The Crisis in the Real Economy and the Stability of the Bulgarian Banking System

Abstract

The global economic and financial crisis has had a severe impact on the economies of most European Union member states and the countries all over the world. The crisis in the Bulgarian economy has also been triggered by domestic processes and phenomena such as overproduction in a number of key industries – construction, tourism etc., incomplete structural changes in the economy, at times inadequate economic policy. The aim of this article is to analyze the relation between the crisis in the real economy and the state of the banking system as the most important element of the financial institutions. The focus is on the stability of the banking sector, which, despite the potential risks, was not significantly affected by the economic crisis. Despite the existing risks such as more non-performing loans, resource deficit, decline in depositors’ confidence in the system, low evaluation of the banks provided by the stock exchange, the financial institutions in the banking sector are stable and solvent. They do not experience liquidity and capital adequacy problems. They maintain a good profitability level and savings are increasing. The crisis has had an overall favourable effect on both commercial banks, which tightened their discipline, and the government, which despite the budget deficit has not taken measures involving its monetization. The analysis of the real economy crisis and its effects on the banking system gives reasons to draw the conclusion that the banking sector enjoys a healthy development and has created a favourable environment for the economy to get out of the crisis and recover.