Growth in Bulgaria's financial system is set to rebound over the coming quarters. In particular,growth in the banking sector is set to return to positive territory in 2017 on the back of a strongmacroeconomic backdrop and returning confidence following the collapse of a lender in 2014.
Loan growth in the Bulgarian banking sector remained negative for two years since the collapse ofBulgaria's fourth largest lender, Corporate Commercial Bank (KTB) in 2014. Following sluggish growth in2016, we now expect the banking sector to return to positive growth on the back of restored confidence inthe banking sector and due to Bulgaria's strong macroeconomic backdrop. We forecast client loan growth toaccelerate to 4.0% and 5.5% in 2017 and 2018, respectively, but we note that the ratio of non-performingloans remains high at over 14.0% in mid-2017. Furthermore, we expect growth in the insurance sector topick up over the coming years on the back of Bulgaria's strong macroeconomic backdrop and risingincomes, which should translate into a rising number of households taking out insurance policies. Bulgaria'sstock market is among the best performing in Europe, surging by over one-fifth in the first seven months of2017, mainly due to favourable valuations and rising risk appetite for emerging markets among investors.