit Risk Mitigation for institutions applying the internal rating- based approach 

with own estimates of loss given defaults (LGDs) – clarifying the credit risk mitigation framework.  

In December 2020 the European Commission publishes an action plan for “Tackling non-

performing loans (NPLs) in the aftermath of the COVID-19 pandemic”. The focus of this plan is on 

development of the secondary markets for distressed assets. This will allow banks to move the NPLs off 

their balance sheets into asset management companies (AMCs). The cooperation of national asset 

management companies at EU level is encouraged.  

 

Measures taken in Bulgaria. 

The first version of the Guidelines on legislative and non-legislative moratoria on loan repayments 

is published on 4 April 2020, amended on 26 June 2020 and on 2 December 2020. The Emergency Status 

in Bulgaria is announced on 13 March 2020. Тhe Bulgarian legislator creates measures for alleviation of 

the debtors immediately after the announcement of the Emergency Status.  

According to the Bulgarian Act on the measures and actions during the state of emergency declared with 

the decision of the National Assembly of 13 March 20209 no statutory interest is accrued for debtors in credit 

agreements and other forms of financing and consequences from payment delays are not applied until 

cancellation of the state of emergency. The decision of the National Assembly of the Republic of Bulgaria 

specifies that the state of emergency is until 13 April 2020 10 and later this term is extended until 13 May 

2020. 11 Simultaneously, the non-accumulation of statutory interest for debtors is prolonged – up to two 

months after the cancellation of the state of emergency which means until 13 July 2020.  

Debtors are exempted from the statutory interest but not from the interest rates according to their 

credit contracts.  The statutory interest is moratory, punitive interest; it is not agreed but is provided for by 

law.  It is regulated in the Obligations and Contracts Act: “In case of non-performance of a monetary 

obligation, the debtor shall be liable for damages to the amount of the interest accrued from the date of 

default … The rate of interest is set forth by the Council of Ministers. ”12  

The statutory interest gives compensation to the lender for payment delays from the debtor. The 

annual amount of the statutory interest for overdue monetary liabilities in Bulgaria  is the amount of the 

base interest rate of the Bulgarian National Bank plus 10 percentage points. The daily amount of the 

statutory interest for overdue monetary obligations is equal to 1/360 part of the annual amount.13  The 

base interest rate of Bulgarian National Bank for 2020 is 0,00%14 which means that the annual statutory 

punitive interest for debtors is 10%.  

Other government measures for the period of the state of emergency in the country and up to two 

months after its cancellation with particular importance for the stability of the financial sector are:  

- The enforcement proceedings are suspended;  

- All announced public sales and introductions into possession announced by public and private 

bailiffs are suspended;  

- Distrains are not  allowed either upon individuals' bank accounts or to salaries and pensions.  

On 19 March 2020, the Bulgarian National Bank  announces a package of measures aimed 

primarily at further strengthening the capital and liquidity of banks in the context of the COVID-19 

pandemic estimated at BGN 9.3 billion. They include: 

- capitalization of the profit generated in the banking system in 2019 at the amount of BGN 1.6 

billion. As a result, some of the banks in the Bulgarian banking system will not be able to 

distribute dividends to their shareholders and will have to reinvest all their profits; 

 
9 Act on the measures and actions during the state of emergency declared with the decision of the National Assembly of March 13th, 2020, 

and on overcoming the consequences, 2020 
10  Decision to declare a state of emergency, SG 22/ 13 March 2020 г., 
11 Decision for extension of the term of the declared state of emergency, SG 33/ & April 2020 г. 
12 Obligations and contracts act, 1950,  Art. 86 , 
13 Resolution № 426 of the Council of Ministers of 18 december 2014 to determine the amount of statutory interest on overdue monetary 
obligations, SG 106/ 23 December 2014 г.  
14 Bulgarian National Bank Statistics, Base Interest Rate, 2020. 



Finance, Accounting and Business Analysis 3 (2) 2021 

140 

 

-  a cancellation of the planned  increases of the countercyclical capital buffer applicable to local 

credit risk exposures, and maintaining its level of 0.5% in the second half of 2020 and in  2021. 

