Developments in relation to bank reference indices in Bulgaria

On 19 June 2018, amendments to the Bulgarian Credit Institutions Act (CIA) came into force, which implement specific provisions of EU Regulation 2016/101 on indices used as benchmarks in financial instruments. The changes relate to the use of benchmarks, and any associated actions that should be taken in case of their unavailability.

Although it is directly applicable in Bulgaria, the Bulgarian Parliament decided to specifically implement article 28 of the EU Regulation on actions to be undertaken by credit institutions, in case a reference rate is no longer available or undergoes significant changes. The Regulation requires that banks have adequate procedures in place for actions to be undertaken when such an event occurs. These procedures shall further be regularly updated and published, in case that a material change takes place.

The major procedure contained in the amendments include: if a reference rate becomes unavailable, the bank shall immediately notify respective borrowers, but the new reference rate cannot be higher than the rate that had been applicable at that time under the respective loan agreement. The same changes have also been made to the Act on Consumer Credits and the Act on Consumer’s Real Estate Loans.

In Bulgaria, the regularly employed benchmark SOFIBOR will no longer be available as of 1 July 2018. Credit institutions have already issued statements in regard to this change, and have outlined the strategy they will employ. In general, one of the following options will be used:

• using EURIBOR instead of SOFIBOR;
• using the statistical data of the Bulgarian National Bank on deposits; or
• using internal indices, generally based on information provided by the national regulator and internal bank data.

For further information on this topic, please do not hesitate to contact us.