14-5_GOUNEV

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Preserving financial stability BNB supervisory
perspective Mr. Tsvetan Gounev Head of
Credit institutions supervision
department Bulgarian National Bank Athens, 14
May 2010
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Contents

• Macroeconomic developments in 2009
• Bulgarian banking system as of Dec.2009
• Greek banks performance as of 2009
• The buffers the Bulgarian banking system
• Measures to the banking system
• Macroeconomic outlook for 2010
• Bulgarian banking system current anti-crisis
  measures
• Forthcoming regulatory work in 2010

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Macroeconomic developments in 2009

• External sector
• FDI inflow stood at 8.4 of GDP
• The current account deficit narrowed from 25.4
  to 8.6 of GDP
• Monetary and lending developments
• Slower annual credit growth rate of 3.6 in 2009
  (down from 24.2 in 2008)
• BNB reduced the MRR ratio, eased the claims
  classification and provisioning rules and
  improved the monitoring of the non-bank financial
  sector
• Real sector
• The real GDP is estimated to have contracted by
  5 in 2009
• Tightened lending policy have negatively
  influenced the investment dynamics
• The net export of goods and services contributed
  positively to the GDP dynamics by 12 p.p.

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Macroeconomic developments in 2009

• Labour market
• The unemployment accelerated throughout the year
  to reach 6.8 - annual growth rate in 2009 is
  2.8
• Fiscal policy
• The budget deficit - 0.8 of GDP on cash basis
  and 1.9 of GDP on accrual basis
• The Government debt-to-GDP ratio remains below
  15 in 2009.
• Inflation
• End-of-year inflation was 1.6 and annual average
  inflation was 2.5 (down from 12 in 2008)

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Bulgarian banking system as of Dec.2009

• Stable financial fundaments
• Pro-active policy of BNB in recent years (a lot
  of measures were undertaken to cool loan growth),
  which established a solid ground for bank
  intermediation
• Comfortable level of solvency (17.04) after
  revaluation losses, although
• Loan portfolio is deteriorating
• All classified loans are 13.6 of total loans
• Past-due loans over 90 days are 6.4 of total
  loans
• Coverage ratio of past-due loans over 90 days is
  80
• Coverage ratio of past-due loans over 180 days is
  119
• Unaffected capital buffers, accumulated as a
  result of anti-cyclical policy of BNB
• Smaller profit compared to previous years, but
  still based on core activities after impairments
  and taxes
• Good level of liquidity (21.90)
• Growth of local deposits
• Stable parent funding

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Top ten risks in terms of the importance and
impact of the risks as of Dec.2009 and outlook
for 2010
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Bulgarian banking system as of Dec.2009
8
Bulgarian banking system as of Dec.2009
9
Bulgarian banking system as of Dec.2009
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Bulgarian banking system as of Dec.2009
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Greek banks performance as the end of 2009

• Market share in terms of total assets 28
• Market share in terms of total loans 30
• CAR av. 14.68
• Tier 1 ratio av. 13.39
• Impaired loans/total loans av. 17.03
• NPLs ratio av. 7.04
• Liqiudity ratio av. over 20
• ROA varies from 1.26 to ( 5.73)
• ROE av. varies from 3.25 to 10.59
• The supervision risk assessment is 2 ( among 5
  rates of estimations in line with CAMELOS RAS)
  Acceptable performing.

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The buffers of the Bulgarian banking system

• The conservative application of the capital
  adequacy regime in Bulgaria and the maintenance
  of increased capital requirements by banks
  provided for a cushion against unexpected
  losses during the crisis
• 12 minimum capital adequacy ratio
• Non-inclusion of interim profit until 2008,
  eligibility criteria for inclusion after 2008
• Increased risk weights in the Retail and
  Mortgages exposure classes
• Conservative approach to usage of prudential
  filters (e.g. no recognition of unrealised gains
  from financial instruments)
• Reduced reliance on hybrids and other non typical
  capital instruments
• Introduction of a specific supervisory
  provisions, aimed at capturing the amount of
  potential future losses

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Measures to the banking system

• Some of the most important steps to grant the
  smooth functioning of the banking systems were
• Reduction of the minimum reserves requirement in
  2008
• Increased frequency of on-site examinations with
  special focus in risk areas
• Increased dialogue with the bank managers and
  frequent update on the financial situation,
  including ad-hoc reports
• Advising banks to maintain additional capital
  above the regulatory minimum
• Advising banks to maintain liquidity ratios well
  above the regulatory minimum
• Requiring from banks to perform regular stress
  tests under different assumptions

