ANNUAL REPORT . 2017 Bulgarian National Bank

ANNUAL REPORT • 2017 Published by the Bulgarian National Bank 1, Knyaz Alexander I Square, 1000 Tel.: (+359 2) 9145 1351, 9145 1209, 9145 1806 Fax: (+359 2) 980 2425, 980 6493 Printed in the BNB Printing Centre Website: www.bnb.bg © Bulgarian National Bank, 2018 The BNB Annual Report for 2017 employs statistical data published by 22 March 2018. Materials and information in the BNB Annual Report 2017 may be quoted or reproduced without further permission. Due acknowledgement is requested.

ISSN 1313-1494 (print) ISSN 2367-492X (online) Honourable Madam National Assembly Chair; Honourable People’s Representatives:

I have the pleasure of forwarding to your attention this, the Bank’s 2017 Annual Report, in discharge of the duty bestowed upon me by the Law on the Bulgarian National Bank Article 1 paragraph 2 and also by Articles 50 and 51 therein. The Report comprises an overview of economic developments, detailed infor- mation on the Bank’s functions and the performance of duties bestowed upon the Bank by the Law on the Bulgarian National Bank, and also of other Bank actions during the year. It further contains a report on the Bank budget and consolidated financial statements (audited) by 31 December 2017, accompa- nied by an opinion of the international auditors and information on major BNB Governing Council resolutions under Article 17, paragraph 5 of the Law on the Bulgarian National Bank. In 2017 the Bank continued to seek price stability as its primary duty: a duty discharged by safeguarding national currency stability and by prosecuting a as provided for by the Law on the Bulgarian National Bank. The Bank also performed other functions and discharged other duties as man- dated in Law: managing gross international reserves; operating and overseeing payment systems; monitoring banks’ reserves deposited with the BNB; manag- ing currency circulation; maintaining banking system stability and protecting depositor interests; resolving credit institutions; participating in the European System of Central Banks and other EU bodies; acting as fiscal agent and offi- cial depository; and providing statistics. Further Bulgarian National Bank duties included running the Central Credit Register and the Bank Account and Safe Deposit Box Register, conducting research, managing human resources, and internal auditing. Over the course of 2017 the Bank devoted especial attention to the following four areas within its overall purview: • Optimising overall governance. Law on the Bulgarian National Bank amendments assigned to the Governing Council powers, which had previously resided with the Banking and Banking Supervision Deputy Governors, relating to supervision, early intervention, approvals, au- thorisations, and consent. Governance and management decision making functions are now cognisant of this optimisation at the operational level. • Extending banking supervision reform and development. We adopted the Bank Supervisory Process Manual; proposed new statutory moves on lending to internally related parties, most of them enacted in amend- ments to the Law on Credit Institutions; we assessed banks’ ability to implement the new IFRS 9 Financial Instruments standard; we continued harmonising supervision with wider practice by intro- ducing European Banking Authority guidelines. • Development of the activities related to the recovery and resolution of banks: new rules and methods for practical resolutions of credit institu- tions were developed, including methodology for determining individual annual contributions of banks and branches from third countries to the Bank Resolution Fund. • Evolving the statutory framework of payment services, systems, and over- sight. Transposing the Payment Services Directive II, we paid especial attention to the new Law on Payment Services and Payment Systems, in force from 6 March 2018; we also continued harmonising payment super- vision with wider European Union practice by implementing European Banking Authority guidelines. In conclusion, I take this opportunity of advising you of the banking sector’s favourable state this last year. Capital adequacy and liquidity ratios exceeded EU averages, lending continued growing, non-performing loans declined, profits approached historic highs, and equity consolidation continued.

Dimitar Radev Governor of the Bulgarian National Bank BNB Governing Council

Dimitar Radev Governor

Kalin Hristov Deputy Governor Issue Department

Nina Stoyanova Deputy Governor Banking Department

Dimitar Kostov Deputy Governor Banking Supervision Department

Boryana Pencheva

Lena Roussenova

Elitsa Nikolova BNB Governing Council Sitting from left to right: Boryana Pencheva, Nina Stoyanova, Lena Roussenova, Elitsa Nikolova. Standing from left to right: Dimitar Kostov, Dimitar Radev, Kalin Hristov. Organisational Structure of the BNB (as of March 2018)

GOVERNING COUNCIL

GOVERNOR Dimitar Radev

DEPUTY GOVERNOR DEPUTY GOVERNOR DEPUTY GOVERNOR Kalin Hristov Nina Stoyanova Dimitar Kostov Issue Banking Banking Supervision SECRETARY GENERAL General Auditor Department Department Department Snezhanka Deyanova

Fiscal Services Payment Systems and Public Treasury Department On-site Inspections Internal Audit Legal Minimum Required Procurement Directorate Directorate of the BNB Directorate Reserves Directorate Directorate

Government International Risk Analysis and Government Information Payment Supervision Guaranteed Debts Off-site Supervision Relations and Control Directorate Directorate Systems Directorate Directorate Depository Directorate Directorate

Methodology and Projections and Macroprudential Human Resources Issue and Cash Management of State Supervision and Administrative Management Financial Markets Directorate Directorate Budget Cash Flows Financial Stability Directorate Directorate Directorate Directorate

Issuing Policy Specific Supervisory Capital Investment, Registers Public Relations and Control Activities Maintenance and Directorate Directorate Directorate Directorate Transport Directorate

Banking Security and Economic Research Protection of Classified and Forecasting Statistics Supervisory Policy Information Directorate Directorate Directorate Directorate

Resolution of Credit General Accounting Legal Supervisory Institutions Directorate Directorate Directorate Bulgarian National Bank. Annual Report • 2017 8

TARGET2-BNB A EURIBOR TARGET2 SOFIBOR AS ROAD ESA 2010 SOFIBID LRRCIIF BORICA LEONIA BISERA EONIA ESROT CBPP3 NPISH RINGS ABSPP IOBFR LTROs ZUNK LPSPS Ecofin LBDG OPEC LBNB GSAS HICP ESCB ESRB SEPA PSPP BOP EDIS ATM IASB SITC GDP IFRS XAU AQR CCR ROA BNB EUR ROE SDR VAT ECB POS APP EBA MFI IMF BRF VaR NSI WB LCI IAS BIS MF EU EC (Sofia Interbank(Sofia Offered of Rate) is a fixing the quotes for unsecured BGN deposits offered in the Bulgarian interbank market Return onReturn Assets Real-time settlement gross system Public Sector Purchase Programme Point of sale/point a forretail trade terminal of service: credit and debit card transactions Organization of Petroleum Countries Exporting National Institute Statistical Non-profit households institutions serving Monetary Financial Institutions of FinanceMinistry Longer-term refinancing operations Law on the Recovery and Resolution of Credit Institutions and Investment Firms Law on Payment and Payment Services Systems an on real transactions in unsecured overnight deposits in BGN offered at the interbank market Law on Credit Institutions Law on the Bulgarian National Bank Law on Bank Deposit Guarantee System for Budget and Reserve Fiscal Information Servicing International Monetary Fund International Financial Reporting Standards International Accounting Standards Board International Accounting Standards Harmonized Index of Consumer Prices System for Government Sale Securities and Repurchase Auctions Gross Domestic Product Euro InterBank Offered Rate (EURIBOR, registered trademark of the European Money Market EMMI) Institute, euro European Union Electronic System for Registering Government and Servicing Trading Securities European Systemic Board Risk European System of Banks Central European System of National and Regional Accounts Euro OverNight Index Average (registered trademark of the European Money Market EMMI) Institute, European Deposit Insurance Scheme Economic and Council Financial of Affairs the European Union European Bank Central European Commission European Banking Authority CreditCentral Register ECB’s Third Covered Bond Purchase Programme Bank Resolution Fund Bank Organisation for Payments Initiated by Cards balance of payments Bulgarian National Bank Bank Integrated System for Electronic Payments Bank for International Settlements Automated Teller Machine Automated System for Registration of Debt and Servicing External Review Quality Asset PurchaseECB Asset Programme ECB Asset-backedPurchase Securities Programme Law on Settlement of Non-performing Credits Negotiated prior to 31 December 1990 troy ounce gold World Bank value added tax Value-at-Risk Bulgarian system component of TARGET 2 Trans-European Automated Real-time Gross Settlement Express Transfer System for the Euro Interbank(Sofia Bid Rate) is an index calculated as the average of the bid quotes for unsecured BGN deposits Standard International Trade Classification Single Euro Payments Area Special Drawing Rights onReturn Equity bbreviations 9 Bulgarian National Bank. Annual Report • 2017 70 73 74 76 80 86 87 89 90 93 11 17 32 42 49 51 55 68 137

