site.btaIMF: Bulgaria's Financial System has Stabilized but Risks Remain for Some Banks and for System

IMF: Bulgaria's Financial System has Stabilized but Risks Remain for Some Banks and for System

Washington, D.C., May 24 (BTA) - The IMF made public May 23 its 2017 Financial System Stability Assessment (FSSA) for Bulgaria saying that Bulgaria's financial system is now stable following the 2014 collapse of the then fourth-largest commercial banks, but risks remain for some banks as well as for the entire system. The report is based on the work of Financial Sector Assessment Program (FSAP) missions that visited Bulgaria in October 2016 and January 2017, and was approved by the IMF Executive Board on May 22

The report recalls that Bulgaria's financial stability was shaken in 2014 by the collapse of Corporate Commercial Bank due to fraud and insider abuse. "The failure raised questions about the viability of other banks, which subsequently experienced deposit outflows, and raised concerns about the supervision by the Bulgarian National Bank (BNB). To restore credibility, the authorities - in addition to requesting this Financial Sector Assessment - conducted an asset quality review (AQR) for banks and nonbanks, and initiated reforms to BNB supervision and introduced a new bank resolution function. Following the 2014 bank collapse, the financial system stabilized, reflecting the significant capital and liquidity buffers and the presence of large foreign-owned institutions. Nevertheless, risks remain, including for some banks that showed weakness in the authorities' AQR and stress test, and for the system because of high nonperforming loans (NPLs)," the IMF says in a summary of the report.

It also says that progress has been made to strengthen banking supervision but more work and resources are needed.

The financial safety net and crisis management arrangements are now based on sound foundations but they face important challenges: the financial safety net components still are underdeveloped; resolution planning for larger domestically owned banks is incomplete and an emergency liquidity assistance facility would not be available if needed, the report says.

The IMF Directors noted the progress in enhancing anti-money laundering (AML) supervision of the banking sector and encouraged the authorities to build on these efforts and implement a risk-based approach to AML supervision.

The report further points out that the currency board arrangement has contributed to stability even though it constrains the BNB's ability to provide lender-of-last-resort liquidity in times of financial stress.