The condition of the banks which perform the financial intermediation function is of key importance for the whole economy. This accounts for the Bulgarian National Bank’s enormous responsibility for the fulfilment of the mandate entrusted to us by law and specifically for maintaining the stability of the banking system. This requires that we stay traditionally focused on the high capital and liquidity requirements for banks. These requirements are not ends in themselves, but follow from the need for banks to have reserves at hand. On the one hand, the reserves allow them to absorb costs and losses arising from the worsened quality of assets in the adverse macroeconomic environment. On the other hand, they support banks’ lending capacity. Consequently, it is logical to expect that we would continue to apply the measures of the anticrisis package, approved in March this year. Furthermore, we analyse, on an ongoing basis, the situation, and as a macroprudential supervisory authority we consider the likely scenario of a worsening economic crisis and the related significant deterioration in loan portfolios. Under this scenario, banks may need to temporarily operate under the combined capital buffers requirement, being ready to draw up and implement plans for rebuilding them. The prospect of continuing negative developments in the economy is a reason for us to expect materialization of credit risk and deteriorated quality of assets on banks’ balance sheets. It seems very likely that the trend of decreasing amount and share of non-performing exposures, seen over the last few years, may reverse.
Dimitar Radev: The Bulgarian banking sector in 2020 – how have we coped and what is forthcoming Publication by Mr Dimitar Radev, Governor of the Bulgarian National Bank, in the Bulletin of the Association of Banks in Bulgaria, issue 64, December 2020. * * * Dear Colleagues, We are approaching the Banker’s Day in a year of unprecedented challenges: first, in relation to the consequences of the COVID-19 pandemic; andsecond, with the completion of the strategic project of the entry of the Bulgarian Lev into the European Exchange Rate Mechanism (ERM II), simultaneously with the accession of our country to the European Banking Union, including to the Single Supervisory Mechanism and the Single Resolution Mechanism. From the banking sector’s perspective, there are two key questions: how we have coped to date, and what is forthcoming? Our goal, defined as early as the start of the crisis, was for the banking sector to generate solutions, rather than problems. As a result of our effort in the recent years, we were well positioned for the attainment of this goal. The banking sector ‘entered’ into the crisis with a Common Equity Tier 1 capital adequacy of over 19%, and with a liquidity coverage ratio of over 260%, i.e. times above the regulatory requirements. Regardless of the good starting position, we were aware that, because of the abrupt deterioration of the environment in which banks operated, there should be new measures for further strengthening of their capital and liquidity positions.