BULGARIAN NATIONAL BANK
www.bnbank.org
Bulgarian Banking Towards EU
by
Tsvetan Manchev
Deputy Governor
Bulgarian National Bank
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
Hilton Hotel, Sofia, Bulgaria
30-31 January 2006
BULGARIAN NATIONAL BANK
SUMMARY
 Sustainable economic development - key factor for the
sound banking system;
 The Bulgarian Banking Sector on the eve of the EU
membership – the role of structural reforms;
 Major challenges for Bulgarian Banking System on its
way to membership in the Eurozone;
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
www.bnbank.org
CURRENT ECONOMIC
DEVELOPMENT
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
Hilton Hotel, Sofia, Bulgaria
30-31 January 2006
BULGARIAN NATIONAL BANK
GDP REAL GROWTH
6%
4.6%
5%
4%
3%
2%
1%
0%
1998
1999
2000
2001
2002
Average 98 - 06
2003
2004
2005e
2006f
Source: NSI, IMF
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
CPI
(annual average)
25.1
15
13
11
%
9
7.8
7
5
3
1
-1
1998
1999
2000 2001
2002
2003 2004
2005 2006f
Average 98 - 06
Source: NSI, IMF
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
INTEREST RATES CONVERGENCE
(annual average values)
%
15
10
5
Euro-zone long-term bond rates
Time deposits (BGN)
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
0
Treasury bonds (BGN)
Long-term credits (BGN)
Source: BNB, Eurostat
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
UEMPLOYMENT RATE
800
25
700
20
500
15
%
in thousand
600
400
10
300
200
5
100
0
0
1997
1998
1999
2000
Number of unempoyed
2001
2002
2003
2004
2005
2006f
Unemployment rate (end of period)
Source: National Employment
Agency, BNB
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
GENERAL GOVERNMENT BUDGET BALANCE
(% GDP)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
3
2.2
1.7
1.1
0
-1.5
1997
1998
-1
-1
-0.8
-0.7
1999
2000
2001
2002
2003
2004
2005e
2006f
(+) surplus (-) deficit
Source: MoF, IMF
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
GOVERNMENT DEBT
(% GDP)
100
90
80
70
60
50
40
30
20
10
0
83.1
86.7
77.1
69.9
56.2
48.2
40.9
32.4
1998
1999
2000
2001
2002
2003
2004
2005e
28.6
2006f
Source: MoF, IMF
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
MAASTRICHT CRITERIA FOR NOMINAL CONVERGENCE
BUDGET SURPLUS (+) OR DEFICIT (-)
(% OF GDP)
4
%
2
%
0
2002
2003
2004
2005e
-2
GOVERNMENT DEBT
(% OF GDP)
70
60
50
40
30
20
10
0
-4
Bulgaria
-6
2002
Bulgaria
New member states
Reference value
Source: NSI, MoF, EC
Source: NSI, MoF, EC
INFLATION
LONG-TERM INTEREST RATES
8
7
6
5
4
3
2
1
0
8
6
%
%
2003
2004
2005e
New member states
Reference value
4
2
0
2002
Bulgaria
2003
New member states
2004
2005e
Reference value
Source: BNB, ECB
2002
Bulgaria
2003
2004
New member states
2005e
Reference value
Source: NSI, EC
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
www.bnbank.org
BANKING SECTOR REFORM
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
Hilton Hotel, Sofia, Bulgaria
30-31 January 2006
BULGARIAN NATIONAL BANK
PREDOMINANT FOREIGN CONTROL ON BANK ASSETS AND CAPITAL
(as of 30 September 2005)
State-owned and
Municipal Banks,
1.86%
Local Private
Banks, 23.60%
Foreign Banks,
74.54%
Source: BNB
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
*
20
05
20
04
20
03
20
02
20
01
20
00
19
99
80
70
60
50
40
30
20
10
0
19
98
%
BANKS DOMINATE FINANCIAL MARKETS
Total bank assets (% GDP)
Pension f und assets (% GDP)
Insurance premiums (% GDP)
Stock market capitalization (% GDP)
*Preliminary data
Source: BNB, FSC, BSE
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
INCREASING COMPETITION
(THE SHARE OF THE FIRST FOUR BANKS IN TOTAL BANK ASSETS AS OF THE END OF THE YEAR)
60
50
%
40
30
20
10
0
19
99
20
00
20
01
20
02
20
03
20
04
IX
0
.2
05
Source: BNB
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
HIGH GROWTH AND SOUND QUALITY
40%
35%
30%
25%
20%
15%
10%
5%
0%
Growth Rates
Assets
Equity
34%
Loans
Attracted Funds
33%
36%
 Bank assets are growing
25%
very rapidly
 Strongly capitalized
 High liquidity is
November 2004 - November 2005
Source: BNB
maintained
 Asset quality remains
Quality of Loan Portfolios
(%)
7.0 6.9
2.4
6.5
2.0
7.6
1.8
very good
8.0
2.2
2.3
Q3 Q4
Q1 Q2 Q3
2004 2004 2005 2005 2005
Total
Classifield
Loans
Nonperforming
Source: BNB
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
EFFICIENCY AND HIGH PROFITABILITY
ROA
2.5
2.4
%
2.3
2.2
2.1
2
1.9
XII 2002
XII 2003
XII 2004
IX 2005
Source: BNB
ROE
25
20
%
15
10
5
0
XII 2002
XII 2003
XII 2004
IX 2005
Source: BNB
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
INCREASING ROLE OF THE BANKING FOR THE REAL SECTOR
FINANCING
CREDIT TO HOUSEHOLDS GROWTH RATES
 Bank credit growth is
Consumer
150%

Residential
100%
Loans to households
50%

0%
1999
2000
2001
2002
2003
2004
XI 2005
Source: BNB

CREDIT GROWTH RATES

Business loans BGN
80%
Business loans FX
60%
Loans to business sector and
households
40%

20%
0%
1999
2000
2001
2002
2003
2004
returning to sustainable level
Banks are predominantly
externally funded
Business sector credit
demand is investment driven
Long term loans to business
sector grow faster than short
term
Business sector has a good
access to lending from
abroad
Residential loans to
households are growing very
rapidly
2005*
Source: BNB
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
CHALLENGES FOR BANKING SECTOR
Smooth adoption of the EU directives
Basle II implementation
Sustainability of the credit growth
Interest rates convergence
Mergers and acquisitions
Better corporate governance and transparency
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
CHALLENGES FOR BNB
Short-term challenges
Fine-tuning of the process of bank lending
Enforcement of the new legislation related to the EU membership
–Law on Credit Institutions transposing Re-casting Directive 2000/12/EC relating
to the taking up and pursuit of the business of credit institutions, Directive
2001/24/EC on credit institution reorganisation and Directive 2000/46/EC on the
taking up, pursuit of and prudential supervision of the business of electronic
money institutions;
– Consumer Credit Law
– Full transposition of Directive 2002/47/EC on financial collateral and Directive
2002/87/EC on financial conglomerates;
Medium-term challenges are linked with the full-fledged EMU
membership
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
BULGARIAN NATIONAL BANK
www.bnbank.org
Thank you for your attention!
THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE
FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE
Hilton Hotel, Sofia, Bulgaria
30-31 January 2006