SOFIA: Bulgaria's banking system is stable and does not need state funding to support it, results from the Balkan country's first asset quality review and stress test show, the central bank and the finance minister said on Thursday.
Bulgaria tested its 22 commercial banks following the collapse of its fourth largest lender, Corporate Commercial Bank, in 2014, which triggered the country's biggest financial crisis since the 1990s. The results for individual lenders will be presented on Saturday.
The central bank said follow-up plans that included measures to maintain or increase capital buffers, or decreasing risk-weighted assets for some lenders have been developed. "The Bulgarian banking system is stable," Central Bank Governor Dimitar Radev said in a statement.
"The main indicator of a bank's financial resilience, the ratio of bank common equity tier one capital to its risk-weighted assets, or the CET 1 ratio, remains 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," he said. The banks entered the health checks with a CET 1 capital ratio of 19.98 percent. This has been adjusted to 18.9 percent following the assets quality review on system-wide level.
That capital ratio rises to 22.2 percent under a baseline three-year macroeconomic scenario and drops to 14.4 percent under the adverse three-year theoretical economic shock, the central bank said. "For the European banks, the results are significantly lower - 13.9 percent and 9.4 percent respectively.
Therefore, banks' capital adequacy is strong and banks have the capacity to absorb shocks in unfavourable market conditions," he said. Finance Minister Vladislav Goranov welcome the results and said he would now use the capital buffers that were set aside for possible bank support to repay maturing debt.
Goranov said the exercise was a serious step to strengthen banking system supervision, which has come under pressure after an audit at now bankrupt Corporate Commercial Bank showed major failings in the way it was run that prompted a writedown of two-thirds of its assets.
Corpbank's demise forced the Bulgarian government to pay out 3.6 billion levs to guaranteed depositors and spiked the country's fiscal deficit to 5.8 percent of GDP in 2014.
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