Determinants of Stability of the Banking Sector in Bulgaria Against the Backdrop of Covid

Abstract

The aim of the paper is to investigate the determinants of stability of the bank system in Bulgaria and examine their relevance during the pre-Covid, Covid and post-Covid period. The key determinants for stability are identified. The relevant data used in the study is sourced from the publicly available releases of bank indicators by the supervision authority and regulator. The published data is aggregate for the whole banking sector and applies for both the independent and dependent variables in the specified regression model. Relevant research texts for stability determinants and COVID impact are studied and their findings applied to the banking sector in Bulgaria. A multiple regression model was devised and applied with the capital adequacy ratio selected as the dependent variable, whilst the independent variables being the major internal financial ratios. While the study finds significant effects of COVID-19 on key bank performance indicators, used as either independent or dependent variables in the model, the overall impact on the bank sector stability is assessed as neutral due to the interplay of strong capital buffers, the conservatism of Bulgarian banking sector due to the lack of lender of last resort and the implementation of macroprudential measures in the years before the pandemic.