At its last meeting, the BNB Board of Governors presented an in-depth analysis entitled “Review of the macroprudential measures introduced by the BNB in relation to the risks facing the banking system”. This analysis is based on a two-year study and highlights the importance of the BNB’s supervisory policy, which includes building and maintaining buffers that strengthen the resilience of the banking sector in terms of liquidity, capital, efficiency and credit quality.
The objective of the analysis was to see whether the banking system is actually resilient, what the risks are for both banks and individual households and whether there is a clear credit growth.
Here is a brief summary of what the BNB’s data shows and how the banks reacted to it:
Liquidity and capital adequacy
BNB policies are aimed at maintaining high levels of liquidity and capital adequacy. This ensures that banks have sufficient resources to meet financial challenges, including economic downturns and market shocks.
Credit efficiency and quality
Through strict controls and regulations, the BNB has been able to improve the efficiency of the banking system and the quality of credit. This includes the introduction of standards and risk assessment indicators to ensure more sustainable lending.
Growth in residential real estate lending
One of the significant aspects of the analysis is the remarkable growth in the segment of loans secured by residential real estate. In order to effectively manage this growth, the BNB Board has mandated the implementation of specific indicators to monitor and assess lending standards:
– Loan-to-value ratio.
– Ratio between current payments and the borrower’s monthly income.
– Ratio between the amount of debt and the annual income of the borrower.
– Maximum duration of the credit agreement.
Introduction of quarterly reporting
The BNB Decision introduces quarterly reporting for these indicators on both an individual and consolidated basis. This will allow more detailed monitoring and assessment of the risk associated with loans secured by residential real estate. The BNB will use this data to take further supervisory action and to ensure stability in the banking system.
The BNB’s supervisory policy of building resilience through systematic buffering appears to be showing positive results. Through close monitoring and rigorous supervision, the BNB continues to strengthen the banking sector while maintaining high standards of lending and efficiency. These efforts are key to maintaining financial stability and resilience in Bulgaria.
How have banks responded to this?
The banking sector accepts the measures proposed by the Bulgarian National Bank (BNB) affecting mortgage lending and will comply with their implementation. At present, the creditworthiness assessment models include elements related to the indicators specified by the BNB, the Association of Banks in Bulgaria said in response to a query regarding the BNB Board’s decision ordering banks to apply six indicators to monitor credit standards when granting and renegotiating loans secured by residential real estate.
The ABB also noted that the banking system in the country is characterised by high levels of capital adequacy and liquidity, which are above the EU average, it is strictly regulated and complies with all regulatory requirements.
BNB Governor Dimitar Radev, for his part, commented that the BNB does not see an immediate problem, but sees a potential risk related to mortgage lending, so the measures will be tightened
Translated with DeepL.com (free version)
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