Bulgaria's central bank raises capital buffer as loan risk grows

SOFIA, Dec 17 (Reuters) - Bulgarian banks will have to accumulate more capital in 2023 to counter a build-up of systemic risks linked to low interest rates that significantly boost consumer borrowing, especially mortgage loans, the central bank said.

The Bulgarian National Bank late on Thursday set the rate for the counter-cyclical capital buffer at 1.5% starting in January 2023, up from the 0.5% lenders have to put aside at present, which is set to rise to 1.0% from next October.

The buffer is meant to safeguard the banking system against potential losses stemming from a build-up of systemic risk during period of excessive credit growth.

"Household loans are growing at an accelerated pace, especially in the housing loan segment," the bank said in a statement.

"The increase aims to strengthen the resilience of the banking system if there be pressure on profitability and the capital position caused by a potential increase in non-performing loans and impairments," it said.

Bulgaria, which hopes to join the euro zone in 2024, has pegged its currency, the lev, to the euro. The country's base interest rate has been set at zero since 2016.

The gross loan portfolio had increased by 1.1% at the end of October on a monthly basis to 74.5 billion levs ($43.13 billion), central bank data showed.

Bulgarian banks, many of which are owned by European Union 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 = 1.7273 leva)

Reporting by Tsvetelia Tsolova; Editing by Andrew Heavens

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