Bulgaria’s central bank announces measures in response to COVID-19 crisis

The Bulgarian National Bank (BNB) has taken a package of measures to limit the negative effects of the upcoming crisis due to the global pandemic COVID-19, BNB governor Dimitar Radev announced on the bank’s website on April 2.

The topics cover both the short and the long term, including the strategic horizon. In the short term, the measures address the sector's readiness to address the burden of the coming economic crisis. In parallel, the BNB's actions seek to limit the effects of the crisis on households and businesses.

The banking sector is entering a new situation secured for a horizon of at least a few months. At a time when the very survival of many other industries and businesses has been called into question, the readiness of banks in Bulgaria allows us to view them as part of the solution rather than the problem.

The stress tests conducted by the BNB and the ECB in 2016 and 2019 were of great importance for the current strong starting position of the sector. The Bulgarian banks successfully underwent the checks. This today applies for both banks, which have made significant progress in meeting their capital plans since the latest tests.

The good condition of the banking sector is the basis on which the central bank, as a regulatory and supervisory body, in coordination with commercial banks, builds upon and implements measures to suit the new situation, the statement reads..

In particular, our current measures are in three main areas:

Smooth functioning of the monetary regime

Additional measures for the smooth functioning of the monetary regime and related infrastructure, including money circulation, payment systems and activities of the BNB as a fiscal agent of the Government. The details of these measures are not public, but they are generally intended to create additional reserve capacity in view of the continuity of critical functions for the state and the economy.

2. Strengthening the capital and liquidity base of commercial banks

Further strengthening of the commercial banks' capital and liquidity base. The magnitude of the impending crisis may exceed the parameters of the negative scenarios of recent stress tests. The BNB measures in this area, which we have already announced, amount to BGN 9.3 billion. These measures, which commercial banks have already implemented, include capitalizing on all profits in the sector, cancelling projected increases in countercyclical capital buffer, and reducing foreign bank exposure.

3. Flexibility of commercial banks for their clients - individuals and companies

Regulatory measures to allow commercial banks to be more flexible in mitigating the negative effects of the crisis on their clients - individuals and businesses. The basis of these measures is the introduction of a purposeful and temporary moratorium to suspend or defer payments on bank loans. BNB is working on the regulatory treatment of related measures, and commercial banks are working on a business model for applying these measures to their clients. These measures will be activated in the coming days on the basis of criteria and guidelines adopted by the European Banking Authority. The BNB is an active participant in the process of adopting these pan-European guidelines, as a member of the Board of Supervisors of the European Banking Authority.

The above measures complement other government initiatives affecting the banking sector, such as the moratorium on penalty interests for delayed payments on bank loans and the increase of the capital of the Bulgarian Development Bank by BGN 700 million, of which BGN 500 million for portfolio guarantees on bank loans and BGN 200 million for interest-free consumer loans for citizens in unpaid leave.

The duration of the coming crisis period is an important parameter for determining actions and measures, in which there is still significant information insufficiency and uncertainty. To this end, various macroeconomic scenarios and forecasts are prepared, which are developed depending on the input.

Much more clarity is expected in the second quarter of the year, which will take the form of more accurate estimates of the expected magnitude and duration of the adverse effects of the COVID-19 situation.

Beyond the intensity of all current and imminent actions, in the long run, we continue to follow the orientation of ever more fully integrating into the European financial infrastructure. This is the optimal strategy for Bulgaria. It is possible to delay the technical timing against the background of the currently unfavourable financial and economic environment. But there is no reason for weakening of the efforts of the Bulgarian institutions, including the BNB.

Any delay in the process of accession to the monetary mechanism, the banking union and the euro area will demotivate the implementation of important structural reforms and delay the real convergence of the Bulgarian economy.

This also implies a slower growth of incomes in Bulgaria - an effect that would be particularly unfavourable for all Bulgarian citizens, who will be before that affected by the expected economic difficulties in connection with COVID-19.