PRESS RELEASE
17 March 2025
At its regular meeting, the Governing Council (GC) of the BNB considered an overview of the dynamics and the evolution of lending standards applied to household loans, secured by residential real estate (RRE), based on the most recent supervisory data. The overview is prepared in the context of the requirements on lending standards’ indicators at origination and renegotiation of loans, which were introduced on 11.09.2024 and entered into force on 01.10.2024. The requirements include a ratio between the loan amount and the value of the immovable property at origination (LTV-O) of up to 85%, a ratio between the current debt service amount and the monthly disposable income of the debtor at origination (DSTI-O) of up to 50% and a maximum term of the loan agreement (maturity) of up to 30 years. Banks could originate or renegotiate RRE loans with parameters that deviate from the introduced requirements with a total approved or renegotiated volume during the current quarter of up to 5% of the total gross amount of the new or renegotiated RRE loans during the preceding quarter.
The introduced requirements aim to ensure the resilience of the banking system in a preventive manner, in the context of increasing medium-term cyclical risks. The requirements support safeguarding the stability of the banking system by complementing the existing capital buffers, set by the BNB at levels, which are among the highest in Europe. They are not restrictive to the provision of credit, but follow the BNB highly conservative supervisory approach and the overall practice for the introduction of such macroprudential measures by EU countries.
During the fourth quarter of 2024 the volume of newly originated loans, secured by residential real estate (RRE), in the banking system declines to BGN 2.16 billion compared to BGN 2.19 billion in the previous quarter. The change contrasts with the trend, observed in the last three years, whereby the formation of the largest credit volumes occurs in the last quarter of the year.
The requirements with respect to RRE lending standards’ indicators, introduced with the BNB Governing Council decision, have most significant impact on the ratio between the current debt service amount and the monthly disposable income of the debtor (DSTI-O). The relative share of loans with a DSTI O ratio above 50% from total newly originated loans drops significantly from 24.6% in the third quarter to 3.1% in the fourth quarter of 2024. At the same time, the weighted average DSTI O declines by 2.3 p.p. from 39.1% to 36.8%. The ratio between the loan amount and the value of the immovable property (LTV O) and the maximum term of the loan agreement (maturity) remain relatively unchanged, at 74% and 25.2 years respectively. The observed distributions show that the reduction of loans with a DSTI O ratio above 50% is not accompanied by an increase of the risk exposure with regards to the collateral and the term to maturity of the loans.
During the fourth quarter of 2024 banks report 421 loans with parameters that exceed the introduced requirements on lending standards, which represent 4.2% of the 10140 newly originated loans. The total amount of these loans is BGN 118 million or 5.4% of the gross value (BGN 2.19 billion) of newly originated loans, secured by RRE, in the fourth quarter of 2024. A predominant part of the loans, whose parameters exceed the requirements, are characterized by DSTI-O ratios within the range 50 – 60%, LTV O ratio below 85% and maturity of up to 30 years.
At the end of 2024 the gross amount of the portfolio of loans to households, secured by RRE, reached BGN 27.6 billion, which represents 22.9% of the total loans and advances, and 14.3% of the total banking system assets. The credit quality of this portfolio continues to improve. In the past three years the amount of non-performing loans, secured by RRE, declined from BGN 428 million at the end of 2022, to BGN 332 million at the end of 2023, and to BGN 285 million at the end of 2024. The share of non-performing loans in this portfolio decreased from 2.33%, to 1.51% and to 1.03% at the end of 2024.