Maintaining the current level of the buffer aims to contribute to maintaining the resilience of the 

banking system against potential adverse trends in the economic environment, credit risk losses 

and pressure on the profitability and capital position of credit institutions ; 

- reduction in commercial banks’ foreign exposures which will strenghthen the liquidiy of the 

Bulgarian banking system with BGN 7 billion  .  

The preparation and coordination of general payment moratorium in Bulgaria is performed by the 

Association of Banks in Bulgaria (ABB) which currently represents the banks in Bulgaria.   

On 3 April 2020 the Governing Council of the Bulgarian National Bank (BNB) makes a decision15 

for compliance with the adopted by the European Banking Authority (EBA) Guidelines on legislative and 

non-legislative moratoria on loan repayments (EBA/ GL/2020/02). BNB requires from the commercial 

banks to propose in five working days a draft of rules on private moratorium on bank loan payments in 

relation to the COVID-19 situation. On 9 April 2020 BNB approves the “Procedure for Deferral and 

Settlement of Liabilities Payable to Banks and their Subsidiaries – Financial Institutions in relation to the 

state of emergency enforced by the National Assembly on 13 March 2020 as a result of the COVID-19 

pandemic” /Procedure for deferral/.16,17 With  decisions made on 9 July 2020 and on 11 December 2020, 

after a proposal made by the Association of Banks in Bulgaria, BNB twice approves  extension of the 

deadline for submitting requests by  bank clients for deferral of their liabilities.  

For deferral of liabilities in Bulgaria can apply borrowers with difficulties in payment of their 

obligations as a result of the COVID-19 pandemic. All borrower`s obligations before 1 March 2020 should 

have been regularly paid and with no more than 90 days past due. Loan payments can be postponed for up 

to 9 months. The period of postponement should expire not later than 31 December 2021. Requests for 

deferral can be made by bank clients until 23 March 2021 and the creditor must take its decision not later 

than 31 March 2021.  

The procedure offers three deferral mechanisms:  

Mechanism 1 – deferral of principal and interest payments for up to 9 months, but not later than 

31 December 2021. After the period of postponement of credit payments, a new payment plan should be 

elaborated and the outstanding debt should be repaid in a term up to 9 months longer than the initial one.  

Mechanism 2 – deferral of principal payments for up to 9 months but not later than 31 December 

2021. The bank client makes interest payments according to the loan contract. After the period of 

postponement of principal payments, a new payment plan is prepared and the outstanding debt should be 

repaid in a term up to 9 months longer than the initial one. 

Mechanism 3, applicable to revolving products – payments and limits concerning revolving 

products can be postponed for up to 9 months but not later than 31 December 2021. 

The type of liability deferral mechanism is chosen with common decision of both parties. The 

creditors can also elaborate individual deferral schemes for the individual needs of their customers.  

According to data from BNB reflecting the state of the banking system in Bulgaria up to the end of 

March 202118, totally of 131 576 applications are submitted under the Procedure for Deferral and 

Settlement of Liabilities Payable to Banks and their Subsidiaries - financial institutions, with a gross value 

of liabilities of BGN 9,7 billion. From these 110 849 applications are approved and the gross value of the 

approved deferrals is 92,6% of the total value  (See table 6.) The value of NPLs decreases on yearly basis but 

their share in the gross book value of all credits and advances increases to 7,4% at the end of 2020. The 

share of NPLs in the gross book value in June 2021 slightly decreases to 6,7 %. (See Table 7)  

 

  

 
15 Bulgarian National Bank, 2020, Press release_3 April 2020 
16 Bulgarian National Bank, 2020, Press release_10 April 2020 
17 Association of Bank in Bulgaria, 2020 
18Bulgarian National Bank Supervision Statistics, 2020 



Finance, Accounting and Business Analysis 3 (2) 2021 

141 

 

Table 6. Information under the Procedure for Deferral  and  Settlement  of  Liabilities  payable  

to  Banks  and  their  Subsidiaries  (Procedure for Defferal)  

  30.6.2020 30.9.2020 31.12.2020 31.3.2021 

  number 

value 

(thousand 

lv.) number 

value 

(thousand 

lv.) number 

value 

(thousand 

lv.) number 

value 

(thou

sand 

lv.) 

