Speech by the BNB Governor, Mr. Dimitar Radev at the
forum of the Association of Banks in Bulgaria on the
occasion of the 30th anniversary of its foundation, 13 June
2022
Dear Ms Chairperson,
Dear Mr Deputy Prime Minister,
Dear Members of Parliament,
Dear colleagues and guests,
Thank you for the invitation. Please accept most sincere congratulations by the BNB
Governing Council on the 30th anniversary of the Association of Banks in Bulgaria. I would
also like to take this opportunity to thank you for your many years of support and partnership.
They were demonstrated not only in our operational work, but also in solving strategic tasks
for the sector and the country's economy.
The ABB was founded at the beginning of a period of dramatic political, economic and
social change in the country. Since then, the banks in Bulgaria and the sector as a whole have
gone through various phases and periods, some of which particularly turbulent. Unlike in the
beginning, the sector and the Association are now much more consolidated. People like me,
contemporaries of the events of 1992, remember that there were over 70 banks in Bulgaria at
the time, 47 of which became founders of the association. Today, there are 24 ABB member
banks (full and associate), with a total of 25 banks and bank branches in Bulgaria.
We do not need to go so far back to assess the huge changes in the sector. It is enough to
take the period of the last 5 years. Most of us participated in the celebration of the 25th
anniversary of the Association. Then the focus was on the banking sector itself, mainly on the
implementation of measures from the unprecedented in scale and depth asset quality review
and stress test of Bulgarian banks, i.e. we were primarily concerned with ourselves. Five years
later, the main focus of the banking community is on how to most effectively help businesses
and households in coping with the economic challenges they face. In other words, what we set
as a goal a few years ago has already been achieved, namely: from a source of problems in the
past, now the banking sector is an important factor in solving them.
Another topic we discussed five years ago was the possibility of the BNB and the banking
sector to join the European Banking Union. At that time, many people in Bulgaria and abroad
saw this possibility as distant and difficult to achieve. Today Bulgaria is a member of the
European Banking Union and will soon celebrate a 2-year anniversary of this membership.
What does this mean in practice? This means that the BNB and our banking sector,
respectively, are the first public institution and the first economic sector in Bulgaria to be part
of the euro area. The BNB participates in making the most important decisions related to the
supervision and resolution of European banks, including Bulgarian ones. Moreover, our vote,
regardless of the size of our economy and banking sector, has the same weight as the vote of
any other central bank in the euro area. Furthermore, in the person of Mr. Radoslav Milenkov,
the Bulgarian National Bank has a representative in the Steering Committee of the
Supervisory Board of the ECB's Banking Supervision, which includes representatives of only
five national supervisory authorities. This is a position that is taken on a rotational basis, but
the fact that we receive it at the beginning of our membership is an extremely important sign.
These developments in recent years alone have led me to draw the following conclusion:
the BNB and our banking sector are very strong examples of institutional development in an
environment of still serious institutional deficits. The recipe for this is simple: the right
decisions in the right strategic context. The right actions in the banking sector have included
major reforms in the sector, including the central bank governance model and the banking
supervision, and the right context is the sector's accession to key euro area institutions such as
the Single Supervisory Mechanism and the Single Resolution Mechanism. The practical result
is the solid capacity, resources and expertise built to solve the challenges facing the sector and
the economy. They have been tested and convincingly demonstrated in recent years. The BNB
was one of the first central banks to initiate a large-scale anti-crisis package of more than 8%
of GDP at the outset of the Covid pandemic. We did it in March 2020, when it was still
debated if it wasn't just a common cold that would go away in the summer. The alternative
was to wait, monitor and analyse the situation for at least a few months before taking concrete
action. From today's perspective, we can say that such waiting could have impacted very
adversely banks, businesses and households alike. It was that anti-crisis package that allowed
the introduction of a moratorium on loan repayments, which at its peak exceeded BGN 9
billion. Here is the place to emphasise that this was a private moratorium, an initiative by our
commercial banks, as they better than anyone else understand that when their customers are
not well, they are not well either. The Association played a key role in that process, which,
among other things, is another testament to the excellent cooperation between the Association
and the BNB.
As with all our meetings, we prefer to look forward rather than backward. Unfortunately,
what we see ahead are new challenges. On the one hand, these are the political and economic
processes in the country. The intersections of their dynamics and development are basically
three: prices, prices, and prices again. The outcome of the budget process that is currently
underway will be indicative of the direction of these dynamics and development. From the
position of the BNB and in view of the goals for controlling inflation, it is very important that
the country does not assume significant additional permanent expenditures, which are not
backed by permanent revenues. There are two groups of risks associated with such an
approach: (i) the risk of an inflationary spiral and (ii) the need for painful fiscal adjustments in
the near future, whether in terms of revenue, i.e. by increasing taxes, or by cutting costs.
Along with external factors, this would lead to a significantly more complicated
macroeconomic environment for the Bulgarian banks.
In terms of the external factors and their further complication and deterioration because of
the war in Ukraine, most important will be the decisions of the big leading central banks,
primarily the ECB in our case. There are already clear statements about three things that will
happen during the third quarter of this year: (i) the ECB will effectively end net asset
purchases from the beginning of July; (ii) subsequently the ECB intends to raise its key
interest rates; and (iii) will do it again in September so that by the end of the quarter we will
move away from negative interest rates. Obviously, in the following months and at least a
year ahead we will be facing the challenge to find the very difficult balance between the
measures to control inflation and the measures to prevent recession.
How is our banking sector meeting the new challenges? Our starting position remains very
good. The capital adequacy, liquidity coverage and profitability ratios of the sector are above
the EU average levels. In spite of the complicated macroeconomic environment, bad loans
continue to decrease. Therefore, we are well prepared to deal with the new challenges. Our
good starting position must be supported by adequate actions. The evolution of
macroeconomic processes and the change in the interest rate cycle definitely require closer
attention to credit risk, especially in the housing loan segment. The increasing interest rates,
combined with the witnessed dynamics of the volume and price of debt, require careful
attention to the government bonds portfolio as well.
As regards the BNB, the answers will come primarily with the use of the macroprudential
tools that we have available. This will be done, as it has been done so far, in compliance with
the requirements for clear articulation and predictability. If there is no dramatic change in the
situation, we will continue to announce the measures one year before they are put in place.
These measures will still be focused on banks' capital. At this stage, we do not plan to expand
them to borrowers.
In the end, please let me say a few words about the accomplishment of the strategic tasks
whose timeframes are becoming shorter and shorter. In the next 18 months, these tasks will be
mostly aimed at completing Bulgaria's accession to the euro area. The BNB has provided the
necessary organisation with regard to the issues within our competence. The teams include
representatives of the Association, which is a very positive fact. We are already going into the
stage of intense communication and joint work with the ECB. I strongly hope that the political
process, with all its unpredictability and uncertainty, will ultimately support, not block, the
overall progress of the accession to the euro area.
And keeping this hope, I would like once again to congratulate the Association, its
management, secretariat, and all its members on the 30th anniversary and to wish you good
health and much success.