UPDATE 1-Bulgaria's central bank deputy surprisingly quits

Central bank deputy governor Dimitar Kostov announced his surprise early resignation on Friday as Bulgaria prepares to join the European Union's banking union later this year in anticipation of adopting the euro currency. Kostov, 61, began a six-year term in mid-2015 in charge of banking supervision as one of three deputy governors.

The central bank quoted Kostov as saying he had wanted to step down last year after intensive work and the implementation of the bulk of planned reforms, but he delayed that to help Bulgaria's aspiration to join the EU banking union. "Today, when we have established very good communication with the European Central Bank ... there is the possibility to withdraw," he said.

His exit comes as the European Central Bank (ECB) is carrying out an asset quality review (AQR) at six Bulgarian lenders as part of the process of joining the banking union. Last July, Bulgaria, an EU member since 2007, applied to join simultaneously the union and the ERM-2 currency mechanism, prerequisites for eventually adopting the euro.

ECB RESISTANCE The ECB, however, has resisted a fast track to euro membership, saying Bulgaria's banks require tougher supervision.

The AQR and the stress tests on lenders were only the early stage of a complex process towards the banking union which he believed should be handled by a new deputy governor with a six-year horizon, Kostov said. Finance Minister Vladislav Goranov expressed regret Kostov did not stay until the AQR results, but said his resignation should not be a cause for concern at the ECB. The central bank governor would propose a replacement within two weeks, he added.

"I understand this is a long considered personal decision. I thank him and I am sorry he did not consider at least a few months more to the second half of the year when we should get an estimate from the ECB," Goranov told local radio. Kostov oversaw reforms at the central bank aimed at boosting trust in the banking supervisor following the collapse of Bulgaria's fourth largest lender Corpbank in 2014.

Bulgaria hopes to join the banking union and the ERM-2 mechanism in July, enabling it to adopt the euro after 2022. Its lev currency is already pegged to the euro Sofia meets the nominal criteria to adopt the single currency, with low inflation and healthy public finances, but is also the EU's poorest state and one of its most corrupt. (Reporting by Angel Krasimirov and Tsvetelia Tsolova; Editing by Janet Lawrence and Andrew Cawthorne)