______eserves at the BNB eserves the at ternal Audit ternal Audit ctivity on Resolution of Credit Institutions Institutions Credit of ctivity Resolution on udget Implementation Implementation udget taining Banking Stability and Protecting Depositor Interests Interests Depositor Protecting Stability and Banking taining nomic Development in 2017 Development nomic ______d Safe Deposit Boxes Boxes Deposit d Safe ternational Relations Relations ternational uman Resource Management Management uman Resource ross International Reserves Reserves International ross urrency in Circulation in Circulation urrency he Central Credit Register and the Register of Bank Accounts Bank Accounts of Register the and Register Central Credit he Function Depository State and Fiscal Agent he ulgarian National Bank Consolidated Financial Statements Statements Financial Bank Consolidated ulgarian National ayment Systems and Payment Oversight Oversight Payment and Systems ayment EU Bodies ESCB and the in articipating H BNB In BNB B B BNB A P In Statistics T an T Research Eco G P Banks’ R C Main

IX. X. XI. XII. XIII. XIV. XV. XVI. XVII. Resolutions LBNB Concerning the 5 of Article 17, Paragraph under Information ______in 2017 Council BNB Governing the by Adopted (CD) Appendix

I. II. III. IV. V. VI. VII. VIII. Contents Summary

Summary 11 - kets. Spreads between yields on euro area periphery government bonds and German and bonds periphery government area euro on yields between Spreads kets. significantly decreased in 2017. bonds benchmark - con 3.9 per in 2016. Private cent 3.6 per from was cent GDP real In 2017 ’s was exports net of contribution the growthwhereas to most contributed sumption the was consumption growth real of strong the behind An factor important negative. and employment increasing of context the in income disposable household in increase exports net of contribution negative The rate. unemployment decreasing and wages, (by imports of growth rate services and growth stronger reflectedgoods to the of - Exports neverthe demand. 7.2 per significantly domestic by driven increased cent) grew 3.8 per 4.0 per rose fixed terms. Real less in real cent, investment capital cent fall. to continuing investment public investment, private to due entirely 1.8 perAnnual was inflation -0.5 per in December 2017 from cent in 2016, cent food commodities, and oil world dearer factors: domestic and foreign by driven services, and higher goods and some of prices controlled administratively imports, excise. tobacco funds significant reflect sustained to of inflow the continued aggregates Monetary М3 aggregate monetary broad The system. banking in the residents attracted from Global economic activity continued improving in 2017, real world economic growth growth economic world 2017, real in improving activity continued economic Global though grew faster, economies Advanced earlier. 3.2 a year from cent 3.7 per reaching - com International recovering. continued economies developing and both emerging slightly. declined prices food and supply, excess lower to due rose modity prices 2.0 per 2017 from of insignificantly 2.1 per end rose inflation to the at Global cent cent, 1.1 per from cent 1.6 per to accelerated inflation world in 2016. Developed cent December 2016. in 3.2 per cent from 3.3 per cent saw countries developing while 2.4 per to 1.8 per growth area from accelerated in 2016, withcent Euro cent pri- net by followed most, fixed in contributing capital investment and consumption vate 1.1 per1.4 per to in 2016, rose annually from inflation cent area cent Euro exports. 0.9 per at remaining tobacco) and alcohol energy, food, (excluding inflation core to financing conditions favourable pursuing continued policy monetary ECB cent. term operation, main refinancing target. inflation ECB medium area euro the meet 0.00, 0.25 at unchanged stayed rates facilityinterest deposit and marginal lending, securities -0.40 per purchase Programme and Asset Purchase extended ECB cent. EUR 60 falling to March, of end the to EUR 80 a month remained billion volumes after. billion investment private cent, 1.5 per 2016’s than faster cent: grew2.3 per economy US The cent 2.1 per at steady stayed inflation Index Price Consumer US greatly. contributing US improving 4.1 per was Continuously cent. Unemployment 2017. of end the at interest target rate funds raise federal to Reserve Federal the data prompted economic end. year’s the by cent 1.25–1.50 per to steps three of each in 25 basis points by range the of portion reinvested the gradually began Reserve curbing Federal the In October portfolio. its of bonds mortgage securities and maturing government the from funds of prices steady financial saw markets international environment, In a favourable tax uncertainty sensed US mostly on Markets bonds. and country shares developed elections presidential French the uncertainty political on likelihood, and scope reform bonds 2017 all of German end government the By tensions. Korean US/North and financial area mar euro on yields negative maturities at six-year traded with under Summary Bulgarian National Bank. Annual Report • 2017 12 to lower prices securities of the BNB portfolio; from earnings currency imbalance higher yields of euro-denominated government bonds, contributed which inturn mainlynegative million,negative, reflecting interest worth rates EUR -74.16 and fromearnings international reserve investment inthe original currency, which was cent-0.33 per 2017 total profitability. Broken by component, net income comprised: flows. International reserve management million net or income was EUR -73.02 were management, foreign currency revaluation gains, and of the cash external effect million or 1 per cent on end-2016. The mainfactors governing market value of assets Gross international reserve market million, value down EUR 167 was EUR 22,708 liquid instruments cent. at 48 per financial liquidity requirements,international assetsmet strict reserves. All the share of most the close of the year AAAlong credit term rated assetsrepresented cent of 67 per and government guaranteed debt. Investment remained credit and quality high by ity, the Bank continued investing most assets into core euro area government bonds achieve the maininternational reserves management objectives and of liquid security - international reserve market value for each of relevant the five bankgroups. risk To banks came into force 2017, cuttingin early cent permissible of exposure by 1 per agement. New constraints on maximum individual exposure to BNBcounterparty In 2017the BNBcontinued its conservative policy international ingross reserve man- on 17paragraph the 5. BNBArticle information on major 2017 BNBGoverning Council resolutions assetout inthe Law BNB budget, consolidated statements financial by 31 December 2017 (audited), and insupport ofactivities these functions and duties. The report alsocovers the 2017 reportThis covers relating activities to duties BNBstatutory and functions and other had previously resided individual with Governors. Deputy supervisory, intervention, early approval, authorisation, and consent powers which of 5December2017)assigned the Governing Council bankand payment supervision and the Law on Payment and Payment Services Systems (Darjaven Vestnik Issue 97 ities effectively. Amendments to the Law on the BNB, the Law on Credit Institutions, ing to the Law on the Bulgarian National Bank and applying its potential and capabil- objective of price through stability maintaining national currency by stability adher situation and developments inthe domestic economy. The BNBpursues its primary The Bulgarian National Bankconducts its policy taking into account the international from cent 29.0 per at the end of 2016. athewith government debt/GDP ratio cent declining at the to 25.4 per end of 2017 expenditure. In 2017 the government followed a policy on reducing government debt of million aBGN 1330 deficit, mainlythanks to higher revenue tax and lower capital GDP). The budget exceeded balance significantly the government’s programme target centThe consolidated of million programme (0.9 per surplus was BGN 845.6 fiscal asofbanks’ excess reserves, effective October 2017. index and increase inthe volume of transactions due to BNB’s lower interest rate on of transactions. of The fourth quarter 2017saw astronger decline inLEONIA Plus its ininterbank overnight market was volatile due number to a small and low volume LEONIA/LEONIA Plus index, reporting real transactions in the lev unsecured depos- the National Multi-Family Residential Building Programme. Efficiency Energy environment, gradual lending rate declines, and increased absorption of funds under non-government cent amid annually sector favourable 4.7 per grew macroeconomic BGN 72.4 billion, up 6.1 per cent from 7.0 per cent a year earlier. Bank lending to the In December 2017 non-government sector deposits in the banking system totalled cent at cent the relatively fromgrew annually end of 7.6 per fast 2016. at 7.7 per - Summary 13 - etary gold; and the net financial result of liabilities, which was positive (EUR 18.04 positive was which liabilities, financial of net result the and etary gold; excess bank on policy rate interest new 2016 reflectingearly January the million), balances. account customers’ other on rates market negative and reserves - organi system Bank with tasks Bank payment the National Bulgarian the on Law The and operation, implementation, the assisting by development and support, sation, in drafting In 2017 BNB participated mechanisms. efficient payment of oversight Bulgarian into transposing Systems, Services Payment and Payment on Law new the Parliament European the (EU) 2015/2366 of in Directive requirements the legislation - Services pay II) on Directive Payment (the 2015 November 25 of Council the of and services framework. payment legal update to services market internal in the ment System Settlement Gross Real-time systems: payment major two BNB operated The effectedBulgaria in payments the of 81.9 per cent 2017 processed in which (RINGS) the of component system national the and payments, 0.5 per lev total and of cent for system Transfer Express settlement Gross Real-time Automated Trans-European by increasing system via the made with payments the (TARGET2-BNB), euro the 2016. from in value 1.4 per cent and in number 6.8 per cent ServicesPayment Payment and on Law the BNB and the on with Law In line the service payment operators, system payment oversees and regulates BNB the Systems, one BNB licensed In 2017 the in Bulgaria. institutions money electronic and providers bank conduct to licences for applications three refused institution, money electronic institu- money an electronic terminated and