“The Bulgarian debt sales market has lagged behind its Central and Eastern European counterparts. However, the relatively high NPL ratio and the upcoming Asset Quality Review due to be completed in August 2016 are expected to turn the trend.” – Gergana Mantarkova, Managing Partner, Deal Advisory, KPMG inBulgaria and in the Balkans

Payday loan providers form the majority of the credit portfolio sales over the last 12 months, exceeding BGN 265 million (€135 million). The buyers are specialised local or regional collection agencies such as EOS and APS Holding. Most of the portfolios consist of retail loans; corporate loans are rarely offered.

Loan sale activity in Bulgaria has been limited but is expected to pick up in 2016, with increased interest from local and international banks to divest problem loans.

The largest portfolio deal to date is a €50 million NPL portfolio from a payday company, bought by APS Holding’s Bulgarian subsidiary.

The NPL ratio remains high (at 20.6 percent of gross retail and corporate loans, or 17.3 percent for just retail loans). The NPL problem is further exacerbated by the reluctance of the Bulgarian banks to sell loan portfolios and to crystallize losses. A common interim approach employed is to transfer NPL portfolios to related companies in order to separate problem loans from the other assets of the bank, and reduce accounting losses and capital burden.

The total sale of credit NPL portfolios in Bulgaria for the first half of 2015 amounted to BGN 149 million (€76 million including telecom receivables), which is under 20 percent of total NPLs.

The NPL market in Bulgaria is expected to pick up in 2016, driven by regulation and international lenders looking to exit / reduce their exposure to Bulgaria, in addition to the AQR exercise. The Bulgarian National Bank has been pressuring banks to resolve the NPL problem; three of the six largest banks in the country have NPL ratios in excess of 20 percent.

The share of NPLs in the Bulgarian banking sector is expected to increase post the release of the AQR results in August 2016, as was seen in other countries whose banking systems recently underwent an AQR. However, in the short term, it is expected that corporate and consumer indebtedness will remain at current levels, taking into account the tightened credit procedures of the banks, as well as the limited availability of attractive and stable projects to finance.