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Business and Economics > Banks and Banking

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Cover IMF Staff Country Reports
Bulgaria: 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria
International Monetary Fund. European Dept.
The economy contracted sharply amid two waves of COVID-19 infections, with the government providing sizable policy support. The outlook is very uncertain and the main challenge facing policymakers is to keep adjusting to changing circumstances. Over the medium term, structural reforms are needed that support inclusive income convergence toward advanced EU partners against demographic headwinds.
Keywords:
ISCR; CR; policy priority; authorities' policy response; Bulgarian authorities; ERM II membership; government's policy
Cover IMF Staff Country Reports
Bulgaria: Technical Assistance Report-Bank Supervision
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.
Keywords:
ISCR; CR; SREP process; draft SREP manual; SREP outcome; BNB regulation; SREP assessment; SREP cycle; capital requirement; SREP approach; SREP manual; SREP element; Credit risk; Stress testing; Nonperforming loans; Internal controls; External balance assessment (EBA); Global
Cover IMF Staff Country Reports
Bulgaria: Financial Sector Assessment Program: Technical Note-Risk Assessment and Stress Test of the Banking System
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note discusses results of risk assessment and stress tests (ST) of the banking system in Bulgaria. ST results reveal that the Bulgarian banking system is vulnerable to the extreme realization of internal and external risks coupled with the need to clean the balance sheets from nonperforming loans (NPLs). In the baseline scenario, characterized by a modest economic growth and decline in unemployment, as well as stable and low interest rates, two banks—including a systemic one—exhibit weakness in terms of capital buffers to cope with accumulated losses in the past. These banks also experience substantial increase in their NPLs as a result of the asset quality review adjustment.
Keywords:
ISCR; CR; bank; capital; loan; AQR finding; funding shock; cash flow; domestics bank; interest rate; bank capital; quality data; banks experiences shortfall; ing bank N.V.; performing loan portfolio; Stress testing; Nonperforming loans; Commercial banks; Loans; Liquidity requirements; Europe; Global
Cover IMF Staff Country Reports
Bulgaria: Financial Sector Assessment Program: Technical Note - Financial Safety Net and Crisis Management
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note evaluates the financial safety net and crisis management for Bulgaria. Since the 2008 IMF Financial Sector Assessment Program Update, Bulgaria’s financial safety net and crisis management arrangements, including bank resolution and contingency planning, have improved. In 2015, to implement pertinent European Union rules, Bulgaria introduced a resolution regime for banks and investment firms; designated resolution authorities for said financial institutions; and established mechanisms to fund resolution measures. Despite the improvements, the financial safety net and crisis management arrangements face crucial challenges because none of their components is fully developed. To ensure operational capacity to rapidly deploy recovery and resolution tools, further actions are needed to strengthen the safety net and crisis management arrangements.
Keywords:
ISCR; CR; liquidity support; resolution authorities; bank resolution regime; resolution tool; bridge bank tool; last-resort government stabilization tool; resolution authority; bank bankruptcy regime; uniform bank resolution regime; financial support; Bank resolution framework; Bank resolution; Contingency planning; Bridge bank; Crisis management framework; Global
Cover IMF Staff Country Reports
Bulgaria: Financial Sector Assessment Program: Technical Note - Non-Performing Loans Reduction Strategy
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note examines the current state of nonperforming loans (NPLs) in Bulgaria and makes recommendations for a strategy to substantially reduce NPLs. The Bulgarian National Bank should adopt a comprehensive strategy in the near term to achieve a substantive reduction in NPL levels over a three- to five-year time horizon. The strategy should focus on more intensive measures to enhance bank practices in three main areas: (1) loan loss provisioning; (2) loan write-downs of NPLs, in whole or in part, where collection is unlikely; and (3) collateral valuation. This effort would be supported further by enhanced supervisory guidance, supervisory reporting, and risk disclosure.
Keywords:
ISCR; CR; loss allowance; credit risk; balance sheet; retained earnings; write-off policy; interest income; accounting practice; Bulgarian bank; collateral valuation; NPL market; bank financing; bank management; bank capital; debt forgiveness; loan loss allowance; Nonperforming loans; Loans; Collateral; Loan loss provisions; International Financial Reporting Standards; Global
Cover IMF Staff Country Reports
Bulgaria: Financial Sector Assessment Program: Technical Note-Stocktaking of Progress Achieved by the Bulgarian National Bank in Strengthening Banking Supervision
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.