institution, as a payment transactions inspected Bank four In 2017 the request. applicant’s the at procedure licensing tion Services and Payment on Law the to adherence check to service payment providers statutory instruments. its and Systems Payment on reserves high excess maintain to 2017 banks continued of firstIn the months nine accounts reserve banks’ minimum on funds excess the BNB, with the accounts their comprising 21 No Ordinance under minimum required the BNB over with the changed the to According average. on reserves required 112.3 per minimum of cent effec - BNB, with the accounts on applied be to rates interest setting of methodology rate an interest reserves excess banks’ on BNB applies 2017, the 4 October as of tive reduced facility rate deposit ECB and figures: cent 0 per two the of lower the to equal reserves bank excess on interest in cutting resulted This change 20 basis points. by quarter reserves decreased fourth excess banks’ In the cent. -0.60 per with BNB to the funds excess banks’ and September, of end the from average BGN 4.6 on by billion cent 47.4 per to decreased assets reserve of minimum required the over BNB withthe annual an posted reserves 2017 banks’ of end the At reserves. required minimum of December 2016. from 2.2 per cent down 3.8 per cent, of drop accepting, minting, printing, include: cash operations and BNB issue bank- Bulgarian of fitness and checking authenticity processing, repaying, delivering, and Bulgarian damaged exchanging currency, foreign and and notes coins. and unfit banknotes Bulgarian scrapping and coins, coins new million 179.9 and banknotes new 66.2 million supplied In 2017 producers five commemorative the Bank issued The value. BGN 2779.4 nominal worth million 2017 circulating of close the By Programme. Minting 2017 in its scheduled coins BGN 15,333.2 value. worth million, 452.9 nominal million numbered banknotes BGN 1494.2 6.37 per value or their mil- 27.1 million and rose cent number Their BGN 362.4 10.80 per worth or coins, million 2289.4 2017, mil- late In lion cent. 8.26 per rose coins circulating of number total the year, on Year circulated. lion 18.18 per (174.8 million), value cent (BGN 55.7 their cent all and across million) (EUR -16.90 million) almost entirely reflected changes in the euro price of mon of price euro the in (EUR -16.90 reflected changes entirely almost million) Bulgarian National Bank. Annual Report • 2017 14 resolution continued. action and cooperation colleges, and the international with supervisory colleges for ating EC legislative proposals under the competence of central banks. In 2017inter BNB representatives helped elaborate ECB legal instruments and took innegoti part - Bulgarian standpoints on key economic governance areas and sector. the financial committees and Affairs pean working the parties, BNBcontributed to formulating Board (ESRB),European Banking Authority (EBA), and national Council for Euro - Participating inESCB, European Commission, EUCouncil, European Systemic Risk Resolution Fund banks remitted (BRF) their dues All at BGN 111,274,000. on time. groups from the EU. InMarch the Bankset2017banking system dues to the Bank The BNBparticipated ininternational colleges for resolution of cross-border banking plan assessment and analysisand on other Bankduties according to the LRRCIIF. Work continued on methods and procedures for uniform approaches to recovery Recovery and Resolution of Credit Institutions and Investment (LRRCIIF). Firms charge its duties asaresolution authority of credit institutions under the Law on and decision making, and powers related to their implementation to aview dis- with In 2017the BNBadopted internal establishing rules the procedures for preparation tory minimum. balance sheets remained entirely covered by capital exceeding cent regula the- 8 per Net non-performing loans and advances representing potential credit inbank risk 38.24 per cent at the end of 2016). The trend improvement to asset quality continued. ratio calculated under the BNB Ordinance cent No (against 11 reached 38.97 per total capital adequacy ratios were cent. The liquid 20.41,20.86and assets 22.08 per on 2016at 1.18and cent. The common 9.15 per tier one, equity tier one capital, and holdings. million of Banks reported profits, BGN 1150 ROA and ROE slightly down ance sheet posted anincrease deposits, inattracted loans and advances, and securities assets rose by BGN 5.7 billion (6.2 per cent) to BGN 97.8 billion. Banking system bal- In 2017banksmaintained adequate and liquidity capital positions. Banking system prompted the two Bankto on run surveys anticipated effects. intoEntry force of the IFRS9Financial Instruments standard on 1January 2018 being assessed and quarter. analysedevery importanttemically institution buffer. The countercyclical buffer capital continued system stability. The year saw areview of the systemic buffer and risk the other sys- tions. Macroprudential focused supervision on the banking inherent affecting risks tion implementation. measures Inspections and resulted recommenda insupervisory - analysis. assessedprevious Supervisors inspection report measures and recommenda- organisation, rules and methodology in credit institution internal capital adequacy managementrisk processes and systems, and internal capital needs identification, ing. Alongside ongoing inspections of banks focused supervisory supervision, on set implementation inspection recommendations of supervisory was subject to monitor liquidity, and credit institutions’ profiles risk and recovery plans. Credit institutions cess related to the preparation of periodic assessment of the adequacy of own funds, priorities of review the and off-site evaluation inthe supervision supervisory pro- identify in a timely potential manner risks and initiate remedial measures. One of the Banking Supervision analysedand assessedbanking system and individual banksto at twenty credit providers. institutions and service five to check observance of banknote and standards, coin and quality topical onsite checks duties the Bankconducted four credit provider institution full and service inspections denominations, the coin. distribution reflecting Discharging its control of BGN 2 - - Summary 15 - - - - nal debt transactions. Late September saw a direct link from the BNB Government Government BNB the direct from a link saw September Late transactions. debt nal – Sofia allowing AD system Exchange Stock Bulgarian the to Securities Depository starting 1 November. trade on Exchange, the on securities trading government - deci making in management Bank’s the support projections and research Economic Plan covered 2017 Research The standpoints. policy economic forming and sions - effects non-finan the of corporations, in non-financial cost setting labour analysis of transmission the driving investment, factors economy, the on debt cial corporations’ potential the and cycles, financial business the and between relations mechanism, encour to BNB continued the In 2017 supply. and demand labour between mismatch of area in the practice and science economic Bulgarian of potential research the age year The series. research Papers Discussion financeits through and macroeconomics which of Council, Publications BNB’s the by reviewed submissions new eleven saw published. six were is system management resource human a competitive maintaining and Developing social environ and working favourable providing included Priorities important. ever The attractive career development. and qualified keep employees attract to and ment - remunera adequate and assessment employee of optimisation continued saw year An annual statutory requirements. and results, performance, to tailored systems tion train a variety take to of opportunities plentiful employees offered schedule training programmes. boosting qualification and ing Professional the for Standards International the to conforms audit BNB internal ESCB Internal Auditors, Internal of Ethics Codeof the Auditing, Internal Practice of - BNB Govern the by approved Rules Auditor Internal and Rules Committee Auditor Governing annual the under eight which of audits, eleven were There Council. ing Auditors ESCB Internal the under three and Programme Unit Audit Internal Council and control risk management, of assurance sought Audits Programme. Committee areas. relevant of management The BNB gathers and disseminates data on monetary and interest rate statistics and statistics and rate interest and monetary data on disseminates and gathers BNB The statistical publishes convergence, of degree the assessing for rate term interest long the international the payments, of balance the financial institutions, non-bank dataon - liquid currency foreign reserve and the and gross external debt, position, investment the of quarterly financial the accounts data on compiles Bank also The ity template. all sectors’ finance statistics, and institutional government sector, government general quarterly financial accounts. Bulgarian to debt customer on (CCR) Register Central Credit the BNB maintains The institutions money electronic and payment financial and banks, other institutions, - Sys Services Payment and Payment on Law the Article 19 of under loans extending loan or guarantors, co-borrowers, on units reporting from information New tems. Register quality the of improve to CCR the into incorporated being now is avalists average monthly searches: 7,258,000 electronic In 2017 CCR conducted information. participants. other by 31.7 per cent banks and by 68.3 per cent which 605,000, of of Deposit Safe and Bank Accounts of a Register BNB opened the 2017 On 3 January - Bul in operating branches bank foreign and banks from information keeps It Boxes. and holders box deposit and attorneys, and holders numbers, bank account garia on Bodies accounts. closed 3.45 million and extant 2.98 million listed It attorneys. their 508,066 individuals. on searches conducted access Register to entitled institutions and and develops BNB maintains, as fiscalActing official the and depository agent - servicing, fiscal auc and information reserve budget for systems electronic improves exter and Pledges, of securitiesservicing, trade Register and the settlement tions, Bulgarian National Bank. Annual Report • 2017 16 31 December 2017. 31 December Consolidated statements financial present the Bank’s position financial asof budget. The Bank’s cent 2017 investment of or the 17.5 per programme cost BGN 2,558,000 and depreciationmaterials, services, at BGN 26,943,000. and at staff BGN 26,541,000, cent ofor the 83.6 per adopted budget, including circulation cash at BGN 19,666,000, The BNBbudget underpins Bankperformance. In2017the BNBspent BGN 78,511,000 Economic Development in 2017 17 -

