15.05.2023 Iliya Karanikolov: The banking sector in Bulgaria reacted adequately to the increase in interest rates
BNB may continue to withdraw liquidity from the system due to low interest rates on loans, according to BDB’s Executive Director
2 or 3 more hikes in the main interest rate by the European Central Bank by about 0.25% are to come, the Chairperson of the Management Board and Executive Director of the Bulgarian Development Bank, Iliya Karanikolov, predicted in the program "In Development" on Bloomberg TV. The reason is inflation in the eurozone, which is still not slowing down to comfortable levels. According to him, there are expectations that ECB will start lowering interest rates in 2024, if negative effects on the economies in the EU are reported.
Iliya Karanikolov defined the measure of the Bulgarian National Bank to increase the mandatory minimum reserves (MMR) of the banks to 12% as logical and demonstrating the concern for the increased lending activity of commercial banks. The central bank has already raised countercyclical buffers to 2%, with the latest increase coming into effect in September.
"The expectations are that between BGN 6 and 7 billion will be withdrawn from the system," commented BDB’s Executive Director.
According to him, one of the options that the central bankers would have is to continue with their aggressive policy to limit the liquidity of the market, which is currently estimated at around BGN 20 billion. The aim is to limit lending, which has reached 15% growth in recent years.
The banking sector in Bulgaria reacts adequately to the increase in interest rates and tries to make the transfer of the burden on the customers smooth by the middle of 2024, Iliya Karanikolov states categorically.
The main objective of the Bulgarian National Bank is to maintain price stability. With its moves, the bank shows an expectation that banks will focus on risk and capital management.
According to BDB’s Executive Director, the banks continue to work actively with the Bulgarian National Bank for Bulgaria's entry into the eurozone, and the process will be completed before the end of 2023.
He also commented on the upcoming changes in banking regulations in Europe, focusing on the Basel 4 regulation, which focuses on risk assessment and its impact on banks' capital indicators. The transformation of the sector also aims to create resilience of digital systems and information security, enabling third parties providing services to banks to be subject to European regulatory control.