submitted 

requests 118 584 9 771 986 124 950 9 997 531 108 211 8 759 762 131 576 

9 700 

951 

approved 

requests 98 499 8 117 145 106 481 9 023 161 89 478 8 073 698 110 849 

8 983 

106 

% approved 83,1 83,1 85,2 90,3 82,7 92,2 84,2 92,6 

Source: BNB 

 

Table  7                  

Source: BNB 

 

This official statistic of NPLs in Bulgarian banking system does not include the value of the loans 

approved under the procedure for deferral according to the moratoria on loan repayments. Excluded are 

also the non-performing “fast loans” granted by non-banking financial institutions. The percentage of 

approved requests under the Procedure of Deferral is continuously growing and reaches 84,2 % in March 

2021. 

According to the application of the International Financial Reporting Standard 9 (IFRS 9), the 

banks by using their own models make forecasts for potential impairments for the expected credit losses 

due to COVID-19 and accumulate preliminary provisions before the potential negative effect on the loan 

impairments occurs. Those actions, in accordance with IFRS,  affect the amount of the impairments, made 

by banks in the course of 2020. 

Bulgarian National Bank accepts decisions for applying the guidelines issued by the European 

Banking Auhority: 

- Guidelines on Covid -19 measures reporting and disclosure; 

- Guidelines on loan origination and monitoring; 

- Guidelines on Credit Risk Mitigation for institutions applying the internal rating- based approach with 

own estimates of loss given defaults (LGDs). 

Moreover, as a result of the continuing uncertainty and the challenges related to the economic 

effects of the spread of COVID-19 and the imposed restrictive measures, BNB adopts a decision to 

maintain the macroprudential measure for capitalization of the full profit of banks for 2020. 

 

Loans granted by non-bank financial institutions. 

The BNB credit statistics presents data about the number and amount of granted loans and non-

performing loans concerning only credit institutions (commercial banks). In Bulgaria, a significant share of 

short-term loans, the so-called "fast loans", are granted by non-bank financial institutions. These are 

companies specialized in lending, which provide loans with funds that are not raised through public 

December 2016 December 2017 December 2018 December 2019 December 2020 March 2021 June 2021

Gross book value 77 517 396 81 547 552 89 028 962 94 454 735 76 678 451 80 231 080 82 083 843

Performing 67 556 371 73 255 301 82 234 014 88 334 418 70 967 310 74 533 323 76 570 400

Non-performing 9 961 025 8 292 251 6 794 948 6 120 317 5 711 141 5 697 757 5 513 443

With possibility of non-

payment, which are regular 

or

overdue  < = 90 days 2 966 597 2 638 392 2 247 295 2 185 552 2 388 803 2 376 069 2 240 751

Overdue > 90 days

<= 180 days

519 109 373 257 359 799 454 544 302 170 354 726 436 089

Overdue > 180 дни

6 475 319 5 280 602 4 187 854 3 480 221 3 020 168 2 966 962 2 836 603

Non-performing loans as % of

 the Gross book value 12,9 10,2 7,6 6,5 7,4 7,1 6,7

Accumulated impairment, 

accumulated changes in fair value 

due to credit risk and provisions -5 270 585 -4 379 368 -4 090 453 -3 617 288 -3 586 062 -3 586 079 -3 598 029

Credits and advances     

Non-performing loans and advances and accumulated impairment    (thousand  lv./BGN)



Finance, Accounting and Business Analysis 3 (2) 2021 

142 

 

charging of deposits or other repayable funds. There is a public register of these non-bank financial 

institutions operating on the territory of the Republic of Bulgaria, supported by the Bulgarian National 

Bank. 

Usually, clients of such companies are people with bad credit history, who cannot apply for 

significantly cheaper financing from the commercial banks, or do not want long-term financial 

commitment. Banks also will not give financing to these clients because they do not meet the 

creditworthiness requirements. Often the clients of the non-banking financial institutions for “fast loans” 

are in the "shadow economy" sector.   