3 (average annual) (average Unemployment rate rate Unemployment Inflation (end of year) of (end Ireland, Malta, and Slovenia reported reported Slovenia Malta, and Ireland, 4 January 2018. January 2.1 1.9 0.3 1.5 2.7 5.7 5.2 4.8 growth Developed economies including the USA, the euro euro the USA, the including economies Developed 1 6.9 6.7 6.8 1.6 2.1 2.3 4.1 4.0 4.0 1.4 0.9 1.7 0.2 0.3 1.0 3.4 3.1 2.8 2.9 1.5 2.3 0.7 2.1 2.1 5.3 4.9 4.4 2.1 1.84.0 2.3 3.1 0.2 4.7 -0.3 1.1 0.9 1.4 10.9 2.0 10.0 7.5 9.1 6.1 5.0 2.3 2.0 2.42 6 0.2 1.2 1.7 9.4 8.6 7.6 2015 2016 2017 2015 2016 2017 2015 2016 2017 Average annual real GDP annual Average Developing economies also reported a faster increase than in in than increase a faster also reported economies Developing 2

- Na the Japan, of Statistics, Statistics Bureau Labor of Analysis, Bureau Economic of Bureau Eurostat, New non-euro area Member States are countries joining since 2004 less those now in the euro area. The The area. euro in the now those 2004 less since joining countries are States Member area non-euro New Euro Area Euro New non-euro area Member Member area non-euro New States ЕU-3 , Update Outlook Economic IMF data: World Analysis, February 22 2018. Policy Economic for Bureau CPB data: Netherlands 2018. January Update, Outlook Economic IMF data: World growth in 2017. GDP real data on no published Luxembourg China Japan United States United EU

2 3 4 1 The euro area reported a sustainable economic activity rise underpinned by the ECB’s activity ECB’s the by rise economic underpinned a sustainable reported area euro The GDP real area growth. Euro economic global higher and measures policy monetary - consump private by led last year, cent 1.8 per from cent 2.3 per to growth accelerated activity acceler Economic exports. net by followed fixed and investment, capital tion Spain. except countries, in all area ated euro Notes: Notes: ЕU3 indicators and States Member area non-euro New Denmark. and Sweden, Kingdom, United the ЕU3 are for force labour growth, group in for GDP in group country weights by series time weighing by calculated are growth GDP The inflation. for Eurostat by calculated in HICP EU countries the of weights the and unemployment, published. not are GDP real Luxembourg is preliminary; in 2017 area data on euro the for estimate Sources: computations. BNB China, Statistics of of Bureau tional Major Macroeconomic Indicators Indicators Macroeconomic Major (per cent) The ExternalThe Environment to growth accelerated economic global real in 2017 that Preliminary show estimates 3.7 per in 2016. 3.2 from cent reported Kingdom growth. United The stronger Canada enjoyed and Japan area, developing and emerging in Activity activity. recovered economic in a slowdown China preserving a and decline an annual reporting Brazil and Russia economies, growth rate. sustainable from a significant acceleration cent, grew 3.5 per production industrial In 2017 global ago. a year cent 1.8 per I. Economic Development in 2017 Development I. Economic highest economic growth at 7.7, 6.6, and 5.0 per cent respectively, while Greece, Italy Italy Greece, while respectively, cent 5.0 per and 7.7, 6.6, growthat economic highest 1.7 per growth 1.4, 1.5, and at cent. economic weakest the reported Belgium and previous in the 10.0 per cent from average on 9.1 per cent to fell rate Unemployment 17.3 per 21.6 and at values highest the still Spain recording and with Greece year, - unemploy country lowest with the the In 2017 as in 2016 Germany remained cent. Malta 4.0 per by cent. followed 3.8 per cent, of rate ment 2016. By country, output growth slowed only in Africa and Middle East. World goods goods Africa in East. World Middle only and growth slowed output country, 2016. By in cent 2.5 per from 2017 in cent 4.7 per to services and growth trade accelerated also alike. contributing economies developing and emerging, 2016 with developed, Bulgarian National Bank. Annual Report • 2017 18 Global annual inflation went up from 2.0 to cent 2.1 per pollution. Copper increased most asmajor copper mines suffered disruptions. cent inEUR) asincreasing output boosted demand while China curbedsupply to cut ineuroannually asglobal stocks fell. Metals prices rose 20.7 per cent in USD (18.1 per were differences between food price index sub-components, wheat 6.1 per rising cent cent on anannual cent 1.6 per fell basisinUS ineuro. dollars and -3.3 per There and North and Sea Libya pipeline breaches alsohiked prices temporarily. Food prices the mainfactors behind thisincrease. Oilproduction disruptions US after hurricanes other major oil producers until the end of 2018and the increased oil demand were age on anannual basis. The agreement to extend oil output cuts between OPEC and of Brent crude oil rose inUS cent dollars and 23.5 per cent ineuro on 21.0 per aver increased on 2016asaresult of the decline reported inglobal excess supply. The price International commodity prices (excluding food) inbothUS dollars reach cent 4.4 per on average for the year from cent 4.9 per in2016. extent, by a reduced detraction by net exports. Unemployment continued falling to cent. Private investment1.5 per led followed, higher 2017growth to amuch lesser Real US cent, economic accelerating considerably was 2.3 per growth on 2016’s 9 8 7 6 5 Sources: Federal Reserve System and ECBInterest Rates developed countries and from cent 3.2to 3.3 per indeveloping ones. Euro area annual inflation the Federal OpenMarket Committee (FOMC) target. priceture index was slightly up on the cent 1.6 per in2016at cent, 1.7 per but below at the end of inflation measured 2017.Annual by the personal consumption expendi- US inflation measured by the Consumer Price Index (CPI) Ireland, and Finland trailed at -0.4, 0.5,and cent. 0.5 per Lithuania, and led Austria annual inflation at 3.8,and 2.3 per cent, while Cyprus, food, energy, alcohol cent and for tobacco) at 0.9 per staying athird year. Estonia,

Non-seasonally adjusted data. Measured by the HICP. Based on World Global Bank data, Economic Monitor Database. power isusedto calculate weights. country parity Groups include only World Bank Member States. groupingscountry asaweighted average of CPI changes in group countries. Real GDP based on purchasing Based on World Global Bankdata, Economic Monitor Database. The World Bankmeasures CPI change in Referred to asthe US dollar below. the ECB; the Federal Reserve System. 8 rose cent, from core 1.1to 1.4 per inflation (excluding 6 : from 1.1to cent 1.6 per in 9 remained cent at 2.1 per 7

5 and euro (per cent) - Economic Development in 2017 19 - monetary policy continued to aim at favourable financing conditions to achieve achieve to financing conditions favourable at aim to continued policy monetary US dollars, December 2016 = 100. = 100. 2016 December dollars, US 10 For details on ECB and US Federal Reserve monetary policies, see Chapter II. see Chapter policies, monetary Reserve Federal US and ECB details on For

