The Bulgarian banks operate in a challenging environment in terms of regulatory and accounting reforms, customer demands, cost of funding and availability of viable projects for financing.
Bulgaria is implementing the changes in the EU banking legislation into the national legislation. The emerging regulatory requirements – including implementation of the Basel 3 framework, structural reform, conduct, governance and the possible emergence of Basel 4 – are game changing. The continuing debates on the leverage ratio, internal models, stress tests, and simplicity versus complexity are leaving both bankers and regulators very uncertain about where the regulatory change agenda will come to rest. This makes it difficult for banks in Bulgaria to plan effectively their operations and activities. But it is clear that there will be further pressure on banks to raise more capital to support their business activities, and to exit, re-price or restructure their business lines.
In addition to the regulatory changes, the financial crisis and steps for accounting convergence (specifically with U.S. GAAP) have led to a series of new IFRS requirements. IFRS 9, 10, 11, 12 and 13 which will fundamentally re-shape financial statements and potentially the earning profile of most financial institutions. This will, in turn, demand an assessment of the impact on the banks’ business and their capital requirements. This is clearly not just an accounting change. People, processes, systems and the business will all be affected.
