February 27 (SeeNews) - Bulgaria has achieved limited progress in addressing several issues raised by the European Commission, including completing the reform of the insolvency framework and upgrading the governance framework for state-owned enterprises, the EU institution said on Wednesday.
Some vulnerabilities in Bulgaria's banking sector also remain, although the sector has strengthened overall as banks addressed the recommendations arising from the 2016 asset quality review, with one exception, the Commission said in its European Semester Winter Package.
In 2016, an asset quality review (AQR) and stress tests of Bulgarian banks showed the capital adequacy of each bank after potential adjustments from AQR remains above the minimum regulatory requirements. Taking the results into account, follow-up plans were developed, including measures aimed at maintaining existing capital buffers for some banks or increasing capital buffers for others.
The results signaled that local lenders First Investment Bank [BUL:5F4] and Investbank would benefit from increasing their capital buffers by retaining earnings, increasing their capital or cutting down on risk exposure.
The follow-up plans also included recommendations for Central Cooperative Bank (CCB) [BUL:4CF], Municipal Bank, International Asset Bank, Tokuda Bank and Texim Bank [BUL:5CP], which were advised to review their business and capital plans to improve resilience to unfavourable shocks. In addition, UniCredit Bulbank was advised to review and improve its risk management model, while DSK Bank was encouraged to review and strengthen its collective provisioning model.
Regarding non-banking sector supervision, Bulgaria needs to ensure the full implementation of an action plan to establish a proper risk-based, forward-looking supervisory process, and to adequately follow up on outstanding issues highlighted by the non-bank financial sector reviews, including valuation practices and grouplevel supervision, the Commission said.
The country should also address the recent concerns regarding the car insurance sector, which emerged after the Bulgarian branch of Cyprus-based Olympic Insurance Company went insolvent last year.
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