Keywords:
ISCR; CR; risk assessment; BNB's GC; advisory council; governance model; BNB plan; risk management; EU bank Recovery; risk tolerance; BSD understanding; policy awareness; B. bank Governance; BNB's supervision function; BNB supervisor; Bank supervision; Basel Core Principles; Asset quality review; Operational risk; Anti-money laundering and combating the financing of terrorism (AML/CFT)
Cover IMF Staff Country Reports
Bulgaria: Financial System Stability Assessment-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria
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.
Keywords:
ISCR; CR; bank; liquidity; bank capital buffer; impairment practice; banking system leverage ratio; emergency liquidity assistance facility; bank collapse; lender of last resort liquidity assistance; Nonperforming loans; Stress testing; Commercial banks; Bank resolution; Financial Sector Assessment Program; Global; Europe
Cover IMF Working Papers
Real Effects of Capital Inflows in Emerging Markets
Ms. Deniz O Igan
,
Ali M. Kutan
, and
Ali Mirzaei
We examine the association between capital inflows and industry growth in a sample of 22 emerging market economies from 1998 to 2010. We expect more external finance dependent industries in countries that host more capital inflows to grow disproportionately faster. This is indeed the case in the pre-crisis period of 1998–2007, and is driven by debt, rather than equity, inflows. We also observe a reduction in output volatility but this association is more pronounced for equity, rather than debt, inflows. These relationships, however, break down during the crisis, hinting at the importance of an undisrupted global financial system for emerging markets to harness the growth benefits of capital inflows. In line with this observation, we also document that the inflows-growth nexus is stronger in countries with well-functioning banks.
Keywords:
WP; capital flow; bank lending; commercial bank; portfolio investment; Capital flows; financial dependence; industry growth; emerging economies; equity inflow; debt inflow; equity capital; increase capital allocation efficiency; Capital inflows; Foreign direct investment; Credit; Commercial banks; Global
Cover IMF Staff Country Reports
Bulgaria: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria
International Monetary Fund. European Dept.
The Bulgarian economy has shown resilience since the last Article IV consultation. Growth over the last 4 quarters exceeded expectations. The authorities took concrete steps to correct the fiscal slippage in 2014 and efforts are underway to strengthen confidence in the health of the financial system. Looking ahead, risks to the outlook are broadly balanced. Downside risks stem mostly from weak external demand, possible regional tension, and reversal in domestic policy reforms.
Keywords:
ISCR; CR; government; buffer shortfall; policy; e-government development; Bulgarian authorities; productivity development; energy price decline; government debt position; Fiscal stance; Wages; Public investment and public-private partnerships (PPP); Global; Europe
Cover IMF Working Papers
Macroprudential Policies in Southeastern Europe
Dilyana Dimova
,
Ms. Piyabha Kongsamut
, and
Mr. Jerome Vandenbussche
This paper presents a detailed account of the rich set of macroprudential measures taken in four Southeastern European countries—Bulgaria, Croatia, Romania, and Serbia—during their synchronized boom and bust cycles in 2003–12, and assesses their effectiveness. We find that only strong measures helped contain domestic credit growth, the share of foreigncurrency- denominated loans provided by the domestic banking sector, or the domestic banking sector’s reliance on foreign borrowing during the boom years. We also find that circumvention via direct external borrowing often fully offset the effectiveness of these strict measures, and thatmeasures taken during the bust had no discernible impact. We conclude that (i) proper calibration of macroprudential measures is of the essence; (ii) only strong, broad-based macroprudential measures can contain credit booms; (iii) econometric studies of macroprudential policy effectiveness should focus on measures rather than on instruments (i.e. classes of measures) and in so doing allow for possible non-linear and state-contingent effects.
Keywords:
WP; credit growth; FC lending; liquidity ratio; central bank; FC-indexed loan; Macroprudential Policies; Financial Stability; Southeastern Europe; LCP measure; reserve requirement; Reserve requirements; Credit; Loans; Domestic credit; Currencies; Global