Banking License Application Requirements for Foreign Banks
Introduction
The Bulgarian National Bank (BNB) has outlined the necessary procedures and documentation required for foreign banks seeking to establish a branch in Bulgaria. In this article, we will explore the requirements for obtaining a banking license and the subsequent funding and liquidity requirements.
Licensing Requirements
To apply for a banking license, foreign banks must submit an application in writing accompanied by a range of supporting documents, including:
- A certified copy of the registration extract containing information about the registered address, scope of business, capital, management system, and persons representing the bank
- A certified copy of the relevant authorities’ approval or license to operate in the country of origin
- Proof of adequate financial resources to establish and maintain a branch in Bulgaria
- Information on the bank’s governance structure and management team
The BNB will also assess the reputation and financial stability of the applicant, as well as its shareholders, in determining whether to grant a license.
Acquisitions and Holding Requirements
Foreign banks seeking to acquire a qualified holding (10% or more) in a Bulgarian-licensed bank must obtain prior approval from the BNB. The regulator will consider factors such as the acquirer’s reputation, financial stability, and compliance with supervisory requirements before granting approval.
Funding and Liquidity Requirements
The BNB requires banks operating in Bulgaria to adopt funding and liquidity plans, maintain liquid funds to cater for mismatches between cash inflows and outflows, and monitor interest rate risk in all operations. Banks must also adjust the maturity structure of assets and liabilities promptly upon changes in market conditions.
- Deposit funding remains the dominant source of bank funding in Bulgaria, accounting for 83% of bank liabilities as of 2017.
- Wholesale funding has been used sparingly since the Great Recession of 2008/9 but could increase its importance given inflation and rising interest rates.
- The BNB’s regulatory capital and liquidity requirements are uniform across the EU, outlining key provisions and definitions regarding liquidity coverage requirements for financial institutions.
By understanding these requirements, foreign banks can better navigate the licensing process and ensure compliance with Bulgarian banking regulations.