In the National Charter of Undeclared Employment the Bulgarian Association of Industrial 

Capital (BICA, 2021) indicates that the undeclared employment in the Bulgarian economy according to 

employers is 25.3%, and according to employees about 33%. Many employees pay their insurances on the 

basis of much lower wage than they actually receive, thus paying lower social security payments by the 

employee and the employer. A large number of employees cannot prove their official income and therefore 

cannot meet bank requirements. 

The reported statistics about the “fast loans” is published by BNB and formed on the basis of data 

provided by the companies specialized in lending. The volume of the granted "fast loans" has a tendency to 

increase over the last five years. At the same time, in the period 2016-2019 the volume of non-performing 

fast loans decreases. It is the increase in the volume of fast loans and the decline in the share of non-

performing fast loans that indicates that there is a large share of solvent borrowers who, upon different 

reasons, prefer non-banking financial institutions to cover their needs for additional funds. 

At the end of December 2020, the loan receivables of the companies specialized in lending are 

BGN 3.073 billion (2.6% of GDP) compared to BGN 2.898 billion (2.4% of GDP) at the end of December 

2019. At the end of December 2020, the amount of non-performing fast loans is BGN 297.4 million. It 

increases by 57.8% (BGN 109.0 million) compared to the end of December 2019.19 In the first half of 2021 

lending of non-banking financial institutions in Bulgaria is growing and the percentage ratio of their NPLs 

is too high – 9.1%. (See Table 8)                                                       

 

Table 8 

 
Source: BNB 

 

The companies specialized in lending have developed and applied a unified approach to their 

borrowers affected by COVID-19 from the very beginning of the state of emergency in the country. Some 

of the measures include full or partial deferral of contributions, as well as renegotiation of terms of 

repayment, for clients affected by the pandemic, in particular: customers sick with COVID-19, customers 

that have lost their job as a result of the pandemic, or are in unpaid leave. The measures are valid for the 

period of state of emergency in the country and applied on the basis of providing documents certifying the 

existence of reasons for deferral of contributions. The measures are available to customers who have 

regularly repaid their loans until the state of emergency. 

If the non-performing loans of Bulgarian banking and non-banking institutions are summed, the 

result shows that the total value of NPLs continuously decreases over the years. Even at the end of 2020, 

after the burst and the development of the pandemic, the total value of NPLs is over BGN 300 million less 

than their value at the end of 2019. In 2021 the amount of NPLs decreases. (See Table 9) 

 

 
19 Bulgarian National Bank Statistics, 2020. Companies specialized in lending 

31.12.2016 31.12.2017 31.12.2018 31.12.2019 31.12.2020 31.3.2021 30.6.2021

Total 2 508 929 2 747 987 2 436 082 2 897 822 3 072 541 3 128 493 3 346 439

With Maturity 2 100 247 2 405 561 2 231 120 2 709 350 2 775 021 2 834 658 3 043 213

up to 1 year 488 263 564 918 495 597 672 812 708 899 703 568 792 793

 1 to 5 years 727 559 787 822 663 891 755 539 747 174 752 140 769 576

over 5 years 884 425 1 052 821 1 071 632 1 280 999 1 318 948 1 378 950 1 480 844

Non-performing
2

408 682 342 426 204 962 188 472 297 520 293 835 303 226

% NPLS 16,3 12,5 8,4 6,5 9,7 9,4 9,1

1 The list of reporting is updated in accordance with the Register of Financial Institutions under Art. 3a. of the Credit Institutions Act. 

2 
Non-performing loans under Regulation (EU) № 680/2014 in relation to applicable accounting standards. 

RECEIVABLES OF COMPANIES SPECIALIZED IN LENDING 
1

thousand lv. /BGN



Finance, Accounting and Business Analysis 3 (2) 2021 

143 

 

Table 9 

 
Source: BNB 

 

CONCLUSION 

 

Bulgarian authorities - the government and the Bulgarian National Bank – have taken adequate 

and timely measures for alleviation of debtors in the  break-out of the COVID-19 pandemic and the 

following economic crisis. New waves of infection and new measures lie ahead. There are enormous 

uncertainties and expected big risks about the solvency of individuals and legal entities. Nevertheless, the 

Bulgarian financial system exceeds the capital adequacy requirements.  

