May 24 (SeeNews) - The International Monetary Fund (IMF) said its executive board has agreed with the main findings of the Financial System Stability Assessment of Bulgaria, encouraging the authorities to keep pressing ahead with efforts aimed at strengthening the financial sector resilience.
Directors commended the Bulgarian authorities for the positive steps taken to rebuild credibility in the banking system after the collapse of Corporate Commercial Bank in 2014, the country's fourth-largest lender at the time, which revealed weaknesses in supervision and crisis management tools, the IMF said in a statement on Wednesday.
The executive board welcomed the Bulgarian authorities’ plans to address weaknesses identified by the Asset Quality Review (AQR) and stress test exercise completed in 2016, but noted that while the banking system overall shows resilience, the exercise revealed capital weaknesses in some domestically-owned banks, the IMF said.
The IMF directors called on the authorities to extend the Bulgarian National Bank’s (BNB) macro-prudential mandate to address the high level of non-performing loans (NPLs) in a comprehensive manner through a combination of measures, including strengthened loan-loss provisions, higher NPL write-offs, improved collateral valuations, enhanced disclosure practices and strengthened data collection.
The IMF recommended to the Bulgarian government to fully develop all components of the financial safety net and crisis management arrangements, developing a framework to address constraints stemming from the currency board arrangement and European Union state aid procedures.
Directors noted the progress in enhancing anti-money laundering (AML) supervision of the banking sector and encouraged the Bulgarian authorities to build on these efforts and implement a risk-based approach to AML supervision in line with the Financial Action Task Force standard.
Bulgaria’s financial system has been resilient to shocks in recent years, though it was shaken in 2014 by the collapse of Corporate Commercial Bank due to fraud and insider abuse. The failure raised questions about the viability of other banks, some of which experienced deposit outflows, and raised concerns about the supervision by the BNB.
To restore credibility, the authorities, in addition to requesting a Financial System Stability Assessment, conducted an AQR for banks and non-banks, initiated reforms to BNB supervision and introduced a new bank resolution function.