10 Note: Note: Main Stock Exchange Indices in 2017 Indices Exchange Stock Main ECB medium-term inflation target. Interest rates on main refinancing operations, mar operations, refinancing main on rates target. Interest inflation medium-term ginal lending facility and deposit facility remained unchanged in 2017 at nil, 0.25 and and 0.25 nil, at 2017 in unchanged facility remained deposit facility and ginallending stayed volumes (APP) Programme AssetECB Purchase -0.40 per monthly Net cent. forward 60 billion. to June In dropping then March, of end EUR 80 the to billion an for levels current their at rates keep to changed rates interest key on guidance cuts rate interest excluded guidance The ends. asset purchasing after period extended the extended ECB risks the 2017 In October deflation spent. area euro deemed as it - leav and EUR 30 billion to volumes monthly 2018 September to January cutting APP, target inflation to in response rises open duration and/or volume possibility of the ing would inflation area euro that confidence greater December 2017 saw deviations. targets. ECB meet of fulfil to 2016 intentions its FOMC the dataallowed economic US 2017 Improving - drop Unemployment in 2017. times three range target rate funds federal the raising value term-equilibrium long FOMC 2017 (below of 4.1 per end to the at ping cent the USA In the normalisation. monetary US in ongoing factor a key was assessments) expenditure consumption personal of index price the by measured rate 2017 inflation and June March, its At factors. ascribed one-off to FOMC the which target, below was range target rate funds federal raise the to decided FOMC December 2017 meetings would it announced FOMC the June In cent. 1.25–1.50 per reaching 25 basis points by from proceeds of directing a rising share by assets sheet balance Reserve Federal cut away bonds mortgage portfolio Reserve Federal securities and maturing government October. from instruments new from Bulgarian National Bank. Annual Report • 2017 20 Sources: Bulgarian competitiveness consumption, and inventories changes. Inagood international environment rising most from private consumption and less from capital investment, fixed government Real Bulgarian GDP cent rose cent 3.6 per (3.9 per in 2016).Economic grew activity The Economy Bulgarian Dow Jones and NASDAQ increased on investor 2016 as appetite risk grew. The EURO STOXX 50and STOXX EUEnlarged European stock indices and the US onhad atemporary international effect market prices financial inthe second half. tension Rising half. in the between first the USA and North Korea and US reform tax electionstial were among temporary factors international affecting markets financial were the main drivers of international market financial prices. The French presiden Burgeoning global economic and anticipated Federal activity Reserve and ECB moves 13 12 11 (on corresponding periodof the previous year, non-seasonally adjusted data) GDP Change inReal Terms and Contribution by Component of Final Use investment continuing to drop, though less thanin2016. cent. Private investment drove capital formation fixed gross government growth, cent inreal Net terms. from detracted exports as imports more grew growth at 7.2 per continued to decline asaresult of low national investment throughout the year. ment asbusiness optimism utilisation and capacity rose. Government investment Fixed investment capital increased 3.8 per cent of because inreal terms private invest - operating expenditure and health insurance contributions. Real government cent, consumption wage leading, rises followed 3.2 per grew by factors and consumer confidence. rose. private Annual consumption cent driven by 4.8from grew the above 3.6 per The number of employed people grew, unemployment fell continuously and real wage and businesses continue to bemore optimistic on the Bulgarian economy. cators underpinned private consumption and investment, suggesting that households Exports (goods and services), net (goods andExports services), Physical changes ininventories Gross capital formation fixed Final consumption GDP

NPISH consumption Household consumption Exports (goods andExports services) Imports (goods and services) consumptionCollective government Final consumption expenditures by general consolidated programme implementation. fiscal the economy, non-financial quarterly accounts on data the general government sector, and NSI reports on Private and government investment is assessedby available national accounts on data overall investment in In 2017 thisindicator rose by cent. 5.8 per Bulgarian exports’ share of world markets grew steadily, indicating increasing Bulgarian competitiveness. For more information on government bond markets, see Chapter II. the NSI, BNBcalculations. 12 continued boosting goods exports by and 4.0 per services (per cent) Change 66-1.4 -6.6 3.9 . -2.9 4.5 8.1 2.6 1.8 8.7 3.5 3.3 - - 2016 percentage points Contribution,

2.3 0.4 5.2 0.2 0.1 0.1 2.2 2.6 - 13 Improving economic indi- (per cent) Change 3.6 3.8 . -4.3 7.2 4.0 4.0 2.5 6.7 4.8 4.5 -1.7 - - 2017 percentage points Contribution, 11 0.7 1.1 2.6 0.3 0.2 0.0 2.9 3.4 - - Economic Development in 2017 21 - - - 2.8 1.0 0.0 Contribution, Contribution, percentage points percentage 2017 4.2 3.4 3.7 -0.1 Change Change (per cent) rose 3.0 per cent, retaining its 3.0 per its rose retaining cent, 18 - 2.1 1.1 0.3 - com and information only grew, 16 Contribution, Contribution, percentage points percentage 2016 neutral. Among services, activities, estate Among real neutral. 14 3 4 3.1 4.0 5.3 Change Change (per cent) and public services public and 15 (per cent, percentage points on corresponding quarter of previous year, non-seasonally adjusted data) adjusted non-seasonally year, previous quarter of corresponding on points percentage (per cent, gross added value contracting. Construction marked a more significant a more marked Construction contracting. value gross added 17 the NSI, BNB calculations. NSI, the the NSI, BNB calculations. BNB NSI, the Mining and quarrying; manufacturing; electricity, gas, steam and air conditioning supply; water supply; supply; water supply; quarrying; air conditioning and steam and gas, Mining electricity, manufacturing; activity (A 10). groupings economic by remediation and management waste sewerage, Agriculture, forestry, and fishing sector by economic activity 10). (A groupings economic by fishing sector and Agriculture, forestry, accom storage; and transportation motorcycles; and vehicles motor of repair trade; retail and Wholesale activity group activities economic by work social and health human and education, government, General activity (A 10). groupings economic by communication and Information modation and food service activities by economic activity (A 10). service food groupings and activities economic by modation (A 10). ings

