site.btaCentral Bank Sets Countercyclical Capital Buffer Rate at 1.5% in Q2 of 2023

The Governing Council of the Bulgarian National Bank (BNB) has set the rate of the countercyclical capital buffer at 1.5 per cent in effect from April 1, 2023, the central bank said Wednesday. The buffer is applicable to domestic credit risk exposures.  

Loans to households have continued growing at elevated rates, in particular in the segment of loans for house purchase, the press release reads. A continuation of the observed rate of credit growth against the backdrop of the current level of real interest rates could give rise to a higher level of indebtedness, which given the prominent tendency toward change in the interest rate cycle may have an adverse impact on borrowers' debt servicing capacity. That would lead to an increase of non-performing loans and impairments in the event of a potential economic downturn.

In response to these risks, in 2021 the BNB Governing Council increased the countercyclical capital buffer rate applicable to domestic credit risk exposures to 1.0 per cent in effect from October 1, 2022 and to 1.5 per cent from January 1, 2023, with the buffer rate remaining at its current 0.5 per cent until the end of September 2022. 

With the credit activity remaining high and the insecurity regarding the economic environment's development, the countercyclical capital buffer rate of 1.5 per cent in the second quarter of 2023 aims to strengthen the stability of the banking system against pressure on incomes and capital position stemming from a potential increase of non-performing loans and devaluation, the central bank said.

The countercyclical capital buffer is a macroprudential instrument provided for in BNB Ordinance No. 8 in accordance with the requirements of Directive 2013/36/EU and the amendments by Directive (EU) 2019/878. The main purpose of the buffer is to safeguard the banking system against potential losses stemming from build-up of cyclical systemic risk during periods of excessive credit growth. The central bank assessеs and changes, where necessary, on a quarterly basis the rate of the countercyclical buffer for banks in Bulgaria.