November 5, 2018 / 11:48 AM / 9 days ago

Bulgaria raises risk buffers for 10 banks as seeks euro entry

SOFIA, Nov 5 (Reuters) - Bulgaria’s central bank said on Monday that 10 of the Black Sea state’s 22 commercial banks would have to adopt extra protective capital buffers as Sofia seeks to join the euro bloc.

The European Central Bank (ECB) has resisted granting Bulgaria a fast track to euro membership, saying its banks require tougher supervision before it can join the European Union’s single currency bloc.

In a compromise move, Sofia agreed to join the banking union first, giving the ECB supervision over its biggest lenders and adding about a year to the accession process.

Bulgarian banks, 70 percent of which are owned by European Union lenders, would require additional buffers of between 0.25 percent and 0.7 percent of total risk exposure as of January next year, the country’s central bank said.

In December the central bank set buffers of between 0.125 percent and 0.5 percent of total risk exposure for 11 lenders as of the beginning of this year.

Four of the country’s largest lenders, UniCredit Bulbank , DSK Bank, controlled by Hungary’s OTP, locally-owned First Investment Bank and the unit of KBC will now have to adopt additional buffers of 0.75 percent, it said on Monday.

Another four will need to have additional capital buffers of 0.5 percent as of next year, while two banks will have to add capital buffers of 0.25 percent.

The buffers for systemically important institutions will have to be gradually increased to 0.5 percent and 1.0 percent by 2020, the central bank added.

Sofia has made a number of commitments, including cooperating with the ECB, so that next July it can join both the banking union and ERM-2, the two-year obligatory precursor mechanism to joining the euro.

The ECB is expected to carry out an asset quality review and stress tests on the Balkan country’s banks before it gives its nod for entry. This process may take a year, but possibly longer, depending on Bulgaria’s progress. (Reporting by Angel Krasimirov; additional reporting by Balazs Koranyi; editing by Alexander Smith)

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