SOFIA (Bulgaria), July 24 (SeeNews) -The fundamental credit outlook of Bulgaria's banking system remains stable, despite concerns over future asset quality as a result of past rapid credit growth and increasingly challenging funding conditions, Moody's Investors Service said on Thursday.
     â€œMost of the banks display generally good domestic franchises, solid profitability levels underpinned by elevated business volumes and healthy, although tightening, interest margins and comfortable capital levels," Moody's said in a report sent to SeeNews. The report analyses the likely future direction of fundamental credit conditions in the industry over the next 12 to 18 months.
     Banking business in Bulgaria flourishes due to improving regulatory and supervisory environment, and stable economic growth, but intensifying domestic competition and the rising uncertainty in the global financial markets could lead to higher interest rates and more expensive capital flow from the foreign parents of local banks, Moody's said.
     The expected growth in credit demand could result in a high level of non-performing loans in the system in an economic downturn; and rising consumer indebtedness raises concerns about the future performance of these borrowers, particularly in the context of a relatively unseasoned credit portfolio.
     "The Bulgarian banking system is highly fragmented, with the majority of the system's assets being concentrated in the hands of large Western European institutions with a strong presence in South Eastern Europe," said Moody's.
     The agency noted the high level of foreign ownership that contributes to Bulgarian banks' franchise development and profits, good revenue generation, supported by strong volumes and good credit quality as positive sides of the industry. Increasing pressure on interest margings from intensifying competition, the global financial turmoil and scarcity of deposits that elevate costs of funds and tightened liquidity, reflecting rapid business expansion and difficult conditions in the international financial markets were identified as downturns.

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