Stress Tests Show Bulgarian Banks Stable After 2014 Crisis

  • Bulgarian lenders Tier 1 ratio ‘above EU average’ at 18.9%
  • No banks will need state financial support, Governor says

Bulgaria’s banking system is stable and no lenders will require state financial support, according to the results of an asset quality review and stress tests conducted to boost confidence in the financial industry after a crisis in 2014.

Bulgarian banks’ common equity Tier 1 ratio is 18.9 percent, which is “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,” Governor Dimitar Radev said in a statement published on the central bank’s website on Thursday. The ratio may rise to 22.2% by 2018 according to an optimistic forecast, or decline to 14.4% in an adverse scenario involving a severe economic crisis, he said.

Bulgaria’s 27 banks came under pressure two years ago, when runs on the two domestically owned banks triggered early elections. Authorities were forced to close Corporate Commercial Bank AD, the fourth largest lender, and rescue First Investment Bank AD, the third largest. Bulgaria conducted the quality review and stress tests to improve confidence in its banking system before applying to join the pre-euro exchange rate mechanism.

Follow-up plans have been developed in line with individual results and include measures aimed at maintaining existing capital buffers for some banks, or increasing capital buffers and reducing risk-weighted assets for others, Radev said. The measures and timeline for their implementation will be announced on Aug. 13.

Buffer, Debt

“The results do not necessitate any public support to the banks with state budget funds,” Radev said. “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.”’

The government’s fiscal buffer that may have been used to support some of the banks after the stress tests will be used to refinance the country’s debt and there will be no need of new borrowing, the Finance Ministry said in an e-mailed statement.

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