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Is there a bubble in housing lending

“In 2007-2008, the minimum wage was BGN 200, now it is three times higher, and we are saying that housing prices may eventually reach 2008, ie affordability compared to then is quite different, “said Borislav Genov, Director of Retail Banking at Unicredit Bulbank. He also commented on the growth of the volume of mortgage lending relative to GDP, noting that from about 3% in 2007-2008 the value of the indicator decreased to 1.2% despite record growth and the large volume of mortgages on the market.

“The European Central Bank (ECB) says that inflation is a temporary phenomenon, that it will calm down next year and that they will continue with the incentives. Which determines the policy of other banks. Low interest rates on loans will certainly continue next year, definitely.” , commented for her part the Chief Executive Officer of Postbank Petya Dimitrova, noting that there is no bubble. She pointed out that now banks are much more conservative and if in 2008 the number of mortgage loans was about 130 thousand, now they are about 180 thousand, or an increase of 35-38%, while growth in salary is threefold. “Wage inflation is already a fact and will continue in the next few years, but unlike Europe, Bulgaria has a very large margin to continue – our wages are much lower, which means we can not say that it will affect so negative, “she said.

Peter Ruben, CEO of UBB and Country Manager of KBC Group for Bulgaria, also agreed with his colleagues, pointing out the relatively moderate ratio of loans to the value of collateral (the so-called loan-to-value, or LTV ratio). He said he understood the regulator’s concerns, but if the question was whether there was a bubble now, the answer was no, and UBB did not have to exacerbate their appetite to achieve growth.

The concerns of the regulator

However, amid optimism from bankers, BNB Deputy Governor Kalin Hristov warned the sector of the danger of both prolonged inflation and a market bubble. On the first paragraph, he explained that he considered the ECB’s position that inflation was temporary to be extremely volatile. “The probability that the ECB is right about this is almost close to zero. We are sitting on a big risk and they underestimate it. The ECB’s communication can change extremely quickly – this has happened historically,” Hristov said. Therefore, according to him, the strategy of some banks to direct customers to more profitable, but also riskier products such as funds investing in stocks, although conceptually correct, may not be realized at the right time. And possible losses can bring reputational damage to banks.

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