The asset quality review indicates stability of the Bulgarian banking sector
The banks in Bulgaria show resilience and stability as indicated by the results of the asset quality review /AQR/ and stress tests conducted by the Bulgarian National Bank /BNB/. According to the central bank the banking system in the country is passing successfully the tests in simulated crises situation.
The results and analysis of the BNB indicate that the sector shows excellent results during the review, the level of the core capital – the Tier 1 capital, as a result of the AQR, changes insignificantly from 20% to 19%, remaining much higher than the requirements of 4,5%, as well as considerably higher than the average EU level. During the basic stress test scenario the banks’ capital even increases to more than 22% while the adverse scenario shows that the capital decreases to 14,4% which is again higher than the minimum regulatory requirements of 4,5%.
The Executive Board of the Association of Banks in Bulgaria states that the results of the AQR and stress tests guarantee the remaining stability and confidence in the banking system. They show that the banks in Bulgaria are prepared to respond to local and global challenges caused by changes in the economic environment. The results of the review allow the banks to continue working and developing in normal conditions while supporting national economy growth and meeting adequately the financial services needs of their clients. The ABB’s Executive Board expressed their gratitude to the numerous bank employees and managers who participated actively during almost a year in the AQR and stress test process and contributed to its successful conclusion.
The asset quality review for the banks in Bulgaria was a part of the simulated crises situation for the sector which was held between 15th of February and 29th of July 2016. For its successful realization the BNB published guidelines on the organization and management of the asset quality review and on the application of the ECB methodology for the asset quality review. That review is done for the first time in Bulgaria as it aims at higher transparency in bank’s operations and increasing the confidence in the banking sector. The scope of the assessment was larger in comparison with the one used in the European and in the international practice as it was held for all the banks in the country covering about 75% of their loans.
After the asset quality review the BNB conducted the stress tests which aim to show the ability of the banks to react in conditions of a simulated crisis. Thus, the aim is to guarantee that the banks in Bulgaria are prepared enough to respond adequately and efficiently to the challenges which the sector could confront in cases of continuous distress in the economy.
The main principle in the asset quality review was the maximum keeping to the ECB approach for the asset quality review performed by the banks on the European level in 2014. During the stress test the BNB kept to the main assumptions laid in the methodology of the European Banking Authority developed for the stress tests of the biggest European banks in 2016. The European Banking Authority and the European Commission were informed on the progress of the asset quality review and the stress tests on a regular basis.
The banking community in Bulgaria expects hereafter the supervisory activities to be performed under the strict keeping of the legal requirements, incl. the European ones by encouraging the development and keeping of the good banking practices as well as the prudent behavior of the credit institutions in the country.