STRESS TESTS AND RATINGS DOWNGRADES: BULGARIA ISSUES ASSURANCES ON FOREIGN-OWNED BANKS

Bulgaria’s Finance Minister, Simeon Dyankov, and central Bulgarian National Bank have underlined that Bulgarian subsidiaries of Greek banks by mid-2011 had capitalisation levels of 17 per cent, well above the eight per cent requirement assessed as part of European Union stress tests on banks.
 
However, one of the Greek owners of a Bulgarian bank – Eurobank EFG, owner of Bulgaria’s PostBank – was among eight European banks to fail the EU stress tests.
 
And hours after Dyankov issued his assurance in Parliament during Question Time on July 15, Fitch ratings agency downgraded to B- the ratings of five Greek banks: Eurobank, NBG – which owns United Bulgarian Bank – Alpha bank, Piraeus and ATE. Alpha Bank and Piraeus both are represented in Bulgaria.
 
Dyankov told Parliament that in Bulgaria, bank liquidity was 23 per cent, putting the country first in this respect in the EU.
 
Banks in Bulgaria were continuing to be able to cushion the effects of non-performing loans, and had remained profitable in the first half of 2011, he said.
 
On July 16, Bulgarian news agency BTA said that Luxembourg prime minister Jean-Claude Juncker, who heads the 17-member Eurogroup,had cancelled an official visit to Bulgaria that had been scheduled for July 18 and 19, the government's information service said.
 
Juncker will be attending a special meeting of the Eurogroup.
 
Ninety banks underwent the EU stress tests.
 
The European Banking Authority (EBA), which carried out the tests, said that eight had failed and a further 16 banks were in the danger zone, according to a report by the BBC.
The EBA called on national financial regulators to ensure that capital shortfalls would be quickly resolved.

Five Spanish banks failed, as well as one in Austria and two in Greece.

Bulgarian National Bank (BNB) said that both the banks and banking groups represented in Bulgaria that had undergone the EU stress tests had much better capital adequacy than the minimum levels required by the test.

The adequacy of the primary capital of the banking system in Bulgaria is 15.4 per cent and the total bank adequacy stands at 17.7 per cent, BNB said.
 
In a joint statement after the announcement of the results of the EU stress tests, European Commissioner for Internal Market and Services Michel Barnier and European Economic and Monetary Affairs Commissioner Olli Rehn said that the repair of the EU banking sector was an important element of a comprehensive response to the current crisis.
 
"That is why we welcome the publication of the results of the EU wide stress test as they represent another step in this process of repair."
 
Barnier and Rehn said that the results of the EU bank stress tests highlighted that most European banks were now much stronger and better able to resist shocks.
 
In anticipation of the test, many banks already had taken steps to strengthen the resilience of their balance sheet though private sector measures and government financial aid, Barnier and Rehn said.
 
The EU-wide stress tests had been more rigorous than those conducted previously, they said.
 
"In particular, the definition of capital is stricter, the scenarios used are more severe, and for the first time, a thorough peer review exercise has been conducted to ensure coherence and consistency of results.
 
"We emphasise the full and detailed transparency attached to these tests, for example as regards sovereign exposures. The data is there for all to see including banks full exposure to sovereign debt," Barnier and Rehn said.
 
"For those banks that have not met the threshold, and for those that have but still demonstrate substantial weaknesses, we expect them to take all the necessary steps to reinforce their capital positions," they said.
 
As the Ecofin Council of July 12 confirmed, they said, backstop measures had been drawn up by EU member states should remedial actions become necessary in response to the vulnerabilities indentified by the tests.
 
"Priority is to be given to private sector solutions, while a solid framework for the provision of government support in case of need in line with state aid rules, has been agreed. The Commission will deal with any requests co-operatively and quickly, as we have done in the past," they said.
 
Barnier and Rehn said that was important that stress tests were "understood for what they are: an essential piece of the puzzle, but not the whole solution, in making the whole financial sector more robust".
 
These results should be seen in the context of a broader effort to reform the EU financial sector and safeguard financial stability, they said.
 
"All financial actors in all markets must be properly regulated and supervised. We have already put in place a new framework for financial supervision at a European level."
 
They said that in the coming week, the European Commission would make proposals to require banks to hold more capital, of better quality, as well as introduce requirements for the first time relating to liquidity and excessive leverage, so that banks can better withstand financial shocks and longer-term funding stresses.
 
"We will remain vigilant and continue monitoring the resilience of the EU financial sector. But we are confident that all these actions, when fully implemented and considered comprehensively, will ensure the financial sector is safer and sounder, and better able to do its job in supporting the real economy," Barnier and Rehn said.