Bulgarian Development Bank rating affirmed at BBB+ as positive outlook tracks sovereign support

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BDB rating affirmed at BBB+

Highlights

Fitch affirms Bulgarian Development Bank's Long-Term Issuer Default Rating at 'BBB+' with Positive Outlook, mirroring Bulgaria's sovereign due to high state support probability.
BDB's impaired loan ratio rises to about 19% at end-2025 from 16% a year earlier, driven by a single large exposure and concentrated loan book.
BDB's common equity Tier 1 ratio remains above 200% at end-2025 and close to 100% post-capital adjustment, with 45% of funding sourced from or guaranteed by the state.

Rating rationale and support framework

As reported by Fitch Ratings, Bulgarian Development Bank AD's Long-Term Issuer Default Rating has been affirmed at 'BBB+' and its Short-Term Issuer Default Rating at 'F1', with the Positive Outlook on the long-term rating mirroring that of the Bulgarian sovereign.

Fitch says the bank's ratings are equalised with Bulgaria's sovereign ratings because of a high probability of state support, supported by full government ownership and the bank's development mandate. The agency also sees limited scope for a bail-in of senior creditors that would be politically acceptable, given BDB's status as a development bank and its role in financing small and medium-sized enterprises and priority projects for the national economy.

The agency says BDB's policy role is still developing, although its SME focus has strengthened since 2021 and is gradually gaining ground. Fitch also points to a new government effort to reinforce the bank's role in supporting Bulgarian businesses and attracting and channeling investment, alongside changes to the supervisory board and management team.

At the same time, Fitch notes that Bulgarian resolution rules could complicate extraordinary support because senior creditors would have to absorb losses before a bank receives sovereign backing. Even so, the agency says it believes the state would likely act pre-emptively to prevent BDB's failure, partly because much of the bank's funding comes from the public sector and international development institutions.

Asset quality, capital and funding position

BDB's asset quality remains a key constraint in Fitch's assessment. The bank's impaired loan ratio rises to about 19% at the end of 2025 from about 16% a year earlier, driven by a single large exposure, while the loan book remains concentrated and the stock of repossessed assets stays high.

Fitch says coverage for stage 3 loans improves to about 69% at the end of 2025, but large stage 2 exposures and concentration in the legacy portfolio continue to leave the bank exposed to tail risks. Operating profitability improves in 2025 as impairment charges fall, including reversals on provisions for off-balance sheet commitments, although Fitch does not expect a significant structural improvement because of the bank's policy role and funding mix.

The agency describes BDB's capital buffers as comfortable, with a reported common equity Tier 1 ratio above 200% at the end of 2025. Fitch estimates that, after adjusting for the planned partial reversal of the EUR2 billion capital injection made in the second half of 2025, the CET1 ratio would still be close to 100%, leaving substantial capacity to support policy objectives.

Funding and liquidity also remain supportive. Customer deposits account for 46% of non-equity funding at the end of 2025, while 35% comes from development-oriented financial institutions under various programmes, and about 45% of total funding is either directly from the state and public sector entities or carries a state guarantee.

In our earlier article on sovereign resilience in a higher-rate environment, we noted that prolonged geopolitical tensions and elevated fiscal spending are increasing refinancing risks and borrowing costs for governments worldwide. We also highlighted that emerging and frontier markets are especially exposed because debt-servicing burdens are often high relative to narrower revenue bases, while energy and food price shocks complicate inflation and credit outlooks.

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