Industry and construction. Industry and Services Industry* Agriculture and forestry Agriculture and Gross value added value Gross greater contribution to gross value added growth. growth. added gross value to contribution greater wholesale and retail trade retail and wholesale 18 14 15 16 17 * Sources: Gross Value Added Rate of Change in Real Terms and Contribution by Industry by Contribution and Terms in Real Change of Rate Added Value Gross data) adjusted non-seasonally year, previous period of corresponding (on Sources: Sources: 3.4 per 3.7 on to Almost rose cent. economy growth in the added gross value Real 2.8 and services industry contributing and increased, added all gross value sectors’ agriculture and points, 1.0 percentage added Industry5.9 per value riseindustry. in cent GDP Rate of Change in Real Terms and Contribution by Component of Final Use Final of Component by Contribution and Terms in Real Change of GDP Rate munication Bulgarian National Bank. Annual Report • 2017 22 Gross Value Added Rate of Change inReal Terms and Contribution by Industry 20 19 construction. Real annual wage sub-sectorsindustry helping cent in cent and inindustry most 31.4 per at 11.4 per wage centfrom and in 2016,industry public 5.8 per contributing services most. Nominal cent, cent from in2016.Compensation 7.7 per employee per cent increased 7.5 per labour costs. Nominal compensation employee per inthe total economy rose 7.9 per threshold changes rises, in pension contributions and education wage drove rises Labour demand amid buoyant economic minimum activity, wage and insurance number of discouraged persons continued to falling 115,000from 165,000 in2016. cent on cent average from 68.7 per in2016asnew entrants71.3 per joined. The cent. The labour force59.7 per participation rate of 15–64year olds rose greatly to a year). Long unemployment term accounted cent: for lower 54.8 per than 2016’s in 2016.Long (over term ayear) unemployment more fell thanshort-term (up to that unemployment continued dropping to cent 7.2 per on average from cent 8.8 per on average cent in 2016.from Employment 7.6 per Agency also demonstrate data NSI Labour Force Survey show data unemployment continuing to to cent 6.2 per fall self-employment inthissector. mainly asaresult of one-off in2016,leading factor decline effect to asignificant in leadingculture inself-employment, at points, rise 1.2 percentage asignificant with cent1.8 per on cent 0.5 per in 2016.Employment economic inall grew - sectors, agri The labour market continued improving. The number of employed people rose Sources: activities saw declinesactivities inthisindicator on anannual basis. Real unit labour costsin informationreal estate activities, and communication, and and insurance financial sub-sectors cent in2016.Services cent fromunit labour 2.3 per costsup 5.7 per Faster compensation per employee pushed rises thanlabour productivity nominal ing from detracted growth. productivity in 2016.Information and communications- andforestry and agriculture, fish services Total economy labour productivity based on sector value added inreal terms. Real GDP measures labour inthe overall productivity economy. Sector labour iscalculated productivity HICP deflated. employeeper inthe total economy cent rose from cent 6.6 per in 2016, 6.2 per the NSI, BNBcalculations. (per cent, percentage points on corresponding of quarter previous year, non-seasonally adjusted data) 19 growth fell to fell 5.3 per growth cent from 7.6 per cent in2016. 20 growth slowed growth to 1.7 per cent from 3.4 per cent Economic Development in 2017 23 (per cent, percentage points) points) percentage (per cent, (moving average, 2010 = 100) average, (moving the NSI, the BNB. the NSI, the the NSI, the BNB. the NSI, the Sources: Sources: Annual Inflation and Contributions by Major Group of Goods and Services Goods and of Group Major by Annual Inflation Contributions and Sources: Sources: 0.7 per to decelerated cent economy total growth surplus in the operating Gross industry fishing sub-sectors and and Agriculture, 2016. in forestry 5.6 per cent from gross operating rising as their growth, services’ from contribution detracted most growthsurplus accelerated. final 2016. By in - 2.2 per cent com use from 1.2 per cent was deflator 2017 GDP The - con government 4.4 per was cent, deflator gross fixed the formation capital ponent, services and goods exports 1.1 per cent, consumption private 3.9 per cent, sumption the sector, services and 6.2 per4.4 per goods imports and economic By cent. cent, 1.7 per services was industry deflator cent, at 1.5 per with agriculture cent, negative -3.1 per cent. Unit Labour Costs Unit the total economy rose 4.5 per cent from 0.1 per cent in 2016, rising 8.2 per cent from from cent in 2016, rising 8.2 per cent 0.1 per from cent 4.5 per rose economy total the industries. in exporting 0 per cent Bulgarian National Bank. Annual Report • 2017 24 Sources: controlled prices iscalculated by weighting the elementary aggregates level inthe consumer basket. administratively controlled prices are shown separately. The index of administratively with goods and services Notes: indirectly affected byindirectly international affected oil prices. January, and April, July and heating from and electricity and April prices July: all and WaterEnergy Regulatory Commission (EWRC) for price rises gas natural in ture costs.ture unprocessed food prices under rising pressure from imports modities priceon rises international markets. Food led inflation, bothprocessed and and external internal factorsreflecting External impact. included oil and com - Most major sub-groups goods and pushed services end-user consumer prices up the factors. main internal inflationary prices. Some administratively goods’ and setprices services’ and tobacco excise were Goods and Services Groups andGoods Services HICP Accumulated Inflation since the Year’s and Contributions by Start Major At the end cent cent of in2016. from 2017annual inflation was -0.5 per 1.8 per 24 23 22 21 low cost airlines to Bulgaria inrecent years were the main reasons for the downward Intensified competition intelecommunications and and transport the introduction of port). Telecommunications and prices transport continued though falling, less fast. in catering and pricesrises (excluding other service telecommunications and- trans and lowerdearer services detraction by gradual non-food. inflation reflected Services December core cent inflation was from 0.3 per cent ayear -2.1 per earlier, driven by ond of half 2013(excluding food, energy, administratively setprices and tobacco). By The year saw agradual reversal of the core trend deflationary obtained since the sec- Inflation (percent) Inflation Tobacco products diitaieycnrle rcs 0.6 controlledadministratively prices with andGoods services Industrial goods goods Industrial Transport fuels Energy products Energy Other services Other services Tlcmuiainsrie -6.1 Telecommunication services Transport services Catering Services Services Unprocessed food Processed food Food

cigarettes. cent along minimum with overall and excise (specific to ad-volarem duty ) from 168 BGN 161 From the beginning of 2017,the ad-volarem excise on duty tobacco products rose from 25to 27 per in the analysis. NSI on data price indices of intended goods and services for current consumption are in agriculture used Standard International Trade Classification (SITC) imports are data used. The analysis employs HICP data. This structure corresponds structure This to the Eurostat classification; tobacco products and with goods and services the NSI, the BNB. 23 Transport fuels alsocontributed to inflation, mainly through higher oil by group (percent) Rate of inflation -0.4 -0.3 -8.4 -1.9 -0.2 -2.1 3.8 0.9 2.0 1.9 0.5 24 2016 Administratively setprices mainly reflected -0 5 percentage points Contribution, -0.02 -0.03 -0.33 -0.32 -0.44 -0.01 -0.57 0.19 0.10 0.23 0.14 0.09 0 11 by group (percent) Rate of inflation -2.0 -0.6 -0.9 2.7 2.6 6.9 1.2 2.7 6.7 2.2 3.0 3.0 2.5 22 and- higher agricul 2017 1.8 percentage points Contribution, -0.10 -0.02 -0.20 0.13 0.43 0.47 0.31 0.65 0.41 0.25 0.18 0.24 0.40 1000 per 21

Economic Development in 2017 25 - added 27 The long-term downward trend in non-food prices prices in non-food trend downward long-term The 25 Last year’s fall in non-durables’ prices reversed, this group this group reversed, prices fall Last year’s in non-durables’ 26 show nominal goods exports rising 10.7 per cent, led by base base by led cent, rising exports 10.7 per goods nominal show 28 boosted their foreign assets through direct and portfolio investment. Increased Increased investment. portfolio direct and assets through foreign their boosted 29 The analysis employs balance of payments data to the sixth edition of the IMF Balance of Payments and and Payments of IMF Balance the of sixth edition the data to payments of balance analysis employs The methodological major introduced BPM6 2008): BPM6. (IMF, Manual Position Investment International on those and them data on between a mismatch to services and leading goods trade, in reporting changes NSI. the by compiled in goods trade international government. general and financial institutions monetary other banks, than central other Sectors The European Commission's moves against roaming charges also depressed telecommunications prices. telecommunications also depressed charges roaming against moves Commission's European The data. import (SITC) Classification Trade International Standard data. GDP to According

