Bulgarian banking system is stable, stress test shows

Bulgarian banking system is stable, stress test shows
By bne IntelliNews August 12, 2016

The asset quality review (AQR) and stress test of the banks in Bulgaria have shown that the country’s banking system is stable and no public support will be needed, central bank governor Dimitar Radev said in a statement on August 11. The detailed results for the system as a whole, as well as for each individual bank will be announced at 1pm on August 13.

The exercise was launched on February 15 and was led by the international professional services company Deloitte. It covered the 22 domestically-registered commercial banks, but not the foreign bank branches operating in the country. The purpose was to enhance stability and strengthen confidence in the financial system after the banking crisis in the summer of 2014.

Radev said, “The main indicator of a bank’s financial resilience, the ratio of bank common equity tier one capital to its risk-weighted assets, or the CET 1 ratio, remains significantly above the required minimum regulatory requirements on a system level and is above the EU average as announced in the latest European stress test.” On a system-wide level, the CET1 ratio adjusted for the results of the asset quality review is 18.9%, which compares with a minimum regulatory requirement of 4.5%.

The stress test also showed that if the latest 2018 macroeconomic forecasts materialise, the CET1 ratio would increase to 22.2%, the governor said. In the unlikely case of a severe economic crisis, the CET1 ratio would decline to 14.4%. The two figures compare with 13.9% and 9.4% for European banks respectively. “Therefore, banks’ capital adequacy is strong and banks have the capacity to absorb shocks in unfavorable market conditions” Radev concluded.

Furthermore, the capital adequacy of each bank after potential adjustments from the asset quality review stays above the minimum regulatory requirements. As individual results vary across banks, follow-up plans have been developed in line with individual results. The plans comprise measures aimed at maintaining existing capital buffers for some banks or increasing capital buffers and decreasing risk-weighted assets for others.

The concrete follow-up measures and schedule for their implementation will be also announced at 1pm on August 13. The implementation of the measures will start on August 15.

The governor also emphasised that there is no need for any public support for the banks from the state budget. “The follow-up measures aimed at maintaining or strengthening the capital position of all banks are based entirely on available market solutions and funds from private sources,” Radev said.

In a related note, Finance Minister Vladislav Goranov said that the fiscal buffer the government has set aside will now be used to repay maturing debt, which will not be refinanced.

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