On 5 October 2015, the Bulgarian National Bank (“BNB”) adopted a plan for the reform and further development of banking supervision in Bulgaria (the “Plan”). The Plan was prompted by the 2014 insolvency of the fourth largest bank in Bulgaria and the intent of the supervisor to bring its practices in compliance with the 2012 Basel core principles for effective banking supervision.

The Plan envisages a number of changes in the Bulgarian legislation regulating banking supervision. The foreseen measures can be divided into two main categories – changes on BNB’s internal functioning and changes with direct impact on credit institutions.

The notable legislative changes on the internal functioning of BNB (which will also indirectly affect banks) are:

  • review and adoption of internal rules that better define the banking supervision performed by the BNB and bring it into compliance with the Basel rules;
  • annual internal audits on the performance of banking supervision and quarterly reports summarizing the current status of banking supervision;
  • creation of a new directorate “distance supervision” and a new department charged with “risk analysis related to market behavior” as well as an increase in the number of inspection teams, which will lead to more on-site reviews of banks.

The measures, intended to directly affect credit institutions, aim to increase the control over the management of banks, to strengthen lending requirements and to enlarge the BNBs competences for restructuring and intervention in the event of bank crises. The proposals encompass:

  • increase in BNB’s supervisory powers to include the release of members of management and supervisory bodies, as well as other management personnel;
  • introduction of a requirement for rotation of the bank’s auditors and the disclosure of more information on their activity;
  • defining better rules and requirements for the internal supervision practices of banks, the lending of large loans, agreements with connected persons, and the corporate management of the banks;
  • adoption of specific requirements and processes for the preparation and approval of bank’s restructuring plans;
  • promulgation of rules and procedures for early intervention of the BNB in case of a banking crisis.

The Plan’s adoption resulted from a two-fold process, which included (i) internal review and valuation by the BNB of its procedures and practices for banking supervision, and (ii) independent external review by the IMF and the World Bank on the effectiveness of banking supervision in Bulgaria. The first legislative changes that will come as a result of the Plan are expected as early as November 2015.