greatly to the trade deficit. deficit. trade the to greatly statistics trade Foreign making a small contribution to overall inflation. inflation. overall to a smallmaking contribution the on balance overall in 2017 the that data show payments of Preliminary balance in a EUR 2794.7 was EUR 633.5 up surplus, accounts capital million and current lower to due EUR 1177.7 rose million surplus account current The in a year. million in ser trade net on balance positive the and item primary net income the deficit on vices. The higher trade balance deficit offset this partially. The capital account surplus surplus account capital The deficit offset this partially. balance trade higher The vices. EU. from transfers lower of as a result level 2016 its below remained distributed and dividends lower and item profit reinvested the under outflows Lower growth surplus in gross operating slower to owing possibly non-residents, to profit deficit. primary net income the cut economy, the 9.3 per of because cent mostly slightly, services increased positive The balance trade 9.4 per rising numbers visitor foreign data show NSI 2016. on revenue tourism higher cent 21.8 per rose spend travel foreign ’ leading. Turkey and Romania cent, main contribution transport the services had spend, foreign with their coupled and, service overall growthto in 2017. imports exports real growth imports outstripping real terms trading and Worsened metals and their products, alongside machines, vehicles, appliances, instruments, and and instruments, appliances, vehicles, machines, alongside products, their and metals materials raw use, By 2016. 15.5 per rose on imports cent goods’ Nominal weapons. role. an essential played energyand commodities assets ris- foreign because of positive was financial account payments of balance The sec- assets rise because mainly other was foreign The liabilities. foreign than more ing tors continued in 2017, driven mainly by lower car prices and also by price cuts in other in other cuts price also by and car prices lower by mainly driven in 2017, continued cuts price and appreciation reflectedeuro prices durables’ Consumer goods. durable goods. imported in some 28 29 25 26 27 price trend through the year. the through trend price bank foreign assets helped. Direct investment attracted from other sectors increased increased sectors other attracted from Direct investment assets helped. bank foreign direct data put payments of Preliminary balance substantially. liabilities foreign EUR 1446.8 at Bulgaria) into (direct investment economy in the liabilities investment foreign partly offset sector risingfinancial account government general The million. resident 2017 and maturing in July Eurobonds of a repayment following liabilities markets. capital international securities on government Bulgarian of purchases reserves by international BNB cut flows financial capital, and account current, Net adjustments data (valuation payments of balance the to EUR 98.9 according million the on reserves foreign in international changes When excluded). revaluations and valuation including account, into taken are sheet balance Department BNB Issue EUR 236.4 million. some by fell reserves international revaluations, and adjustments fell EUR 1481.6 64.3 per external EUR 32.6 debt to or of Gross million cent billion in cutting led government General banks. External fell in all except debt sectors GDP. securities government Bulgarian purchasing resident to mainly due gross external debt, Bulgarian National Bank. Annual Report • 2017 26 Annual Rate ofAnnual Change inМ3and Contribution by Component deposits. deposits Lev led. est rates bothhouseholds and corporations preferred to save mainlyinovernight institutionsfinancial (MFI)was steady and quasi-money low Amid detracting. inter ago. Increased overnight deposits led broad money, while money outside monetary growing relatively fast, ending cent cent higher the from ayear year 7.7 per 7.6 per dents’ funds into the banking system. The broad monetary aggregate М3 continued Monetary aggregates continued the inflow to of sustained reflect significant resi- lower other sectors’ debt external added to the fall. ing inJuly, and less to foreign obligation repayments. Reduced intercompany debt and issued on international markets from non-residents, repayment of Eurobonds matur deposits, household deposits helping. Deposits of non-financial corporations grew cent ayear ago.cent was from driven by This non-financial 7.0 per corporation non-governmentOverall growing bank deposits 6.1 per reached BGN 72.4 billion, Source: of Growth Non-governmentAnnual and Deposits Sector Contribution by Sector Source: the BNB. the BNB. (per cent, percentage points) (per cent, percentage points) - - Economic Development in 2017 27 (per cent, percentage points) percentage (per cent, In 2017 household lending accelerated gradually to annual rise rise gradually annual to accelerated lending In 2017 household 30 the BNB. the For more information, see Chapter VI. see Chapter information, more For

30 Source: Source: Annual Growth of Loans to Non-financial Corporations and Contributions by Loan by Type Contributions and Corporations Annual Loans Non-financial Growth to of 13.8 per cent from 6.3 per cent a year earlier, to BGN 22.0 billion. Household deposit deposit Household BGN 22.0 billion. to earlier, a year cent 6.3 per from cent 13.8 per - Finan BGN 47.8 billion. to year a in cent 6.6 per from cent 5.4 per to growthslowed detracting 18.1 per 26.9 perfell deposits year, a in from cent cent corporation cial deposits. non-government growth of overall the from greatly 4.7 per growing reflected good cent, sector, non-government the to Bank lending the under funds of absorption and drop rate lending a gradual macroeconomics, (the Buildings Residential Energy Multi-Family Efficiency of for Programme National 2017, of first in the months Energy nine Efficiency After Programme). accelerating cent 1.6 per growth reaching annual moderated, corporations non-financial to credit affecting loans, corporate sold 0.3 per wrote Banks off and from ago. a year cent dynamics. lending of 6.0 per cent from 2.0 per cent a year ago. The upward trend in loans to households households to in loans trend upward The ago. a year cent 2.0 per from cent 6.0 per of as other as well loans consumer and housing of reflected contributions the mainly Energy Efficiency Programme year. the detracted throughout overdrafts while loans, loans, Programme of Payment lending. household other boosting continued lending to lending other of contribution the cut helped started in July, government the which slowed corporations non-financial to lending growth. New credit household overall consumer and housing by grew led households to that 2016, while of end the from credit. and households by demand credit rising survey data show quarterly BNB lending low and needs reflected investment demand credit corporate Stronger corporations. including inventories, and capital finance to working funds for Demand rates. interest - macro rates, interest Low helped. debt, restructuringrefinancing, renegotiating or demand. credit consumer drove goods durable for demand and confidence economic rising and confidence property market reflected residential demand credit Housing prices. house Bulgarian National Bank. Annual Report • 2017 28 National Bank ing and levs selling for euro at exchange the fixed rate setby the Law on the Bulgarian agement takes advantage This instrument. of the maincurrency board function: buy- Reserve currency (euro) the transactions with BNB is banks’ main lev liquidity man- billion. foreign liabilities boosted banks’net foreign billion assetsby to BGN 7.0 BGN 2.2 Interbank money market transactions came to BGN 23.5 billion, cent 57.6 per rising Annual Growth of to Growth Households Loans Annual and Contributions Type by Loan 33 32 31 on the banks’excess reserves with BNB foreign was more assetsrise marked inthe due fourth quarter to lower interest rates assets increased more significantly, while foreign liabilities dropped somewhat. The assets over the year, banks’claimson the non-government sector and their foreign Ordinance No cent cent from ayear 11rose ago. to 38.97 per 38.24 per Managing position strong. At the end of December the liquid asset ratio calculated under BNB Retention of the savings rate high inthe economy helped banking keep liquidity in favour of tighter corporate lending. easing of corporate lending. Nevertheless, banks’lower lending appetite militated risk look. Competition, liquidity, funds attracted rising and costs also led falling to some nomic improvement, better borrower solvency, and favourable housing market out- expectations led behind to lending. ease Lower macroeco expectations- reflect risk corporate standards mainlyunchanged. Intensifying bankcompetition and lower risk On the supply side, net bankseased standards for household lending, while retained Source: of the BNBcutting interest on banks’excess reserves cent from -0.40to -0.60 per over nine monthsan average the first basisfrom daily asaresult BGN 72 million saw greaterquarter intensification, transactions value million reaching on BGN 163 million on anaverageBGN 95 basisfrom inJune daily 59 million 2016.The fourth Volumes on the lev interbank market rose, deposit transactions and repos coming to commercial banks(EUR 1.1 billion in2016).

See Chapter IV. See Chapter II. cent.-0.60 per SeeChapter IV. ratefacility reduced by 20 basis points. The change cut interest on bank excess the reserves with BNB to October the Bankapplies on bank excess reserves whichever is the lower of: cent 0 per or the ECB deposit The BNBchanged the interest methodology for accounts itself. Since with the change came into force on 4 the BNB. 32 . Throughout the year the billion BNBpurchased net EUR 0.8 from 31 . Increased foreign assetsand slightly smaller (per cent, percentage points) 33 . Economic Development in 2017 29 (per cent) (per cent) , reporting , reporting 34 the BNB, the ECB. the BNB, the the BNB. the The average monthly SOFIBOR rate for the relevant maturity. relevant the for rate SOFIBOR monthly average The LEONIA Plus replaced LEONIA on 1 July 2017. LEONIA Plus monthly values are calculated as an arithmetic as an arithmetic calculated are values monthly Plus 2017. LEONIA 1 July on LEONIA replaced Plus LEONIA On 1 July 2017 the BNB stopped calculating the LEONIA reference rate and adopted a Methodology for for a Methodology adopted and rate reference LEONIA the calculating stopped BNB 2017 the On 1 July Lev replacing Overnight Deposits, Bulgarian Interbank of Rate Reference Plus LEONIA the Calculating see http://www.bnb.bg/PressOffice/POPressReleases/POPRDate/PR_20170316_EN). details, (for LEONIA

