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International Monetary Fund. Monetary and Capital Markets Department

This Technical Assistance report on Bulgaria reviews the formalization and implementation of a comprehensive Supervisory and Review and Evaluation Process (SREP) that includes an explicit and detailed supervisory Pillar 2 capital requirement. The paper highlights that unsound banking practices or regulatory breaches cannot be compensated by complementary capital charges. Loan loss provisions and capital charges for loans created as a result of such practices cannot be created and judged on the basis of the common standards. Banking Supervision Department has developed a methodology for the combined risk assessment and subsequent definition of an additional capital requirement for credit risk. Individual outcomes of the top-down stress tests carried out by the Macroprudential Supervision and Financial Stability Directorate can make a valuable contribution to the SREP. It allows the assessment of the quality of internal control in the institution and its capacity to timely produce complete and reliable data. While capital positions globally are adequate, and soundness indicators have improved, partly as a result of the 2016 Asset Quality Review, nonperforming loans remain high in Bulgaria, with notable differences between the banks.

International Monetary Fund. Monetary and Capital Markets Department

This paper discusses key findings and recommendations of the Detailed Assessment of Observance on the Basel Core Principles for Effective Banking Supervision on Bulgaria. Within the Banking Supervision Department, the Special Supervision Directorate (SSD) has been assigned multiple activities that go beyond its primary objective of ensuring integrity in the banking sector. The Bulgarian National Bank is not empowered to require a bank to change its internal organization or structure. It is recommended to refocus the activity of the SSD on its core mandate of financial integrity. This recommendation can be achieved by assigning nonsupervisory activities to other Directorates, preferably outside the Banking Supervision Department.

International Monetary Fund

This paper discusses Bulgaria’s prospects for converging to the living standards of the more advanced members of the European Union (EU). The unfavorable economic environment of the early 1990s and the economic crisis in 1996–97 hurt Bulgaria’s output, employment, and investment. Following the crisis, structural reforms and a sound macroeconomic framework set the stage for a sustained recovery. The structure of the Bulgaria economy has shifted markedly over the last decade, and investment has become the main engine of growth.

International Monetary Fund. Monetary and Capital Markets Department

On May 22, 2017, the Executive Board of the International Monetary Fund (IMF) discussed the Financial System Stability Assessment of Bulgaria.1

International Monetary Fund
The Research Summaries in the March 2014 Research Bulletin focus on efficiency of health expenditure (Francesco Grigoli and Javier Kapsoli) and employment growth in European Union countries (Bas B. Bakker and Li Zeng). The Q&A article looks at “Seven Questions on Financial Interconnectedness” (Co-Pierre Georg and Camelia Minoiu). The Research Bulletin also includes a listing of IMF Working Papers, Staff Discussion Notes, and Recommended Readings from the IMF Bookstore. Information on the IMF Economic Review—the research journal of the IMF—is also provided.
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note evaluates the progress achieved by the Bulgarian National Bank (BNB) in strengthening banking supervision in Bulgaria. Progress in responding to the recommendation of the 2015 Basel Core Principles Assessment is under way. As part of the reforms initiated in October 2015, the BNB has put in place a new governance model to enhance the effectiveness of supervision. The activities of the Banking Supervision Department (BSD) will now be governed by new formal policies adopted by the Governing Council (GC). Through a new quarterly report, the GC is now better informed on banking risks and progress in addressing them. The BSD is also subject to annual internal audit.
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses key findings and recommendations of the Detailed Assessment of Observance on the Basel Core Principles for Effective Banking Supervision on Bulgaria. Within the Banking Supervision Department, the Special Supervision Directorate (SSD) has been assigned multiple activities that go beyond its primary objective of ensuring integrity in the banking sector. The Bulgarian National Bank is not empowered to require a bank to change its internal organization or structure. It is recommended to refocus the activity of the SSD on its core mandate of financial integrity. This recommendation can be achieved by assigning nonsupervisory activities to other Directorates, preferably outside the Banking Supervision Department.
International Monetary Fund. Monetary and Capital Markets Department
This paper assesses the stability of the financial system in Bulgaria. Progress has been made in Bulgaria to strengthen supervision since the 2015 Basel Core Principles assessment, but more work and resources are needed. A more targeted strategy is needed to address high nonperforming loans (NPLs), which in Bulgaria’s banks stood at 13.7 percent of total loans as of June 2016—against the European Union–weighted average of 5.5 percent. Certain accounting, collateral valuation, and risk management practices have discouraged NPL reduction. Banks will also need to build provisions in preparation for the implementation of the forthcoming expected credit loss provisioning standards beginning in 2018.
International Monetary Fund. Monetary and Capital Markets Department
This Technical Assistance report on Bulgaria reviews the formalization and implementation of a comprehensive Supervisory and Review and Evaluation Process (SREP) that includes an explicit and detailed supervisory Pillar 2 capital requirement. The paper highlights that unsound banking practices or regulatory breaches cannot be compensated by complementary capital charges. Loan loss provisions and capital charges for loans created as a result of such practices cannot be created and judged on the basis of the common standards. Banking Supervision Department has developed a methodology for the combined risk assessment and subsequent definition of an additional capital requirement for credit risk. Individual outcomes of the top-down stress tests carried out by the Macroprudential Supervision and Financial Stability Directorate can make a valuable contribution to the SREP. It allows the assessment of the quality of internal control in the institution and its capacity to timely produce complete and reliable data. While capital positions globally are adequate, and soundness indicators have improved, partly as a result of the 2016 Asset Quality Review, nonperforming loans remain high in Bulgaria, with notable differences between the banks.
International Monetary Fund
This paper discusses Bulgaria’s prospects for converging to the living standards of the more advanced members of the European Union (EU). The unfavorable economic environment of the early 1990s and the economic crisis in 1996–97 hurt Bulgaria’s output, employment, and investment. Following the crisis, structural reforms and a sound macroeconomic framework set the stage for a sustained recovery. The structure of the Bulgaria economy has shifted markedly over the last decade, and investment has become the main engine of growth.