BANKS’ STRATEGIES TOWARDS NON-PERFORMING LOANS IN BULGARIA: PROBLEMS, CHALLENGES OF THE REGULATION AND POLICIES ALTERNATIVES

The paper analyses the main features of non-performing loans (NPLs) in Bulgaria and qualitative assessment of the varieties of the banks’ strategies for their management with regard to the related risk and the consequences for the banks. On one hand, the emergence of NPLs is discussed from point of view of the common behaviour of banks as credit risk arbitrageurs as well as a result of crisis consequences. On the other hand, the ’post ante’ issues of the NPLs and especially the banks’ resolution policies when NPLs are not repaid any more, require high levels of provisioning and write-downs. The liquidity crisis of two Bulgarian banks that resulted in their closure in mid summer of 2014 is discussed. The issues of the non-performing banks’ liabilities to depositors are discussed and the risk of contagion for the banking and nonbanking intermediaries is revealed. A risk assessment of the interdependence between the banks’s insolvency on deposits and the losses sustained by other financial institutions underlines the need of making use of more strict banking regulation. The adoption of more strict regulation concerning the NPLs is revealed with regard to the implementation of good practices of NPLs management and corporate governance of banks.