dimitar radev : assessment of the banking system in bulgaria statement by mr dimitar radev, governor of the bulgarian national bank, on the occasion of the completion of the asset quality review and stress test of the banks in bulgaria, 11 august 2016. * * * today the governing council of the bulgarian national bank adopted the results of the asset quality review and stress test of the banks, as summarized by the international professional services company deloitte. the main objective of the review was to present a thorough and independent assessment of the banks and the banking system as a whole. in its scale the exercise was unprecedented in the bulgarian banking history and engaged more than 900 experts, including experts from the most reputable international audit firms, which acted under the direction of the bnb. the detailed results for each individual bank and the system as a whole will be announced at 1 pm on saturday as per the formerly communicated announcement date. following the announcement, the bulgarian national bank will be ready to address any specific questions related to the results. the asset quality review and stress test were mandated to the bulgarian national bank by law and they stem from the government ’ s national reform programme. on that ground, i have presented the report on the outcomes to the finance minister and on monday i will submit it to the national assembly. i am pleased to inform the public that based on the outcome of the review and stress test, the governing council have concluded the following : 1. the bulgarian banking system is stable. the main indicator of a bank ’ s financial resilience, the ratio of bank common equity tier one capital to its risk - weighted assets, or the cet 1 ratio, remains significantly above the required minimum regulatory requirements on a system level and is above the eu average as announced in the latest european stress test. the cet1 ratio adjusted for the results of the asset quality review is 18. 9 % on system - wide level compared to the minimum regulatory requirement of 4. 5 %. the stress test indicated that if the latest 2018 macroeconomic forecasts materialize, the cet1 ratio would increase to 22. 2 %. in the case of a severe economic crisis, which is very unlikely, the cet1 ratio would decline to 14. 4 %. for the european banks, the results are significantly lower – 13. 9 % and 9. 4 % respectively. therefore, banks ’ capital adequacy is strong and banks have the capacity to absorb shocks in unfavorable

to limit and keep inflation down ; and what is more, it would create conditions for return to the macroeconomic imbalances of the recent past. such a development, inter alia, would have a strongly deleterious effect on the businesses and banks in bulgaria. therefore, in terms of greater predictability of the macroeconomic environment dynamics, now one of the major economic policy tasks is to try to synchronise as much as possible the monetary and fiscal conditions in bulgaria. in the language of 2 / 5 bis - central bankers'speeches budgeting, this means accomplishing fiscal consolidation that can be measured by a concrete number : a budget deficit not higher than 3 % of gdp. state of the banking sector the macroeconomic environment dynamics, which is strongly influenced by internal political and geopolitical factors, presents new challenges to the banking sector as well. the sector is meeting these challenges in a strong position, both institutionally and as specific indicators. the institutional framework is determined to a great extent by the country's membership in the european banking union, one of the key euro area institutions, and also by the related close cooperation established between the bnb and the ecb. for example, our banking supervision is an inseparable part of the single supervisory mechanism of the european banking union – from participation in the joint supervisory teams, through the horizontal networking, to the full - fledged participation in the decision - making process of the ecb supervisory board. in this sense, the single supervisory mechanism is a high quality stamp with regard to the standards of the supervisory activities performed by the bnb, and with regard to the quality of the regulatory, prudential and analytical framework of the supervisory process. the consolidation of the institutional framework in addition to the reforms over the recent years explains the good state of the banking sector. i will illustrate this with some numbers : the liquidity coverage ratio at the end of october was 253. 5 %, and the liquidity buffer was bgn 38. 4 billion with a continuing trend of growth of attracted funds ; capital adequacy according to the latest data is 20. 47 %, with the capital surplus above the general supervisory requirement for capital and macroprudential buffers standing at approximately bgn 2. 9 billion. the net value of non - performing loans for the last 12 months decreased by over bgn 660 million. their share represents 2. 66 % of the total net value of loans and advances, and their amount is fully covered