The amount of NPLs in Bulgaria has not increased significantly from the beginning of the 

pandemic. Undoubtedly, the reason for this is the provided payment relief for obligors affected by the 

COVID-19 pandemic. The  Procedure for deferral and settlement of liabilities 

allowes suspension or postponement of payments  within a specified limited period of time and 

not later than 31 December 2021.  The obligors have opportunity to return to regular payments after the 

situation is back to normal. The European Banking Authority  defined this moratorium as a general 

preventive measure that applies to a large group of obligors. Bulgarian National Bank together with the 

Association of Banks in Bulgaria takes into consideration all provisions of the moratoria. Furthermore, 

BNB has adopted all guidelines addressed by the European authorities to credit institutions concerning 

debt burden relief and mitigating risk in times of COVID-19 pandemic. The official position of the non-

banking financial institutions in Bulgaria is that they apply an individual approach to each obligor who 

faces payment problems.  

The payment moratoria introduced in Bulgaria and in other EU countries is a temporary decision 

which hides the actual amount of NPLs caused by insolvency during the pandemic. Therefore, no definite 

conclusions can be made in terms of the NPLs formation.  After the expiration of the moratorium an 

increase in the amount of NPLs is expected. The performed analysis proves that if unemployment in 

Bulgaria increases, bad loans will rise. Unlike other countries, the performed regression analysis proves 

that GDP growth in Bulgaria leads to an increase of non-performing loans, albeit by a small percentage. 

This can be explained with ineffective risk measurement and too long insolvency procedures.  

In these challenging times Bulgaria successfully joins the European Exchange Rate Mechanism 

(ERM II) in July 2020, taking another step toward adopting the euro. It is expected that  ERM II 

membership and the Next Generation EU funds will facilitate further reforms in  Bulgaria. Facilitation 

may come not only for the country but also for Bulgarian obligors. The capital adequacy ratios in Bulgaria 

significantly surpass EU requirements. Though, the unsatisfactory insolvency framework is one of the 

reasons for relatively high values of non-performing loans in the country. Bulgaria needs to follow the best 

practices in insolvency regimes in order to guarantee efficiently functioning financial system. 

 

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Finance, Accounting and Business Analysis 3 (2) 2021 

146 

 

Appendix 1 

 

GET DATA /TYPE=XLSX 

  /FILE='C:\Users\Violeta Todorova\Desktop\WF FABA\Eurostat data – Копие.xlsx' 

  /SHEET=name 'Лист1' 

  /CELLRANGE=full 

  /READNAMES=on 

  /ASSUMEDSTRWIDTH=32767. 

EXECUTE. 

DATASET NAME DataSet1 WINDOW=FRONT. 

REGRESSION 

  /MISSING LISTWISE 

  /STATISTICS COEFF OUTS R ANOVA 

  /CRITERIA=PIN(.05) POUT(.10) 

  /NOORIGIN 

  /DEPENDENT NPLs 

  /METHOD=ENTER GOVDEFICITSURPLUS UNEMPLOYMENT GDPGROWTH. 

Variables Entered/Removedb 

Model 

Variables 

Entered 

Variables 

Removed Method 

1 GDP 

GROWTH, 

UNEMPLOYM

ENT , GOV 

DEFICIT/SUR

PLUS 

. Enter 

a. All requested variables entered. 

b. Dependent Variable: NPL 

 

Model Summary 

Model R R Square 

Adjusted R 

Square 

Std. Error of the 

Estimate 

1 ,988a ,976 ,964 ,8129 

a. Predictors: (Constant), GDP GROWTH, UNEMPLOYMENT 

, GOV DEFICIT/SURPLUS 

 

 

ANOVAb 

Model Sum of Squares df Mean Square F Sig. 

1 Regression 160,364 3 53,455 80,890 ,000a 

Residual 3,965 6 ,661   

Total 164,329 9    

a. Predictors: (Constant), GDP GROWTH, UNEMPLOYMENT , GOV 

DEFICIT/SURPLUS 

b. Dependent Variable: NPLs 

 

Coefficientsa 

Model 

Unstandardized Coefficients 

Standardized 

Coefficients 

t Sig. B Std. Error Beta 

1 (Constant) ,782 ,805  ,971 ,369 

GOV 

DEFICIT/SURPLUS 

-,117 ,146 -,066 -,802 ,453 

UNEMPLOYMENT  1,232 ,093 ,954 13,208 ,000 

GDP GROWTH ,414 ,123 ,245 3,353 ,015 



Finance, Accounting and Business Analysis 3 (2) 2021 

147 

 

ANOVAb 

Model Sum of Squares df Mean Square F Sig. 