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Measures to the banking system

• Increased dialogue with home supervisors, focused
  on issues of the local subsidiary
• Issuing recommendation for non-distribution of
  dividends by banks
• Raising the minimum guaranteed amount of customer
  deposits to 50,000 EUR in 2009
• Widening the scope of supervision introduction
  of registration requirements for other financial
  institutions (e.g. leasing, cash credit, etc.)
• No state aid or government guarantees were
  provided to commercial banks during the crisis

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Macroeconomic outlook for 2010

• External sector
• The downward correction of the current account
  deficit is expected to continue in 2010, but at a
  much lower pace. The main factor will be export
  growth as opposed to domestic demand contraction
• Stable FDI inflows to cover the CA deficit
• Bank lending
• In 2010 lending will gradually accelerate with
  credit growth rates expected to remain at single
  digit levels
• Real sector
• GDP growth in the range of 0 to 1 as the
  private consumption stabilizes and the net
  exports contribution remains positive
• The improvement of the export capacity of the
  companies will be a major factor for the expected
  positive economic growth

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Macroeconomic outlook for 2010

• Labour market
• The unemployment rate will continue to increase
  moderately due to delayed effects of the 2009
  economic downturn
• The economic recovery is expected to influence
  positively the labour market, but not before the
  last quarter of 2010
• Fiscal policy
• The government will continue to follow a strict
  fiscal discipline in 2010
• The general government budget for 2010 is planned
  to be balanced
• Inflation
• In 2010 inflation is expected to remain at a low
  level in the range of 2-2.5
• The gradual increase in international commodity
  prices and the rise in excise duties on tobacco
  are projected to be the main contributors to
  inflation in 2010
• Domestic demand is not expected to exert
  inflationary pressures

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Changes in Prudential Regulations and Supervisory
Practices - September 2008-2009

• Amendments to Ordinance No 9 (evaluation and
  classification of banks risk exposures and
  allocation of provisions to cover credit risk)
• Make it easier for credit institutions to
  renegotiate credit conditions
• Introduce a threshold of BGN 100 000 above which
  a risk exposure or pool of exposures shall be
  evaluated and classified individually and below
  which exposures may be aggregated in portfolios
  by similar characteristics
• Expand range of acceptable collateral
• Amendments to Ordinance No 8 (on capital adequacy
  of credit institutions)
• Segregation of exposures past due more than 90
  days in a separate class for banks under the
  standardized approach
• Unrated investment firms to get the same
  risk-weighting (not more than 50) applied to
  exposures to credit institutions according to the
  CRD. These changes also apply to administrative
  bodies and public sector entities.
• Inclusion of interim profit in banks capital

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Forthcoming regulatory work in 2010

• Transposition of EU Directives in the banking
  sphere and elaboration of legal acts and
  ordinances
• Ordinance No 8 amendments - retail exposures
  currently risk-weighted at 100 and exposures
  backed by elligible residential mortgages,
  risk-weighted at 50, to be weighted at 75 and
  35 resp.
• Retained earning no longer need to be voted on by
  the general assembly to be included in the banks
  capital
• Implementation of CRD amendments (Tier I own
  funds items, changes to large exposures regime,
  new supervisory arrangements and crisis
  management provisions, new requirements on
  securitisation)
• Implementation of CRDIII amendments for Q4 2010
  (issues of remuneration policy (currently applied
  through a BNB guideline), resecuritisation and
  securitisation, market risk models in the trading
  book)

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Bulgarian banking system current anti-crisis
measures

• 50000 EUR Deposit guarantee in place
• More flexible approach with respect to MRR
• From 12 to 10
• State funds and parent funding are excluded in
  calculation of deposit base
• 50 of cash position is eligible for MRR
• No dividend payments for 2008, similar measures
  were taken on a case-by-case basis for the 2009
  results
• Conservative approach with respect to
  provisioning, creating capital buffers Additional
  provisioning as capital deduction is required
  (above IFRS impairment losses)
• 10 Tier 1 ratio is recomended for the whole 2009
  and current 2010 (for 2008 is 6)
• 15 coverage of attracted funds from households
  and companies (local and foreign) with liquid
  assets is recomended for the previous 2009 and
  for the current 2010
• Joint measures on banking group level (home-host
  coordination of efforts)
• Strengthened prudential supervision

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• Thank you for your attention!