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Bulgarian National Bank Receives Notification on Passporting from Home Member State Competent Authority

SOFIA, Bulgaria - The Bulgarian National Bank (BNB) has received a notification from the home member state competent authority regarding a passporting operation. As per the notification, the BNB may impose conditions on the activity of the bank in Bulgaria if deemed necessary to ensure compliance with any applicable law aimed at protecting the public interest.

Restrictions on Ownership and Passporting

The notification highlights restrictions on ownership, including foreign ownership of banks. Companies registered in tax haven jurisdictions and persons controlled by them are prohibited from applying for a banking license under the Commercial Act (CIA) or participating in a credit institution in Bulgaria that constitutes a qualifying holding.

  • Applicable exemptions:
    • Publicly traded companies
    • Where the parent of the tax haven company is resident for tax purposes in a jurisdiction with which Bulgaria has a double taxation treaty

The assessment of shareholders is an important part of the overall evaluation by the regulator in granting a banking license.

Requirements for Acquiring a Qualifying Holding

The prior approval of the BNB is required for the acquisition of shares or voting rights related to shares in a bank licensed in Bulgaria if as a result, the shareholding becomes qualified (10% or more) or reaches or exceeds relevant thresholds. The regulator will consider factors such as:

  • Reputation of the applicant
  • Financial stability of the applicant
  • Compliance with applicable supervisory requirements

Regulatory Capital and Liquidity

The banking system in Bulgaria is primarily deposit-funded, with 83% of bank liabilities comprised of deposits. Wholesale funding has been used sparingly since the Great Recession but may increase its importance given inflation and rising interest rates.

Banks in Bulgaria are required to:

  • Adopt funding and liquidity plans
  • Maintain liquid funds
  • Monitor interest rate risk

The BNB will hold preliminary consultations and cooperate with the competent supervising authority of another Member State if the applicant is or controls a regulated entity in that other state. The regulator will consider factors such as:

  • Reputation of the applicant
  • Financial stability of the applicant
  • Compliance with applicable supervisory requirements

Conclusion

The notification from the home member state competent authority highlights the importance of ensuring compliance with applicable laws aimed at protecting the public interest in Bulgaria. The BNB will carefully evaluate any passporting operations to ensure that they meet the necessary requirements and do not pose a risk to the stability of the financial system in Bulgaria.