Worrying: Bankers Predict Rising Interest Rates for Bulgarian Households

Representatives from several banks attending the "My Money" Expo have forecasted an increase in interest rates on household loans within the next six to twelve months. While this increase has already affected company loans, it is yet to impact households, according to Tatiana Ivanova, Executive Director of "Digitalization, Data, and Operations" at UBB.

The rise in interest rates on loans is gradually becoming more apparent, particularly for business financing. The European Central Bank initiated a series of key interest rate hikes in the summer of 2022 to combat inflation, with expectations that this would influence deposit and loan rates in Bulgaria by early 2023.

Ivanova also highlighted that Bulgaria's high liquidity and adherence to a currency board arrangement affect these processes, limiting the central bank's ability to utilize instruments that would raise interest rates, unlike other central banks. Furthermore, intense competition among the country's three largest banks, partly due to the sector's consolidation two years ago, has prevented competition from diminishing. During this consolidation, the Belgian KBC, the owner of UBB, acquired Raiffeisenbank in Bulgaria.

Ekaterina Kirilova, the director of Unicredit Bulbank's "Branch Network," stated that interest rates would unquestionably rise, but the pace of the increase remains uncertain, and economists have revised their forecasts multiple times in the past year. The bank predicts that by the end of the year, the average interest rate on mortgage loans will reach 2.7%, increasing to 3.5% next year and slightly further to 3.7% in 2025.

Despite these projections, Bulgarians still tend to favor loans with variable interest rates, unlike consumers in other parts of Europe and the USA.

Kamen Kolchev, Chairman of the Board of Directors of "ELANA Financial Holding," remarked that it is illogical for households to receive cheaper financing than the state, predicting that interest rates for households will align in the coming months. He suggested that the government may release citizen-targeted securities to encourage investment in them rather than depositing money in banks.

While acknowledging the instability brought by military conflicts, Svetoslav Milanov, Executive Director of Investbank, emphasized the inevitability of rising interest rates in Bulgaria. He anticipated that regulatory measures would likely facilitate this change.

He further noted that interest rates in the United States are expected to remain steady or experience slight increases if military conflicts do not escalate. In Europe, inflation remains persistent, leading to expectations of ongoing interest rate hikes.

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