Transcript 14-5_GOUNEV - Bank of Greece

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
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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
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External sector
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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
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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
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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
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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
%
2007
2008
2009
ROA
2.37
2.14
1.12
ROE
23.90
20.74
9.29
CAR
13.9
14.9
17.04
NPL>90 days
2.02
2.62
6.42
Liquidity ratio
28.00
21.71
21.90
Cost of funds
2.92
3.75
3.85
Loan growth
44.89
24.25
3.60
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Bulgarian banking system – as of Dec.2009
ROA-ROE
24.26%
2.5%
2.47%
30%
24.25% 23.52%
25%
20.45%
2.40%
20%
2.32%
2.14%
2.0%
15%
13.34% 12.21%
9.89%
1.57%
1.5%
1.44%
1.0%
06.2008
09.2008
12.2008
03.2009
ROE -(RHS)
06.2009
10%
5%
1.20%
03.2008
9.29%
09.2009
1.12%
0%
12.2009
ROA -(LHS)
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Bulgarian banking system – as of Dec.2009
Market share of baks on a basis of CAR
80
58
60
56
42
43
40
27
20
0
26
31
15
0
0
0
12.2007
12.2008
2
12.2009
CAR under 12%
CAR between 12%- 13%
CAR berween 13%-15%
CAR above 15%
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Bulgarian banking system – as of Dec.2009
Classified loans 2000-2009
21.00
17.27
16.00
13.14
11.00
13.64
8.60
8.75
7.35
6.92
7.69
5.82
6.07
6.00
5.82
4.35
3.16
3.66
2.03
2.24
2.17
2.02
6.42
2.62
1.00
2000
2001
2002
2003
2004
Total classified loans
2005
2006
2007
2008
2009
Past-due over 90 days
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Greek banks performance as the end of 2009
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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%
NPL’s 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
export’s 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 22.5%
– 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
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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
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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 bank’s 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, riskweighted 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 bank’s 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
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50000 EUR Deposit guarantee in place
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More flexible approach with respect to MRR
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From 12% to 10%
State funds and parent funding are excluded in calculation of deposit base
50% of cash position is eligible for MRR
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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)
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10% Tier 1 ratio is recomended for the whole 2009 and current 2010 (for 2008 is 6%)
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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
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Joint measures on banking group level (home-host coordination of efforts)
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Strengthened prudential supervision
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Thank you for your attention!
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