March 29, 2019 / 10:48 AM / 21 days ago

Bulgaria's central bank raises capital buffer over credit growth

SOFIA, March 29 (Reuters) - The Bulgarian central bank said on Friday banks would have to pile up more additional capital as of April 2020 to counter a build-up of cyclical systemic risks linked to credit growth.

The Bulgarian National Bank set the rate for the counter-cyclical capital buffer at 1.0 percent from April next year, up from the 0.5 percent lenders will have to put aside from October. The rate of the buffer at present is zero.

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.

“Periods of strong lending activity could be associated with gradual accumulation of cyclical risks, potentially manifesting themselves in an increase of non-performing loans in the event of future economic downturn and/or rise in interest rates,” the central bank said in a statement.

“Maintaining a strong capital position is essential for credit institutions’ capacity to easily sustain the consequences of potential worsening in the economic environment,” it said.

The gross loan portfolio has increased by 8.6 percent at the end of last year on an annual basis to 60.9 billion levs ($34.92 billion). Consumer credit and mortgages to households have increased, jumping 11.6 percent last year, central bank data showed.

Bulgaria’s economy grew at 3.1 percent last year, below expectations of both the Finance Ministry and the central bank, mainly due to weaker exports.

Earlier this month, the central bank cut its growth forecast for 2019 and 2020 to 3.6 percent and 3.8 percent respectively from 4 percent for both years.

Bulgarian banks, more than 70 percent owned by European Union lenders, are well capitalised and the increase of the buffer is not expected to prompt any of the country’s 20 banks to raise additional capital.

The European Central Bank is currently carrying health checks on six lenders as part of Sofia’s plans to enter the euro zone’s “waiting room” and the EU banking union in July. ($1 = 1.7440 leva) (Reporting by Tsvetelia Tsolova; Editing by Alison Williams)

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