All Bulgarian lenders met minimum regulatory requirements on capital adequacy ratios in the first sector-wide asset quality review concluded earlier this month, Bulgarian National Bank (BNB) governor Dimitar Radev has said.
The full result of the stress tests, including for individual lenders, are set to be announced on August 13, but the main conclusion of the asset quality review was that the country’s banking system was stable and none of the lenders would require financial support from the government, Radev said.
As a whole, the ratio of bank common equity tier one capital to its risk-weighted assets, known as CET1, was “significantly above the required minimum regulatory requirements”, BNB said in a statement. “The CET1 ratio adjusted for the results of the asset quality review is 18.9% on system-wide level compared to the minimum regulatory requirement of 4.5 per cent,” BNB said.
If the current macroeconomic forecasts come to pass, the CET1 ratio would increase to 22.2 per cent and in case of the unlikely scenario of a severe economic crisis, the CET1 ratio would fall to 14.4 per cent. For European banks, the results are significantly lower at 13.9 per cent and 9.4 per cent, respectively, BNB said.
The capital adequacy of each Bulgarian bank after potential adjustments from the asset quality review remains above the minimum regulatory requirements, the central bank said. 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 decreasing risk-weighted assets for others.
These plans and the timeline for their implementation will be announced as part of the asset quality review results on August 13.
The asset quality review was mandated by law and were part of the Government’s national reform programme, passed last year. Bulgaria had to shore up its banking rules following the insolvency of Bulgaria’s Corporate Commercial Bank in 2014, when the country’s fourth-largest lender by assets asked to be put under BNB’s special supervision following a bank run.
An audit later found that the bank held mainly impaired assets, requiring a write-down of 4.22 billion leva (about 2.16 billion euro), which led to CCB losing its banking licence in November 2014. A review by Bulgaria’s National Audit Office, published in November 2015, found extensive bad practices in BNB’s bank supervision.
(Dimitar Radev, speaking in Parliament after being appointed BNB governor, in July 2015. Screenshot from Bulgarian Parliament live streaming feed. For full coverage of the CCB collapse from The Sofia Globe, click here.)