The Bulgarian National Bank to Lift Capital Buffer over Cyclical Risk

SOFIA, Sept 26 (Reuters) - The banks in Bulgaria will have to set aside additional capital as of October 2019 to counter a build-up of cyclical systemic risks linked to credit growth and real estate prices, the Bulgarian central bank said on Wednesday.

The Bulgarian National Bank (BNB) said it was increasing the rate of counter-cyclical capital buffer to 0.5 percent from zero currently.

The buffer is aimed at safeguarding the banking system against potential losses, stemming from build-up of cyclical systemic risk during period of excessive credit growth.

“Although the current calculations imply zero value of the reference indicator, a group of additional indicators related to credit growth, cost of credit and housing prices points to an initial phase of systemic risks accumulation,” the central bank said on its website.

“Against the background of buoyant economic activity, bank credit to the private sector is growing at rates above those in recent years, in particular in the household loans segment”.

Earlier this year the central bank warned banks to maintain conservative credit standards and adequate capital support for credit growth.

Loans to businesses and households rose 5.9 percent on an annual basis in the second quarter of 2018 to 53.3 billion levs ($32.03 billion), compared to 4 percent growth in the first quarter, central bank data showed.

Loans and mortgages to households alone jumped 9.2 percent year-on-year in the second quarter. Bulgaria expects its economy to expand by 3.9 percent this year and 3.8 percent in 2019.

Pending developments, the central bank said it may increase the buffer earlier than the targeted Oct 1, 2019 date.

Bulgarian banks are well capitalised and the increase of the buffer is not expected to prompt any of the country’s 21 banks to raise additional capital.

Banks will also undergo asset quality review and stress tests by July next year as part of Sofia’s plans to enter the euro zone’s “waiting room” and the European Union’s banking union. ($1 = 1.6642 leva) (Reporting by Tsvetelia Tsolova; Editing by Jon Boyle)