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Bulgarian central bank to raise countercyclical buffer to 1.5% in Q1'21

The Bulgarian National Bank's governing council raised the countercyclical capital buffer rate for banks to 1.5% in the first quarter of 2021.

The regulator noted that the buffer increase was due to prolonged low levels of interest rates, which could lead to a significant rise in indebtedness, resulting in the Bulgarian banking sector's asset quality, profitability and capital position becoming more vulnerable to adverse economic developments.

The central bank aims to boost the resilience of the country's banking system against such scenarios through the buffer increase, according to the Dec. 20 statement.

The credit-to-GDP ratio calculated by the regulator stood at 94.0% at the end of the third quarter, showing a negative 40.1 percentage points from the long-term trend, corresponding to a zero value of the reference indicator for the countercyclical buffer.

The central bank added that the capital buffer rate remains at 0.5% until the end of the first quarter of 2020 and will be 1% from the second quarter of 2020 until the end of the fourth quarter of the year. The buffer rate for the second quarter of 2021 will be set in March 2020, the central bank said.