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

DEPOSIT INSURANCE AS AN ELEMENT OF
BANKING SECTOR STABILITY
Organized by Eurasia Regional Committee of IADI

Kiev, 25-27 May 2004

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

Ms. Stefana Drianovska, Expert, International Cooperation
Bulgarian Deposit Insurance Fund

Participants in the Financial Safety Net

Central Bank (BNB)

Banking Supervision Department


Eurasia Regional Conference Kiev, 25-27 May 2004

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 Department


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 Supervision


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 1999


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)


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.


Bulgarian DIS - Main Features

Membership

Coverage

Funding

Investment

Repayment


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)


Coverage

Scope of coverage

– deposits of physical persons and legal entities

– deposits in national and foreign currency


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’


Coverage

Level of coverage
– currently in full up to BGN 15,000 (EUR 7,670)

Application of coverage limits
– per depositor per bank


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)


Funding

Entry premiums from banks

Annual premiums from banks

Interest on BDIF investments

Proceeds resulting from BDIF subrogated claims

Other (loans)


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 system

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 Bank


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 premiums

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%


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 BNB


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%


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 powers

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 proceeding


Control over Failed Banks

Under LBB BDIF has taken control over four failed banks

Expressed interest for purchase of failed banks

Negotiations under way


Accountability of BDIF

Council of Ministers, BNB, National Audit Office

BDIF financial activities audited by National Audit Office


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 reappointment

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

Cleaner


BDIF Dedicated Staff

15 dedicated experts

Personnel Management Policy

Internal Rules for Ethical Behavior

Training


BDIF Public Relations

Objectives and principles

Organization of activities

Public Relations Rules

PR and communications activities


BDIF International Cooperation

International Association of Deposit Insurers – IADI

European Forum of Deposit Insurers – EFDI

Bilateral cooperation


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 risk


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. 2001


How to Contact BDIF

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.bg


Thank you for your attention


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

Recommended

Recommended

More Related Content

More from BDIF ФГВБ

More from BDIF ФГВБ (8)

Recently uploaded

Recently uploaded (20)

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