Bulgarian commercial banks First Investment Bank (Fibank) and Investbank are expected to build up additional capital buffers, of BGN205.7mn (€105.2mn) and BGN33.3mn respectively, according to the detailed results of an asset quality review (AQR) and a stress test (ST) of the banking system published on August 13. The comprehensive assessments of both lenders were prepared by international audit and consulting group Mazars.
The banking system’s AQR and ST were launched on February 15 and were led by international professional services company Deloitte. They 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.
Fibank is Bulgaria’s third largest commercial bank. It suffered a deposit run in the summer of 2014, but was rescued by the state. The lender is implementing a restructuring plan approved by the European Commission. On May 16, Fitch Ratings has affirmed Fibank’s long-term Issuer Default Rating (IDR) at B- with a stable outlook.
Fibank said that the comprehensive assessment has shown that it has sufficient capital to meet the requirements of the ST’s basic scenario, which most closely approximates the economic forecasts of the central bank (BNB) and the finance ministry. The lender has already “taken concrete steps, approved by the BNB, with a view to increasing its capital buffers under the hypothetical Adverse Scenario”.
One of the measures is retention of profit. Fibank noted that its profit before provisions and taxation for the first six months of 2016 amounts to BGN146.6mn. The lender will also continue to diversify and de-risk its portfolio, intensify the process of sale of its non-core, fixed (foreclosed) assets, and raise additional external capital by April 2017.
Investbank is Bulgaria’s 12th largest lender. The planned action and measures by the bank include support from shareholders through increasing the share capital by BGN20mn in April 2017. There will be no distribution of dividends.
The lender noted that exposures repaid by June 30 resulted in a BGN39mn reduction of AQR adjustments. The additionally accrued balance sheet provisions amount to BGN13.7mn in January-July.
Another measure is reduction of risk exposures and implementation of the credit portfolio recovery plan. Investbank also plans to further cut administrative costs, sell foreclosed assets, continue to maintain high liquidity levels and develop an internal model for collective provisions.
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