Bulgarian National Bank's COVID-19 Banking Measures Package
Summary
In response to the COVID-19 state of emergency, the Bulgarian National Bank (BNB) introduced a BGN 9.3 billion package of measures aimed at strengthening bank capital and liquidity and reducing the pandemic's negative impact on citizens and businesses. The package includes capitalizing the entire banking system's profit, canceling planned increases to the countercyclical capital buffer, and boosting system liquidity by reducing commercial banks' foreign exposures. Separately, the European Banking Authority (EBA) issued guidance supporting targeted, temporary loan-payment moratoria, which the BNB will consider adopting on top of its existing package once the EBA finalizes its criteria.
Key Facts at a Glance- Issuing authority: Bulgarian National Bank (BNB)
- Total package size: BGN 9.3 billion
- Purpose: Preserve banking-system stability and flexibility during the COVID-19 state of emergency; reduce negative pandemic effects on citizens and businesses
- Additional BNB commitments: Uninterrupted functioning of the currency board, cash circulation, payment systems, and banking supervision
- Related EU-level development: The European Banking Authority (EBA) issued a press release on loan classification, exposure restructuring, and IFRS 9 application, and supports targeted temporary loan-payment moratoria
- What's next: BNB will decide on adopting EBA-aligned moratoria criteria once the EBA finalizes them, as an extension of the existing BGN 9.3 billion package
- Capitalization of the banking system's full profit — BGN 1.6 billion
- Cancellation of the planned 2020 and 2021 countercyclical capital buffer increases — BGN 0.7 billion effect
- Liquidity increase via reduced foreign exposures of commercial banks — BGN 7 billion
Why the BNB Introduced This Package
The Bulgarian National Bank designed this package to protect the stability and flexibility of the banking system during the COVID-19 state of emergency. The stated goal is to reduce the negative effects of pandemic-related restrictions on both individual citizens and businesses, primarily by reinforcing the capital and liquidity position of Bulgarian banks.
The Three Core Capital and Liquidity Measures
1. Capitalizing the Full Banking-System Profit
The BNB is capitalizing the entire profit generated across the banking system — an amount of BGN 1.6 billion — strengthening banks' capital base.
2. Canceling Planned Countercyclical Capital Buffer Increases
Increases to the countercyclical capital buffer that had been planned for 2020 and 2021 are being canceled, freeing up BGN 0.7 billion in capital that banks would otherwise have needed to hold in reserve.
3. Increasing System Liquidity
The BNB is boosting overall banking-system liquidity by BGN 7 billion, achieved by reducing commercial banks' foreign exposures.
Additional Safeguards Announced by the BNB
Beyond the capital and liquidity measures, the BNB states it is applying further measures to guarantee the uninterrupted operation of:
- The currency board
- Cash circulation
- Payment systems
- Banking supervision
The central bank has also called for restraint from administrative and legislative proposals that could have a destructive impact on the country's financial system.
The European Banking Authority's (EBA) Parallel Guidance
The European Banking Authority (EBA) published a press release on the outcome of its latest consultations regarding COVID-19 response measures. The EBA's guidance outlines a framework for banks in EU Member States — including Bulgaria — to follow in three key areas:
- Classification of non-performing bank loans
- Restructuring of exposures
- Application of International Financial Reporting Standard 9 (IFRS 9)
The EBA's position supports initiatives for targeted, temporary moratoria — whether public or private, adopted at national or EU-wide level — that suspend or postpone payments on bank loans.
What Happens Next
Consultations between the EBA and national competent authorities are ongoing. The EBA is expected to soon set out criteria for the consistent treatment of public and private loan-payment moratoria across the EU.
Once those criteria are finalized, the BNB will decide how to apply them in Bulgaria. Any resulting BNB decision would build on the already-adopted BGN 9.3 billion COVID-19 package. The expectation is that this future decision will allow Bulgarian commercial banks to further develop measures limiting the pandemic's adverse effects on their customers.
Frequently Asked Questions
How large is the BNB's COVID-19 banking measures package?
BGN 9.3 billion, aimed at strengthening bank capital and liquidity during the pandemic-related state of emergency.
What are the three main measures in the BNB's package?
Capitalizing the banking system's full profit (BGN 1.6 billion), canceling planned 2020–2021 countercyclical capital buffer increases (BGN 0.7 billion effect), and increasing system liquidity by BGN 7 billion through reduced foreign exposures of commercial banks.
Does the BNB guarantee the currency board will keep functioning?
Yes. The BNB states it is applying additional measures to guarantee the uninterrupted functioning of the currency board, cash circulation, payment systems, and banking supervision.
What did the European Banking Authority (EBA) recommend?
The EBA outlined a framework covering non-performing loan classification, exposure restructuring, and IFRS 9 application, and expressed support for targeted, temporary public or private loan-payment moratoria.
Will Bulgaria adopt loan-payment moratoria?
The BNB is expected to decide on this once the EBA finalizes its criteria for consistent treatment of public and private moratoria across the EU. Any such decision would extend the existing BGN 9.3 billion package.
Who benefits from these measures?
Bulgarian citizens and businesses, through banks' improved capacity to limit the pandemic's adverse financial effects on their customers.