1 Regression 160,364 3 53,455 80,890 ,000a 

Residual 3,965 6 ,661   

Total 164,329 9    

a. Dependent Variable: NPLs 

 

 

Multiple Regression Model 

NPLs = b0 + b1* GOV DEFICIT/SURPLUS + b2* UNEMPLOYMENT + b3* GDP GROWTH + ei 

 

H0: There is not linear dependence between NPLs and GOV DEFICIT/SURPLUS, 

UNEMPLOYMENT, GDP GROWTH. The model is not adequate.  

H1: There is a regular multiple dependence between NPLs and GOV  DEFICIT/SURPLUS,    

UNEMPLOYMENT, GDP GROWTH. The model is adequate.  

α=0,05 

F=80,890    Sig=0,000 

Sig=0,000 < α=0,05     → H0 is rejected 

There is a regular multiple dependence between NPLs and GOV DEFICIT/SURPLUS,   

UNEMPLOYMENT, GDP GROWTH. The model is adequate and it can be used for research.  

NPLs = 0,782 – 0,117* GOV DEFICIT/SURPLUS + 1,232* UNEMPLOYMENT + 0,414* GDP 

GROWTH  

 

R=0.988,   0,7< R=0.988<1, → strong multiple dependence of NPLs of  GOV DEFICIT/SURPLUS,    

UNEMPLOYMENT, GDP GROWTH.  

 

Statistical significance of coefficients:  

GOV DEFICIT/SURPLUS 

H0: The coefficient GOV DEFICIT/SURPLUS is statistically insignificant. 

H1: The coefficient GOV DEFICIT/SURPLUS is statistically significant. 

α =0,05 

t = -0,802      Sig = 0,453>  α =0,05  → H0 is accepted and  the coefficient GOV DEFICIT/SURPLUS 

is statistically insignificant. 

 

UNEMPLOYMENT 

H0: The coefficient UNEMPLOYMENT is statistically insignificant. 

H1: The coefficient UNEMPLOYMENT is statistically significant. 

α =0,05 

t = 13,208      Sig = 0,000 < α =0,05  → H0 is rejected and the coefficient UNEMPLOYMENT is 

statistically significant. 

 

GDP GROWTH 

H0: The coefficient GDP GROWTH is statistically insignificant. 

H1: The coefficient GDP GROWTH is statistically significant. 

α =0,05 

t = 3,353      Sig = 0,015< α =0,05  → H0 is rejected and the coefficient GDP GROWTH is statistically 

significant. 

 

Both coefficients UNEMPLOYMENT and GDP GROWTH are positive, consequently there is a 

straight one-way dependence – increase of UNEMPLOYMENT and GDP GROWTH leads to an 

increase of NPLs. Increase of UNEMPLOYMENT with 1% leads to 1,232%   increase of NPLs. 

Increase of GDP GROWTH with 1% leads to 0,414 % increase of NPLs. 

 

 

 

 

 

  



Finance, Accounting and Business Analysis 3 (2) 2021 

148 

 

Appendix 2 

Statistical data 

  NPLs % GOV DEFICIT/SURPLUS % UNEMPLOYMENT % GDP GROWTH % 

2011 14,9* -2 11,3 2,4 

2012 16,6* -0,3 12,3 0,4 

2013 16,8* -0,5 13 0,3 

2014 16 -5,4 11,4 1,9 

2015 14,5 -1,7 9,2 4 

2016 12,8 0,2 7,6 3,8 

2017 10,2 1,2 6,2 3,5 

2018 7,7 2 5,2 3,1 

2019 6,5 2,1 4,2 3,7 

2020 5,9 -3,4 5,1 -4,2 

Source: Eurostat* 

*NPLs for 2011, 2012, 2013 - World Bank Data, no data in Eurostat Statistics 

 

 


