ECB published the results of a comprehensive assessment of six Bulgarian banks, following a request by Bulgaria to establish close cooperation between ECB and the Bulgarian National Bank. The assessed banks are UniCredit Bulbank AD, DSK Bank EAD, United Bulgarian Bank AD, First Investment Bank AD, Central Cooperative Bank AD, and Investbank AD. The cut-off date for the exercise was December 31, 2018. Four of the assessed banks did not face capital shortfalls while First Investment Bank AD and Investbank AD fell below the 8% CET1 ratio threshold in the baseline scenario of the stress test.
A comprehensive assessment is required as part of the process of establishing close cooperation between ECB and the national competent authority of an EU member state whose currency is not euro. The exercise comprised an Asset Quality Review (AQR) and a stress test, both of which were based on the methodologies applied by ECB Banking Supervision in its regular comprehensive assessments of banks that have recently been classified as significant or could potentially become significant. The assessment identified the need to further strengthen capital positions of the banks using the same threshold ratios that had been applied in previous comprehensive assessments, including a common equity tier 1 (CET1) ratio of 8% for the AQR and the baseline scenario of the stress test, along with a CET1 ratio of 5.5% for the adverse scenario in the stress test.
Four of the six banks covered in the assessment—UniCredit Bulbank AD, DSK Bank EAD, United Bulgarian Bank AD, and Central Cooperative Bank AD—do not face any capital shortfalls, as they did not fall below the relevant thresholds used in AQR and the stress test. First Investment Bank AD, however, fell below the 8% CET1 ratio threshold for AQR and the stress test’s baseline scenario; the bank also fell below the 5.5% CET1 ratio threshold used in the adverse scenario of the stress test. Meanwhile, Investbank AD fell below both the 8% CET1 ratio threshold used in the stress test’s baseline scenario and the 5.5% CET1 ratio threshold used in the stress test’s adverse scenario.
AQR is a prudential exercise, rather than an accounting exercise, and provides ECB with a point-in-time assessment of the carrying values of banks’ assets on a particular date, which for this exercise is December 31, 2018. The AQR for the Bulgarian banks was performed on the basis of the updated AQR methodology, which the ECB published in June 2018 and takes account of the impact of accounting standard IFRS 9. The AQR was complemented by a stress test exercise, which looked at how the capital positions of banks would evolve under the hypothetical baseline and adverse scenarios over the next three years (2019-21). The stress test was conducted using the methodology applied in the 2018 stress test of EBA.
Keywords: Europe, EU, Bulgaria, Banking, Asset Quality Review, Stress Testing, CET 1, SSM, Banking Supervision, ECB
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