Bulgaria

Bulgaria’s financial stability was shaken in 2014 by the collapse of the system’s fourth largest bank due to fraud and insider abuse. The failure raised questions about the viability of other banks, which subsequently experienced deposit outflows, and raised concerns about the supervision by the Bulgarian National Bank (BNB). To restore credibility, the authorities—in addition to requesting this Financial Sector Assessment (FSAP)—conducted an asset quality review (AQR) for banks and nonbanks, and initiated reforms to BNB supervision and introduced a new bank resolution function. Following the 2014 bank collapse, the financial system stabilized, reflecting the significant capital and liquidity buffers and the presence of large foreign-owned institutions. Nevertheless, risks remain, including for some banks that showed weakness in the authorities’ AQR and stress test, and for the system because of high nonperforming loans (NPLs). The Currency Board Arrangement (CBA) has contributed to stability, though it constrains the BNB’s ability to provide lender-of-last-resort liquidity in times of financial stress.