Bulgaria’s locally-owned Investbank plans to convert debt into shares and launch an IPO on the bourse in Sofia in order to increase its capital and meet the requirements of the European Central Bank (ECB), news outlet Capital.bg reported on December 13.

The latest asset quality review (AQR) and stress test of the banks in Bulgaria, carried out by the ECB, found capital shortfalls at two out of six Bulgarian banks – First Investment Bank (FIBank) and Investbank. The same two banks failed the previous AQR and stress test and were required to build up additional capital buffers.

Investbank will convert €20mn subordinated term debt into capital, which would cover around 40% of its shortfall, Capital.bg reported. It plans to secure the remaining capital via a bourse listing.

In October, Elke König, head of the European Banking Restructuring Council, said that Bulgaria could join the Exchange Rate Mechanism (ERM II) in the first or second quarter of 2020.

The country has already applied for membership in ERM2 and the European banking union, and meets the nominal criteria to adopt the European common currency, with its currency, the Bulgarian lev, pegged to the euro, low inflation and healthy public finances. However, the EU has demanded that Bulgaria also check its banking system due to suspicions that some locally-owned banks are not stable enough.

In February, Bulgaria’s Prime Minister Boyko Borissov said he was certain the country will enter ERM2 in July 2019. However, the deadline set by the government passed without any signal from the EU on possible timeframe.