• Growth may remain below potential on global risks, Radev says
  • Bulgaria will consider euro-adoption timeline after 2016

Bulgaria’s banking industry faces further consolidation after an asset-quality review and stress tests planned for next year, central bank Governor Dimitar Radev said.

“Market consolidation will be one of the strategic directions in which our banking sector will develop,” Radev, a 59-year-old former International Monetary Fund economist who was elected to his post in July, said in an interview in Sofia on Tuesday. While “there’s interest” in the nation’s lenders, he said it would be “a bit early” to discuss specifics.

Strains on Bulgaria’s banking industry, which has strong links to the crisis-stricken economy of neighboring Greece, were highlighted by authorities being forced last year to rescue the nation’s third-largest lender First Investment Bank AD and to shutter Corporate Commercial Bank AD, the fourth largest. The crisis that included bank runs on the two domestically owned banks triggered early elections in 2014.

The industry is now generally stable, liquid and well-capitalized, Radev said. The collapse of Corporate Commercial revealed “certain weaknesses” and thrust stronger supervision to the “center of our reform efforts,” in line with the so-called Basel principles, he said.

‘Mitigated’ Risks

“The pre-emptive measures by the central bank in coordination with the government mitigated substantially the risks for our banking system from the economic crisis in Greece,” Radev said. About 20 percent of the nation’s banking system is Greek-held.

The five biggest lenders in the Balkan country hold about 60 percent of assets. They include UniCredit Bulbank AD, OTP Bank Nyrt. unit DSK Bank, First Investment, National Bank of Greece SA-owned United Bulgarian Bank and Raiffeisenbank Bulgaria.

Eurobank Bulgaria AD, a unit of Greece’s Eurobank Ergasias AS, is buying the Bulgarian operations of Alpha Bank AD in a transaction aligned with the restructuring plans of both Greek lenders, Alpha Bank said on Nov. 6.

Next year’s asset-quality review and stress tests “will confirm that our banking system overall is sound,” Radev said. That will allow the country to consider a specific timeline for adopting the euro, he said. Bulgaria has no plans to change the lev’s fixed euro exchange rate until the switch, he said.

The level of non-performing loans has stabilized this year at less than 11 billion lev ($6 billion) on a gross basis and with adequate coverage in provisions of over 50 percent, Radev said. The industry also has a capital surplus of about 7.1 billion lev as of September, he said.

Radev backed the government’s forecast for 2 percent economic growth this year and 2.1 percent in 2016, warning that “economic growth will remain below its potential” on global and regional instability linked to the Ukrainian conflict and the Syrian civil war.

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