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13 August 2016

The Bulgarian National Bank (BNB) published today the report with individual bank data on the results from the Asset Quality Review (AQR) and Stress Test (ST) of the Bulgarian banking system, provided by the independent consultants and summarised by the international professional services company Deloitte.

Key findings

The banking system remains well capitalized, after reflecting the results of the AQR, with a CET1 capital ratio of 18.9%, well above the 4.5% regulatory minimum. Furthermore, the individual bank results indicate that the capital adequacy of all banks remains above the required regulatory minimum.

The results from the ST confirm the strong capital position and resilience to potential shocks of the banking system. The individual bank results vary and are not intended to be compared against pre-set numerical thresholds.

Some banks shall be required to maintain the existing capital buffers while others shall aim to restore the coverage of their capital buffers, taking into account the AQR adjustments. Whereas the ST results are based on hypothetical scenarios and as such they do not imply direct capital adjustments, these results will feed into the supervisory review and evaluation process and the banks’ capital planning.

The process

The BNB conducted an AQR and ST of the Bulgarian banking system on the basis of § 9 of the Transitional and Final Provisions of the 2015 Law on the Recovery and Resolution of Credit Institutions and Investment Firms, and in compliance with Art. 80b of the Law on Credit Institutions .

The BNB carried out the AQR and ST in collaboration with an independent external consultant, selected under a public procurement tender procedure, and independent consultants and appraisers employed by the banks after a uniform selection procedure approved by the BNB. Overall, more than 900 experts across the BNB and the external independent parties were involved in the AQR and ST.

The European Commission and the European Banking Authority (EBA) were regularly informed and asked for opinion at all stages of the process.


The AQR and ST covered all 22 banks licensed by the BNB excluding the 6 foreign bank branches operating in Bulgaria. The AQR consisted of 9 work blocks and was conducted between 15 February and 30 June 2016. Total assets of BGN 84.2 billion as at 31 December 2015, or 96% of the banking system were subject to asset quality review. Over 3,400 individual credit files were reviewed, equivalent to BGN 21.6 billion or 75% of the banks’ corporate and large SME loan books.

The ST was conducted in July 2016 with a purpose to assess the resilience of the banks in Bulgaria to absorb shocks from hypothetical negative financial and macroeconomic developments.

Outcomes and follow-up

The AQR resulted in aggregate adjustments of BGN 665 million, or 1.3% of risk-weighted assets, to be reflected in the banks’ 2016 financial statements. The assessment of the accounting impact of these adjustments shall take into consideration the net income and impairments in the banks realised until 30 June 2016, as well as all capital-related developments and measures throughout the year, to the extent such adjustments are compliant with IFRS accounting principles and following an audit review.

The AQR-adjusted CET1 capital ratio for the banking system is 18.9% as at 31 December 2015. Although results vary across individual banks, after the AQR, the capital adequacy of all banks remains above the required regulatory minimum. Therefore, the expected capital adjustments across the individual banks impact only the capital buffers above the regulatory capital adequacy minimum. The corresponding follow-up measures are defined in terms of either maintaining the existing buffers or restoring their coverage.

The ST results, being based on hypothetical scenarios, do not have a direct quantitative impact on the banks’ capital adequacy. However, these results will feed into the supervisory review and evaluation process and the banks’ capital planning. Furthermore, the sensitivities of the balance sheets to shocks may be a reason to re-evaluate the banks’ business models which, in turn, will also be incorporated into the supervisory review and evaluation process.

In line with the approach in the latest EU-wide stress test conducted by the EBA, the ST on the Bulgarian banking system does not contain a pass/fail threshold.

The ST was based on the AQR-adjusted capital and risk-weighted assets. It applied two macroeconomic scenarios over a 3-year horizon until 2018: (1) a baseline scenario corresponding to the BNB forecast of March 2016, and (2) an adverse scenario which represents a simulation of plausible but low-probability hypothetical developments.

The adverse scenario is more conservative than the one of the EBA applied for Bulgaria in the recent EU-wide stress test.

Under the baseline scenario, considered as reflecting the most probable macroeconomic and financial developments, the banking system’s CET1 capital ratio improves to 22.2% by the end of the forecast horizon.

Under the simulations of the adverse scenario, the banking system’s CET1 capital ratio declines to 14.4% by the end of 2018.

Under both scenarios, banks’ capital positions remain strong and indicate resilience to absorb the tested shocks, although results vary across individual banks.

The following table provides a summary of the capital buffers, net AQR adjustments and capital build-up expected by 30 June 2017 across the individual banks. The banks that are expected to build up additional capital buffers have already submitted their detailed plans to the BNB Banking Supervision Department.

The full text of the report is available here.

The individual bank data are available here.