Deposit Insurance as an Element of Financial Safety Net: The Case of Bulgaria

357 views

Published on

Conference organised by Eurasia Regional Committee of the International Association of Deposit Insurers (IADI) - Kyiv, Ukraine, 25 - 27 May 2004.

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
357
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Deposit Insurance as an Element of Financial Safety Net: The Case of Bulgaria

  1. 1. DEPOSIT INSURANCE AS AN ELEMENT OF BANKING SECTOR STABILITYOrganized by Eurasia Regional Committee of IADI Kiev, 25-27 May 2004 Deposit Insurance as an Element of Financial Safety Net: the Case of BulgariaMs. Stefana Drianovska, Expert, International Cooperation Bulgarian Deposit Insurance Fund
  2. 2. Participants in the Financial Safety Net Central Bank (BNB) Banking Supervision Department Bulgarian Deposit Insurance FundEurasia Regional Conference Kiev, 25-27 May 2004
  3. 3. Bulgarian National Bank Lender of last resort (LLR) Introduction of the Currency Board in mid 1997 – no LLR – lending facility – the deposit of the Banking Department with the Issue DepartmentEurasia Regional Conference Kiev, 25-27 May 2004
  4. 4. BNB Banking Supervision Dept. Drafts regulations (approved by the BNB) Supervises banks Banking Supervision Directorates – Supervision Policy and Methodology – Supervision Administration – On-site Supervision – Off-site Supervision and Analysis – Special SupervisionEurasia Regional Conference Kiev, 25-27 May 2004
  5. 5. Bulgarian Deposit Insurance Fund Bulgarian Deposit Insurance Fund (BDIF) was established by the Law on Bank Deposit Guaranty passed in April 1998 BDIF is a legal entity effectively operating as of January 1999Eurasia Regional Conference Kiev, 25-27 May 2004
  6. 6. BDIF Mandates and Powers Law on Bank Deposit Guaranty (1998) - determines and collects annual and entry premiums from banks - invests its assets in accordance with the provisions of the LBDG - repays the insured amount of deposits in failed banks Law on Bank Bankruptcy (2002)Eurasia Regional Conference Kiev, 25-27 May 2004
  7. 7. BDIF Mission The Bulgarian Deposit Insurance Fund insures depositors’ funds in banks and protect the interests of creditors in bank bankruptcy proceedings, hence promoting stability and confidence in the banking system, and contributing to economic growth and prosperity in Bulgaria.Eurasia Regional Conference Kiev, 25-27 May 2004
  8. 8. Bulgarian DIS - Main Features Membership Coverage Funding Investment RepaymentEurasia Regional Conference Kiev, 25-27 May 2004
  9. 9. Membership Mandatory membership for all banks legally licensed to take deposits Under certain circumstances only foreign banks’ branches may be allowed not to participate in the system 32 members institutions (incl. 3 foreign banks’ branches)Eurasia Regional Conference Kiev, 25-27 May 2004
  10. 10. Coverage Scope of coverage – deposits of physical persons and legal entities – deposits in national and foreign currencyEurasia Regional Conference Kiev, 25-27 May 2004
  11. 11. Coverage Exclusions – deposits of: banks and nonbank financial institutions; insurers; pension and social securities funds; investment intermediaries and companies; privatization funds; government and government institutions; municipalities; the BDIF – bank’s senior officers and auditors, shareholders of more than 5% of bank’s equity, and their close relatives; preferential rate deposits – deposits associated with ‘money laundering’Eurasia Regional Conference Kiev, 25-27 May 2004
  12. 12. Coverage Level of coverage – currently in full up to BGN 15,000 (EUR 7,670) Application of coverage limits – per depositor per bankEurasia Regional Conference Kiev, 25-27 May 2004
  13. 13. Increase of Coverage 1998 BGN 6,900 (EUR 3,528) 2002 BGN 10,000 (EUR 5,113) 2003 BGN 15,000 (EUR 7,670) 2005 BGN 22,000 (EUR 11,248) 2007 BGN 39,400 (EUR 20,043)Eurasia Regional Conference Kiev, 25-27 May 2004
  14. 14. Funding Entry premiums from banks Annual premiums from banks Interest on BDIF investments Proceeds resulting from BDIF subrogated claims Other (loans)Eurasia Regional Conference Kiev, 25-27 May 2004
  15. 15. Banks Premiums – Flat Rate System Entry premiums – 1% of registered capital; to be paid within 30 days from the date of bank registration Annual premium contributions – 0.5% of total amount of previous year’s deposit base (insured) determined on average daily basis; due by March 31 in the current year BDIF is considering the introduction of a risk-adjusted premium systemEurasia Regional Conference Kiev, 25-27 May 2004
  16. 16. BDIF Investment Activity DIF resources are invested in: – securities issued or guaranteed by the Bulgarian government – short-term deposits with commercial banks – authorized primary dealers of government securities – deposits with the Bulgarian National BankEurasia Regional Conference Kiev, 25-27 May 2004
