The stock of private sector loans declined by 0.6% y/y at end-July, according to the monetary statistics of the Bulgarian National Bank (BNB). Loans declined at the slowest rate since Nov 2015 but the data is still not convincing in terms of a recovery of lending activity, in our opinion. In real terms, private sector loans fell by 0.4% y/y at end-July, actually reversing three previous months of growth.
The nominal dynamics of both corporate and retail loans improved in July. Both corporate and retail loans fell at a slowing pace of 0.6% y/y and 0.4% y/y respectively. There was a continued noticeable pick-up in housing and other retail loans, in our opinion testifying to the recovery of households’ housing property demand and of general propensity to borrow. Falling real interest rates likely also contributed to the rising retail borrowing demand. Corporate loans also seemed to be on an improving trend, partly offset by lower overdraft borrowing. Accordingly, we see some positives in the figures as indicating likely improvement in companies’ borrowing demand as well although investment activity in the country remained quite subdued.
The share of bad loans continued to decline and reached 21.5% at end-July. It fell by 0.4pps m/m with the improvement coming mainly from the corporate loan portfolio. The share of bad corporate loans was down to 25.3% while the bad retail loan share fell to 16.7% at the end of the month.
Money supply growth slowed down slightly in July. The narrowest monetary aggregate M1 increased by 14.8% y/y while the M3 aggregate was up by 8.5% y/y, both decelerating from the previous month but negligibly. Money supply seems to have picked up lately, which might be partly on account of recovering inflation but we still think that the money supply data gives positive outlook on the economic momentum in Q2 and Q3 so far.