November 5, 2018 / 3:19 PM / in 10 days

UPDATE 1-Bulgaria raises risk buffers for 10 banks

(Adds detail, background)

SOFIA, Nov 5 (Reuters) - Bulgaria’s central bank said on Monday that 10 banks it regards as systemically important to the Black Sea state would have to adopt extra capital buffers as Sofia seeks to join the euro.

The central bank is increasing existing buffers for these banks by 0.25 percentage points as of Jan. 1, 2019 in a move that bankers and analysts said would not require them to raise additional capital.

Bulgarian banks, 70 percent of which are owned by European Union lenders are already well capitalised. Their average core tier one capital ratio was 19.3 percent in June, above the total capital requirements of 10 percent, central bank data showed.

The European Central Bank (ECB) has resisted granting Bulgaria a fast track to euro membership, saying its banks require tougher supervision before it can join the European Union’s single currency bloc.

In a compromise move, Sofia agreed to join the banking union first, giving the ECB supervision over its biggest lenders and adding about a year to the accession process.

Under the plan, the ten banks require additional buffers of between 0.25 percent and 0.75 percent of total risk exposure, the country’s central bank said.

In December the central bank set buffers of between 0.125 percent and 0.5 percent of total risk exposure for 11 lenders as of the beginning of this year.

Four of the country’s largest lenders, UniCredit Bulbank , DSK Bank, controlled by Hungary’s OTP, locally-owned First Investment Bank and the unit of KBC will now have to adopt additional buffers of 0.75 percent, it said on Monday.

Another four will need to have additional capital buffers of 0.5 percent as of next year, while two banks will have to add capital buffers of 0.25 percent.

The buffers for systemically important institutions will have to be gradually increased to 0.5 percent and 1.0 percent by 2020, the central bank added.

Sofia has made a number of commitments, including cooperating with the ECB, so that next July it can join both the banking union and ERM-2, the two-year obligatory precursor mechanism to joining the euro.

The ECB is expected to carry out an asset quality review and stress tests on the Balkan country’s banks before it gives its nod for entry. This process may take a year, but possibly longer, depending on Bulgaria’s progress. (Reporting by Angel Krasimirov; additional reporting by Balazs Koranyi and Tsvetelia Tsolova; editing by Alexander Smith)

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