  17. 17. Financing within Shortfall of Resources By decision of BDIF Board shortfall may be covered by: – requiring an advance payment of premiums – increasing the annual premium (max. 1.5%) – drawing loans Loans: – from the market – from the budget after a decision of Parliament Loans may be secured by government guarantee or BDIF assets, incl. future claims on banks for annual premiumsEurasia Regional Conference Kiev, 25-27 May 2004
  18. 18. BDIF Resources Target size of resources – 5% of the total amount of insured deposits in the banking system Current funds of BDIF – BGN 247 mio (EUR 126 mio) Ratio of BDIF funds / deposits – 2.23%Eurasia Regional Conference Kiev, 25-27 May 2004
  19. 19. Repayment of Insured Amounts of Deposits Deposits are repaid only in national currency Repayment of insured amounts of deposits is done via a servicing bank determined by the BDIF Management Board Repayment begins not later than 45 days from the date of revocation of bank’s license by BNBEurasia Regional Conference Kiev, 25-27 May 2004
  20. 20. Repayment of Insured Amounts of Deposits BDIF has successfully performed its insurance function in the only two bank failures since its establishment Credit Bank (Jan. 1999) – 94% Balkan Universal Bank (Feb. 2000) – 63%Eurasia Regional Conference Kiev, 25-27 May 2004
  21. 21. BDIF Functions under Law on Bank Bankruptcy Performs control over the lawful and appropriate exercise of trustee’s powers: – appoints and removes a trustee – determines trustee’s remuneration – controls trustee’s expenses – controls transactions made by the trustee – issues methodological instructions to trustee relating to the exercise his powersEurasia Regional Conference Kiev, 25-27 May 2004
  22. 22. Functions under Law on Bank Bankruptcy Prepares drafts regulations: – Regulation on the reporting requirements and trustee’s budget – Regulation on trustee’s remuneration – Regulation on the BDIF inspections in the banks in bankruptcy – Tariff on the fees collected by the DIF relating to the exercise of its controlling powers in the bankruptcy proceedingEurasia Regional Conference Kiev, 25-27 May 2004
  23. 23. Control over Failed Banks Under LBB BDIF has taken control over four failed banks Expressed interest for purchase of failed banks Negotiations under wayEurasia Regional Conference Kiev, 25-27 May 2004
  24. 24. Accountability of BDIF Council of Ministers, BNB, National Audit Office BDIF financial activities audited by National Audit OfficeEurasia Regional Conference Kiev, 25-27 May 2004
  25. 25. Management of BDIF Managed by a Management Board of five members – physical persons who are designated as follows: – the Chairman – by the Council of Ministers – the Vice Chairman – by the Bulgarian National Bank – one member – by the Association of Commercial Banks – two members – jointly by the Chairman and the Vice Chairman Four years mandate; no restriction on reappointmentEurasia Regional Conference Kiev, 25-27 May 2004
  26. 26. BDIF Organization Chart (as of 1 January 2004) Management Board Expert Assistant Chairman of the MB Investment International Personnel & Legal Banking Accounting Supporting Management Cooperation Qualification Dept. Dept. Dept. Activities Dept. & PR Dept. Dept. 2 Legal 4 Chief 2 Investment Chief Chief Driver Advisors Experts Operations Accountant Expert Managers Steward Investment Senior Expert Expert Operations Accountant Expert 2 Guards CleanerEurasia Regional Conference Kiev, 25-27 May 2004
  27. 27. BDIF Dedicated Staff 15 dedicated experts Personnel Management Policy Internal Rules for Ethical Behavior TrainingEurasia Regional Conference Kiev, 25-27 May 2004
  28. 28. BDIF Public Relations Objectives and principles Organization of activities Public Relations Rules PR and communications activitiesEurasia Regional Conference Kiev, 25-27 May 2004
  29. 29. BDIF International Cooperation International Association of Deposit Insurers – IADI European Forum of Deposit Insurers – EFDI Bilateral cooperationEurasia Regional Conference Kiev, 25-27 May 2004
  30. 30. Interrelationship Among Safety Net Participants Law on Bank Deposit Guaranty stipulates that Bulgarian National Bank (BNB) provides BDIF with the information on bank deposits needed to calculate contributions paid by banks as well as bank financial information to facilitate assessment of BDIF insurance riskEurasia Regional Conference Kiev, 25-27 May 2004
  31. 31. Interrelationship Among Safety Net Participants Memorandum of Understanding between BNB and BDIF, signed Nov. 1999 Letter of Cooperation signed with the Association of Commercial Banks, Aug. 2001Eurasia Regional Conference Kiev, 25-27 May 2004
  32. 32. How to Contact BDIF Bulgarian Deposit Insurance Fund 2, Graf Ignatiev Str., 3rd Floor, 1000 Sofia, Bulgaria Tel.: +359 2 980 1438; Fax: +359 2 988 8207 E-mail: contact@dif.bg Internet: http://www.dif.bg or International Cooperation and Public Relations Dept. Ms. Stefana Drianovska, Expert Tel: +359 2 981 3809; E-mail: s.drianovska@dif.bgEurasia Regional Conference Kiev, 25-27 May 2004
  33. 33. Thank you for your attentionEurasia Regional Conference Kiev, 25-27 May 2004

×