Dimitar Radev: Recent achievements in resolving Bulgaria's
banking sector issues
Address by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at a forum of the
Association of Banks in Bulgaria on the occasion of the 25th anniversary of its foundation, Sofia,
24 May 2017.
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Dear colleagues,
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First of all, I would like to congratulate you on the occasion of the 25 anniversary of your
Association. During this, sometimes turbulent, period the Association proved itself not only as a
branch organization supporting its members in their banking business, but also as a reliable and
reputable partner to public authorities and institutions, including BNB.
We highly appreciate this role. It was also demonstrated in the best of ways in the
implementation of the measures in the banking sector after the turmoil in 2014. In the short
period after it we went together a long way. As a central bank, we focused on improving
supervision and building a reliable institutional framework for resolving banking sector issues.
Undoubtedly, however, our most important joint effort was the asset quality review and the stress
test conducted last year. An exercise unprecedented in its scale that was a real challenge and a
test not only for the central bank, but for our banking system as a whole.
Only two days ago, our achievements in the banking sector were a subject of an objective and
independent discussion. This happened at the consideration and approval of our financial system
assessment at the highest possible professional forum for such discussions - the Executive
Board of the IMF. The conclusions from this discussion are categorical. Progress is achieved in
the implementation of all measures we launched in 2015. Supervision is in a better condition. As
a result of the asset quality assessment we have a clearer picture and high quality data of bank
impairment practices and collateral valuations. Our banking sector is generally stable and with
high capital adequacy and liquidity.
Certainly, those things are well known in the banking sector. The discussion two days ago
provided a platform so things can be made visible for those outside the banking sector as well. I
must immediately stress that the discussion reached yet another important conclusion, which
we are well - perhaps even better - aware of than external observers, namely, that we need to
consolidate the achieved progress. I would sum this up in the following way: we have made a
definite progress; however, even more remains to be done. And this is what we are currently
focusing on.
All our actions will be anchored in our legislative mandate which is: price stability, stability of the
lev, and stability of our monetary regime. I will say once again what I have stated repeatedly: the
only exit from our currency board monetary arrangement is our entry into the euro area and the
adoption of the euro. That will happen when all necessary conditions for this are fulfilled. We are
not at this stage yet; however we are working hard in this direction.
I should now like to say a few words about our immediate priority tasks.
First, we are making sure the measures resulting from the asset quality review are strictly
applied with a focus on the capital buffer replenishment plans as prescribed for some of the
banks.
Second, we are finalising the plan to further enhance the work of the banking supervision. That is
a continuation of the plan we have been implementing for the last almost two years now and
whose fulfilment has produced good results. The new accents are: internal regulations,
information systems, and increase of resources, including appointment of the additional number
of people as provided for in the original plan, which, unfortunately, takes more time than we
expected.
Third, we adopted a combination of measures to make the already developed system for
recovery and resolution of banks fully functioning. In this area we have prioritised two sets of
measures: the approval of resolution plans for the systemically important domestic banks
(something that we have already done for the subsidiaries of EU banks); and the joint work with
the Ministry of Finance of possibilities for the BNB to provide liquidity support.
Fourth, we have thoroughly analysed the issue of nonperforming loans (NPL), both at banking
system level and at an individual bank level, and we are developing comprehensive measures
which would create conditions for reduction of these loans, including strengthened loan-loss
provisions, higher NPL write-offs, improved collateral valuations, enhanced disclosure practices,
and strengthened data collection.
Fifth, we are continuing the efforts to bring the regulatory framework fully in line with the EU law.
For example, we are drawing up a completely new law on payment services and payment
systems which, inter alia, would strengthen the requirements for security of payments made
electronically and via Internet.
I mention all these priority tasks of the BNB because for their performance we would largely rely
on our constructive partnership with you, as we have done so far.
Of course, we are well aware of the specific challenges that you too are facing. The strong
pressure on profitability with a still weak, though increasing, and demand for loans requires that
you keep seeking solutions for greater efficiency. The topics of credit risk management and
costs policies would more and more be high on the agenda also because it is likely that we
would witness another cycle of rising interest rates, given the worldwide trends and the
expectations of such a development in the euro area sooner or later.
These are topics that we will continue to discuss.
th
Thank you for the good cooperation, and congratulations on the 25 anniversary!