Transcript The Financial Sector in the European Semester

The Financial Sector in
the EU Economic
Surveillance
Aglika Tzvetanova
European Semester Officer for Bulgaria
Sofia, 4 December 2014
From Analysis To Policy
Conclusions
• 1. The financial sector in the Scoreboard of the
Macroeconomic Imbalance Procedure (MIP)
• 2. The financial sector in the In-depth Reviews
(IDPs) of the MIP and the Staff Working
Documents (SWDs) of the European Semester
• 3.The financial sector in the Country-Specific
Recommendations (CSRs)
"Financial" Indicators In The MIP
Scoreboard
Indicators of external imbalances:
• NIIP* as % of GDP (-35%).
Indicators of internal imbalances:
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Y-o-y change in deflated house prices (6%)
Private sector credit flow as % of GDP (14%)
Private sector debt as % of GDP (133%)
Y-o-y change in total financial sector liabilities (16.5%)
Three factors are taken into account:
• Private sector indebtedness
• The growth of the financial sector
• Net inflation in the housing market
* The difference between a country's external financial assets and liabilities is its net international
investment position (NIIP).
Banks And Finance In The
Analytical Work
• The scoreboard is very useful for an aggregated
cross-country comparison.
• The analysis continues based on a countryspecific assessment of latest developments in the
IDR/SWD:
• in the banking sector as a whole (deposits, loans, quality of
assets, solvency, liquidity, arrears management, etc.)
• with specific banks (liquidity or solvency failures, support
schemes, restructuring, etc.)
• with other non-bank intermediaries
• in the supervisory and regulatory framework
• Identification (or not!) of underlying imbalances
or of policy failures, threatening financial stability
The End-Result: Financial Sector
Related CSRs
• The 2014 exercise concerned 13 member states.
• Detailed post-program CSRs: IE, ES, HU and PT.
• CSRs with respect to bank vulnerabilities: DE,
HR, IT, AU and SI. A very diverse group!
• CSRs with respect to access to finance: IT, MT
and the UK.
• CSRs with respect to indebtedness and the
housing market: NL, SE and the UK.
Country Generalised content
Type
DE
Consolidation and governance framework of the Landesbanken sector
Bank vulnerabilities
IE
Financing of SMEs; progress with arrears management
Post programme
ES
Return to private funding, widen access to finance, improve insolvency frameworks
Post programme
HR
Asset Quality Review and Stress Test the system
Bank vulnerabilities
IT
Management of impaired assets, access to finance, improve corporate governance
Bank vulnerabilities
and access to
HU
Restore lending flows to the economy, insolvency framework, enhance regulation and
supervision
Post programme
MT
Facilitate access to capital markets
Access to finance
NL
Reform the housing market through reduction of interest deductability
Indebtedness and
housing market
AU
Advance the restructuring of the nationalised banks
Bank vulnerabilities
PT
SI
SE
UK
Monitor liquidity, reduce the corporate debt overhang, re-channel financing to productive
Post programme
SMEs, improve supervision
Restructure and privatise state-owned banks, finalise banks' comprehensive action plans,
Bank vulnerabilities
business plan for the BAMC
Indebtendess and
Household and private indebtedness
housing market
Housing market, and risks related to high mortgage indebtedness; improve availability of Housing market and
financing to SMEs
access to finance
The Case Of Bulgaria
2013 Scoreboard reading:
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NIIP is at -76.2% of GDP vs. -78.2% in 2012;
Private sector debt is at 134.8% of GDP vs. 128.1% in 2012;
Financial sector liabilities grew by 3.3% vs. 10.2% in 2012;
Housing prices are stagnating, after several declines;
Overall conclusion: no evident financial sector imbalances.
Country-specific analysis:
• Very good aggregate solvency (core Tier 1 of 20.3%) and
liquidity (24.8%) indicators. NPLs are persistently high, though.
• One bank ran illiquid, got resolved very slowly by international
standards, depleted and indebted the Deposit Insurance Fund.
• Another bank received liquidity support for 15-20% of its
funding base and rescheduled the support, while continuing to
lose liquidity.
• Issues with asset quality, governance, supervision, resolution?