PRESS RELEASE
29 September 2022
The BNB Governing Council increased the countercyclical capital buffer rate applicable to credit risk exposures in the Republic of Bulgaria at 2.0% in effect from 1 October 2023, under an assessment of the countercyclical capital buffer rate in pursuance with Article 5, paragraphs 3 and 4 of BNB Ordinance No. 8 on Capital Buffers, the Combined Buffer Requirement, Restrictions on Distributions and the Guidance on Additional Own Funds.
Pursuant to Article 5, paragraph 3 of the BNB Ordinance No.8, setting of the countercyclical buffer rate shall take into account the reference indicator, calculated in accordance with paragraph 1, the European Systemic Risk Board (ESRB) guidelines as well as other variables that BNB considers relevant for addressing the cyclical systemic risk. With regard to data related to the reference indicator for the countercyclical buffer, the credit-to-GDP ratio calculated according to the methodology published on the BNB website stood at 89.1% at the end of 2022 Q2. Its deviation from the long-term trend is negative (-32.0 pp), which corresponds to zero value of the reference indicator.
As the standardised measure for the deviation of the credit-to-GDP ratio from its long-term trend does not adequately reflect the intensity of cyclical risks, assessments with regard to the countercyclical buffer rate take into account additional indicators which are focused on developments in the credit market, indebtedness, real estate market as well as the general economic outlook.
Against the background of the current strongly negative levels of real interest rates and the intense loan supply, lending activities have remained elevated across all segments of the credit market. Prolonged periods of high credit growth may give rise to higher level of indebtedness, which could reduce borrowers’ debt servicing capacity and lead to an increase of non-performing loans and impairments in the event of economic downturn and significantly rising loan interest rates. Soaring energy prices, potential supply-chain disruptions, indirect effects of economic activity slowdown in main trading partners and weakening economic sentiments may impair debt servicing capacity of borrowers. Moreover, the ongoing global process of rapid rise in interest rates entails higher debt service payments by borrowers.
In 2021, the BNB Governing Council increased the countercyclical capital buffer rate applicable to domestic credit risk exposures to 1.0% in effect from 1 October 2022 and to 1.5% from 1 January 2023. The persistently high credit growth rates and the elevated uncertainty in the economic outlook warrant an increase of the countercyclical capital buffer rate to 2.0% in effect from 1 October 2023, which is aimed at strengthening the resilience of the banking system to pressure on profitability and capital position caused by potential rise in non-performing loans and impairments. In accordance with Article 5, paragraph 5 of BNB Ordinance No. 8, the decision on the increase of the countercyclical buffer rate is announced 12 months before coming into effect.
The BNB continues to monitor the developments in the economic environment and their impact on the EU financial system, taking into account the possibility of aggravation and cumulation of risks for the financial intermediation (Warning of the European Systemic Risk Board of 22 September 2022 on vulnerabilities in the Union financial system - ESRB/2022/7). Going forward, the macroprudential response of BNB to those developments could include a recourse to any of the instruments within its macroprudential mandate, including restrictions on the distribution of banks’ profits.
Further information about the methodology used and previous decisions is available on the BNB website under the section Capital Buffers.
