Bulgaria’s locally-owned First Investment Bank (FIBank) plans to raise BGN200mn (€103mn) in order to cover the capital shortfall found by the European Central Bank during an asset quality review (AQR) in 2019, the bank said in a statement on December 20.

The latest asset quality review and stress test of the banks in Bulgaria, carried out by the ECB, found capital shortfalls at two out of six Bulgarian banks – FIBank and Investbank. The same two banks failed the previous asset quality review and stress test and were required to build up additional capital buffers.

ECB has noted that FIBank had a shortfall of €262.9mn, while Investbank’s was €51.8mn.

According to FIBank’s statement filed on the Bulgarian Stock Exchange website, it will offer 40mn new shares valued at BGN5 per share. It would consider the issue successful only if at least 4mn shares are sold at the offer price.

Earlier in December, Investbank also announced plans to convert debt into shares and launch an IPO on the bourse in Sofia in order to increase its capital and meet the requirements of the ECB.

Investbank will convert €20mn subordinated term debt into capital, which would cover around 40% of its shortfall, while the remaining capital should be secured via a bourse listing.

In October 2019, Elke König, head of the European Banking Restructuring Council, said that Bulgaria could join the Exchange Rate Mechanism (ERM II) in the first or second quarter of 2020.

The country has already applied for membership in ERM2 and the European banking union, and meets the nominal criteria to adopt the European common currency, with its currency, the Bulgarian lev, pegged to the euro, low inflation and healthy public finances. However, the EU has demanded that Bulgaria also check its banking system due to suspicions that some locally-owned banks are not stable enough.

In February 2019, Bulgaria’s Prime Minister Boyko Borissov said he was certain the country will enter ERM2 in July 2019. However, the deadline set by the government passed without any signal from the EU on possible timeframe.