dimitar radev : 2024 - the focus is still on curbing inflation and joining the euro area publication by mr dimitar radev, governor of the bulgarian national bank, in the bulletin of the association of banks in bulgaria, issue 77, january 2024. * * * for central banks, including the bnb, the past year was marked by efforts to control inflation and calm down financial markets by carefully pursuing a more restrictive monetary policy designed to limit credit expansion and, consequently, demand. in bulgaria, lending, although growing at lower rates compared to 2022, remained high in the light of a steady increase in deposits, a slow transmission of the global process of rising interest rates to interest rates for households, and a stable capital position of banks. in the context of the high inflation in bulgaria, partly fuelled by both the fiscal expansion and the strong growth of wages and private consumption, the bnb raised the minimum required reserves on the funds attracted by banks up to 12 %, withdrawing liquidity from the money market and thus limiting lending opportunities. at the same time, in order to preserve the resilience of the banking system against risks posed by the financial and business cycle, the bnb gradually raised the countercyclical capital buffer rate from 0. 5 % in 2021 to 2. 0 % in 2023. keeping the systemic risk buffer at 3 % also contributed to the sustained capital position of banks. with the undertaken monetary policy measures, 2023 was yet another strong year for the banking system in our country. according to the european banking authority, bulgaria's banking system is among the best capitalised banking systems in the european union. the liquidity position remained very high, with ratios of liquidity coverage and net stable funding well above the regulatory requirements. the profits of the banking system were solid, with net interest income making the major contribution. at the same time, the share of non - performing exposures continued to decline to the historically lowest levels in all major segments of the loan portfolio. however, the continuing strong growth of housing loans as of end - 2023 created conditions for an increase in households'debts, albeit from relatively low levels, and for a rapid accumulation of credit risk in the banking system's balance sheet, which might require that the bnb implement additional macroprudential measures in 2024, such as system - wide requirements regarding borrowers, which banks must apply when granting loans to households. this risk might be reinforced by other

promote the improvement in the economic environment. on the other hand, banks will be faced with greater dynamics of the risks associated with the balance - sheet value of assets and liabilities and of returns. this dynamics will primarily depend on the development of the macroeconomic processes in europe and, in a more global aspect, on the anticipated changes in the actions of the leading central banks. the withdrawal of the accommodative monetary policy, typical of recent years, will be visible in the reversal of the interest - rate cycle. these processes, which will be running globally with varying intensity and supported by different instruments of central banks, will largely determine the financial conditions in our country. in the context of the ongoing global macroeconomic processes, inflation will continue to receive special attention. we expect that the rate at which the prices in bulgaria will be rising in 2022 will reach its peak, on an annual basis, within the first half of the year, and at the end of the year, again on an annual basis, it will fall below that reported as of december 2021. the concrete nominal levels of the general price index will depend on the combined effect of the antiinflationary and pro - inflationary factors, including on the dynamics of the energy prices in the international market and the prices of foodstuffs. we believe that the coming discussions on the adoption of the 2022 budget will give additional indications of the development of the macroeconomic processes in bulgaria. in this regard, the topics important for the banking sector are : the annual and medium - term macroeconomic framework ; the level and management of the debt ; the incomes policy ; and the level and management of the so - called ‘ contingent liabilities ’ in the energy, transport and social security sectors. in the context of the ongoing global and local macroeconomic processes and the still open issues, in 2022 the banking sector will have to find a balance between the possibilities of expanding the lending, as a result of the anticipated improvement in the economic environment, and the areas of economic uncertainty coming mainly from the evolution of inflation and the still unresolved risks caused by the pandemic. a major criterion for reaching an optimum balance for each bank will be the preservation of, and even improvement in, the quality of assets. for its part, the bnb is ready, as it has been thus far, to implement the full range of measures, within its mandate, to mitigate and neutralise the manifestation of risks in relation to banks