How Will the ECB’s Geopolitical Risk Stress Test in 2026 Change Bulgaria’s Banking Sector?

In 2026, the European Central Bank (ECB) is introducing a new type of stress test for eurozone banks, including Bulgarian institutions. The focus is on geopolitical risks — scenarios simulating the impact of military conflicts, trade wars, cyberattacks, or global liquidity shortages. For the first time, banks will be required to design their own scenarios that could lead to significant capital losses.

Why is this test different?

The ECB’s approach is known as a reverse stress test: regulators set target capital losses, and banks must identify which geopolitical events could cause them. This process will demand enhanced preparation, especially for smaller banks and local branches of foreign institutions.

Potential effects on Bulgarian banks

The banking sector in Bulgaria, part of the European Banking Union since 2020, will need to:

• Increase capital buffers to absorb potential losses;
• Improve liquidity management and scenario planning;
• Limit lending to sectors with high exposure to geopolitical risks (such as exporters to sensitive regions);
• Invest in IT systems to manage cyber risks.

Scenarios by 2027

Scenario A: Preventive stability

Banks raise their capital requirements and maintain significant buffers. The system becomes stronger, but lending opportunities—especially for SMEs—may be constrained.

Scenario B: Adjusted credit policies

A focus on resilience leads to stricter requirements for borrowers and reduced lending to high-risk sectors. The effect could be a moderate slowdown in economic activity.

Scenario C: Active adaptation and innovation

Bulgarian banks create dedicated geopolitical analysis units and introduce new financial tools to hedge risks. As a result, the sector becomes more competitive and resilient.

Conclusion

The ECB’s informed stress test is a key step towards enhancing banking sector resilience. For Bulgaria, it presents challenges and opportunities to modernize risk management and strengthen market confidence.

Disclaimer:
This article is an analytical review by the BurgasMedia editorial board and reflects the opinion of an expert group based on current political, economic, and social developments.
The conclusions presented are not predictions or factual statements, but a hypothetical interpretation of possible scenarios.
The publication is not responsible for any discrepancies with future developments and encourages readers to form independent judgments based on verified sources.