Bulgarian banking system 2008-2012: Striving for confidence under lower activity
Bulgarian banking system 2008-2012: Striving for confidence under lower activity

Summary/Abstract: Current article studies the response of Bulgarian banks to the liquidity shock resulting from the withdrawal of non-resident capital of the banking system and the effects of liquidity hoarding on the credit activity. Liquidity risk management is analyzed by following the changes in assets and liabilities in bank balance sheets, focusing on the assets with the highest liquidity. Results showed that under higher liquidity risk the banking management decisions are dominated by striving for confidence. Commercial banks increase the share of liquid assets, but the higher bank liquidity does not contribute to an increase in bank lending. The banking system proves to be less liquid in its ability to expand the credit supply to the private sector. On this basis, more active intervention of the Bulgarian National Bank is recommended to improve the functioning of credit markets.

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