Bulgaria faces potential increases in the cost of servicing its sovereign debt following a proposal to impose a 33% windfall tax on the banking sector, mediapool.bg reported. The Association of Banks in Bulgaria warned that the measure threatens future government financing and economic activity.
Association of Banks in Bulgaria Opposes the 33% Tax
The Association of Banks in Bulgaria argues that the proposed extra taxation creates a triple tax burden for credit institutions, combining a 10% corporate income tax, an additional 5% global tax for large groups, and the new 33% levy. Financial institutions currently are main buyers of Bulgarian sovereign debt. Restrictions on bank capital could indirectly reduce their capacity to buy future government bond issues.
Martin Lekov reported for BTA that the association criticized the government’s reference period of 2020–2025. This timeframe includes the pandemic years of 2020 and 2021, which saw severe economic contractions. The association argues that treating post-pandemic recovery as an extraordinary profit ignores the losses absorbed during the crisis.
Bulgarian National Bank Warns of Higher Lending Costs
Dimitar Radev, Governor of the Bulgarian National Bank, cautioned that taxing bank profits will increase costs for credit, investments, and economic growth. Deputy Finance Minister Lyudmila Petkova defended the proposal on bTV, stating that banks experienced a 588% profit increase between 2020 and 2025 and that earnings were largely distributed as dividends rather than reinvested in the economy.
At the same time, corporate lending in Bulgaria reached 29.256 billion euros by August 2026, marking a 13.7% annual increase, according to an economic analysis. Average interest rates for new corporate loans under 1 million euros stood at 4.31%, while loans over 1 million euros averaged 4.36%. The analysis noted that the economic burden of the tax might affect corporate credit standards and loan pricing.
Diverging Views on Windfall Taxation in Bulgaria
Economist Georgi Kadiev expressed support for the windfall tax, telling BNR that similar measures were successfully implemented in Poland, Italy, and Greece. Kadiev argued that the banking sector’s massive profit growth between 2021 and 2024 justified the intervention. Conversely, the Association of Banks in Bulgaria maintains that the recent profit growth reflects a normal trend following asset expansion rather than an unexpected windfall.
- Corporate Lending Volume: Loans to non-financial enterprises reached 29.256 billion euros by August 2026.
- Recent Borrowing: The cabinet secured 2.25 billion euros in new debt at yields between 4.2% and 5.3%.
Frequently Asked Questions About the Proposed Bank Tax
How will the windfall tax affect retail borrowers in Bulgaria?
Financial institutions have warned that additional taxation could lead to tighter credit standards and higher costs for loans. Independent analysts point out that banks may pass part of the financial burden onto consumers and businesses through adjusted interest rates.
What legal concerns have been raised regarding the tax proposal?
The Association of Banks in Bulgaria stated that the selective nature of the 33% tax violates the principle of equal treatment under Article 19, paragraph 2 of the Constitution of the Republic of Bulgaria. They also argue that the measure lacks the emergency market justification required by European Union legal standards.
How does Bulgaria’s proposal compare to measures in other European countries?
While countries like Poland, Greece, and Italy introduced temporary bank levies, European Central Bank guidelines consistently require that such taxes neither restrict lending nor weaken the capital positions of financial institutions.
Budget debates for 2027 continue as the National Assembly evaluates debt limits and fiscal deficit targets.
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