real transactions in unsecured lev deposits on the overnight interbank market, was was market, interbank overnight the on deposits lev in unsecured transactions real quarter fourth The transactions. of volume low and small the number to due volatile 34 Average interest rate on interbank deposits and repurchase agreements was -0.30 per -0.30 per was agreements repurchase and deposits interbank on rate interest Average index Plus LEONIA/LEONIA The in a year. 20 basis points down cent, Note: Note: Source: Note: Note: in market interbank in the concluded are transactions lending unsecured overnight when days those for average levs. Sources: Curve SOFIBOR Yield Interbank Money Market Interest Rate Interest Market Money Interbank on 2016. Deposits comprised 71 per cent of turnover and repos in government securi- in government repos and turnover of cent 71 per comprised Deposits 2016. on 89 per at banks between deposits dominated transactions Overnight 29 perties cent. cent. Bulgarian National Bank. Annual Report • 2017 30 bonds, resulting inapositive though minimalnet issue of BGN 4.4 million. the amount of domestic government was securities similarto payments on matured a EUR 950 million repayment on Eurobonds in July. maturing At BGN 789.5 million under the consolidated programme after was negative fiscal by BGN 2174.1 million ment issued securities on the international capital market and net financing external 25.4 per cent from 29.0 per cent at the end of 2016.Over the year there were no govern- The government cut debt aratio with between government debt to GDP declining to funds absorption failing to national offset budget capital expenditure drops. programmes’ capital expenditure through faster 2014–2020Operational Programme the base effect ofthe higher baseeffect revenue under 2016EUprogrammes. budget balance was BGN 619.5 million lower than at the end of 2016, mainly through targetdeficit setinthe government programme. The consolidated programme fiscal expenditure helped the budget exceed balance the significantly BGN-1330 million cent of GDP). revenue Better tax (0.9 per and lower capital BGN 845.6 million In 2017the surplus on the consolidated programme amounted fiscal to months by the close of the year. quarter, negative with interest rates of on maturities up instruments with to two tions concluded, declined The inthe dip maturities. was across fourth sharper all Indicative interbank money market rates basedon SOFIBOR, no- real with transac August cent to -0.14 per in December. the year made the EONIA spread move cent the wide within in range of 0.36 per cent. Markedto reach LEONIA/LEONIA Decemberat -0.34 per Plus volatility over BNB cutting interest on banks’excess reserves. EONIA remained at its low 2016levels of 2017 saw agreater dip inLEONIA Plus and atransaction volume due rise to the 37 36 35 curve maturity segments. Strong maturity curve demand for government by securities resident rowing of spreads between Bulgarian andgovernment German bonds across yield The downward trend inBulgarian Eurobond yields continued nar asubstantial with and other payments, was BGN 10,289.0 million. reserve, including expenditure claims onThe total fiscal EU funds, certified advances, declined by BGN 1325.0 million to BGN 9782.9 million on the beginning of the year. accumulated buffers. liquidity By the end of 2017government deposit funds fiscal programme annual surplusfiscal cut government debt, greatly reducing the need for Accumulated reserve funds from fiscal a2016Eurobond issue and the consolidated and education wage Capital rises. expenditure legislationrose of because socialsecurity amendments, minimum wage, pension, points).subsidies Current (1.1 percentage non-interest government expenditure costs (2.4 percentage points),to staff social expenditure (2.1 percentage points) and Total consolidated programme cent expenditure largely increased fiscal due 6.1 per income revenue. tax Non-tax revenue cent. 1.6 per grew larly pronounced cent cent and increase 11.2 per 42.7 per in corporate and personal cent and cent indirect led taxes revenue up 7.2 per tax There growth. was aparticu policy, and improved collectibility. tax Socialand health contributions up 14.3 per growing domestic demand, higher employment, changes to and tax socialsecurity higher annual revenue, tax 47.7 per offsetting cent lower grants. Tax revenue reflected Consolidated programme revenue fiscal cent cent, and 10.0 per grants grew 4.0 per

For more information on government and secondary markets primary securities seeChapter XII. Including government reserve growth. In 2016 the EC reinstated payments for 2007–2013 programming period spend concentrated inlate 2015. 36 dropped cent, 3.1 per the inEU rise 35

37

- - Economic Development in 2017 31 - the BNB, the . Stock Bulgarian the BNB, the ment, both indices remaining close to their 2016 levels at the end of the year. In In year. the of end the at levels 2016 their to close remaining indices both ment, 18.6 per and 15.5 year a than higher were BGBX40 cent and SOFIX the December earlier. bourse BGN 617.8 and 78.7 per to million rose cent trading stock market Secondary equity Over-the-counter million. BGN 78.2 to cent 59.6 per increased turnover bond In December Bulgarian million. BGN 24.4 deals bond and billion BGN 1.2 were deals 3.9 per GDP, BGN 23.6 was or of cent capitalisation billion market Exchange Stock 2016. of close the at 10.3 per cent from The leading Bulgarian Stock Exchange SOFIX and BGBX40 indices followed clear clear followed indices BGBX40 and SOFIX Exchange Stock Bulgarian leading The adjust downward slight a saw period December to September The trends. upward Sources: Sources: Bulgarian Stock Exchange Indices in 2017 in Indices Exchange Bulgarian Stock - Bul and issues, fiscal fewer auguring financial improving an position institutions, spreads. cut upgrade rating garia’s 2017 credit December Bulgarian National Bank. Annual Report • 2017 32 the euro provided for by the Law on the Bulgarian National Bank complete cover for monetary liabilities under exchange the fixed rate of the lev to comprise the assets in the Issue Department balance sheet. Their role is to provide gies, and international market opportunities. financial Gross international reserves deposit item or the net value inthe Issue Department balance sheet internationalgross reserves over monetary liabilities forms the Banking Department Gross International in2017 Reserves and Deposit Banking Department ian National Bank The BNBmanages its international gross reserves inline the with Law on the Bulgar II. Gross International Reserves 40 39 38 Source: deposit in the Issue Department balance sheet. Note: (EUR million)

determined on the basisof exchange the fixed rate. of not the exceed BNBshall the lev equivalent of international gross the lev with reserves,’ equivalent According to the Law on 28,paragraph the 1‘the BNBArticle aggregate amount of monetary liabilities currency. The Law on the BNBstipulates that these assetsare estimated at market value. BNB futures and options which bind non-residents and which are payable infreely convertible foreign institutions one with of the two highest ratings from two internationally credit recognised agencies;gu and ing agencies; the balance on accounts receivable and payable on BNBforward or repo agreements (or with organisationsfinancial assigned one of the two highest ratings by two internationally credit recognised rat issuedsecurities by foreign countries, central banks,other foreign institutions, or financial international organisations one with of the two highest ratings by two internationally credit recognised rating agencies; by the BNBon accounts foreign with central banksor institutions other or financial international financial banknotes and coins infreely convertible foreign currency; funds infreely convertible foreign currency held what3 defines assetsmay comprise international gross reserves: monetary gold; Special Drawing Rights; issued by the balances BNBand of all other entities’ BNBaccounts, except the IMF. 28,paragraph Article The Law on 28,paragraph the the 2defines BNBArticle Bank’s monetary obligations circulating asall cash reserve management. There were no Law on the BNBamendments concerning the regulatory framework for international gross aranteed by) foreign central banks, public international organisations financial or other foreign financial The chart showsThe chart movements daily of the Issue Department balance sheet and figure the Banking Department the BNB.

38 , investment constraints, business procedures and methodolo 40 39 . . The excess of (EUR million) - - - Gross International Reserves 33 (per cent) -71 -43 (EUR million) 534 284 -355 -250 -312 2017 0.00 0.54 6.46 0.20 61 216 2017 92.79 -61 529 -61 397 -220 -159 2016 3 034 3 212 3 432 99 944 -100 103 0.00 0.53 7.02 0.48 2016 91.96 Issue DepartmentIssue assets sheet balance Income from asset management and foreign foreign and asset management from Income 41 the BNB. the the BNB. the Average values calculated on a daily basis for the period. the a daily for basis on calculated values Average CHF SDR XAU USD EUR Currency Balances in banks' TARGET2 national system component accounts (worth EUR 233.4 million at the end EUR 233.4 end (worth the at million accounts component system national in banks' TARGET2 Balances upon 2009 September and August in IMF disbursed the 611 million SDR of tranches two the and 2017), of further details see BNB Annual Report, For analysis below. the from omitted are allocation SDR general 26. 2009, p.

Total I+II Total Sub-total II Sub-total Government and other depositors other and Government II Currency flows with banks, the MF, etc. flows withII Currency MF, banks, the reserves) required minimum (including Bank reserves Sub-total I Sub-total sold to banks to sold bought from banks from bought with banks I. Euro bought and sold bought and I. Euro tills at Source: Source: Note: Note: Source: 41 Currency Structure of Gross International Reserves Reserves Structure International Currency Gross of The slight external flow drop reflected mainly principal and interest paid by the MF MF the by paid interest and reflected principal mainly external drop flow slight The - total and in early July markets international on issued bonds EUR denominated on by accounts exchange EUR 1044 foreign some ling This government cut million. EUR 250 million EUR 742 millionabout banks BNB sold The (net). commercial to - EUR 534 mil The year. whole the for net with EUR 312 million quarter, fourth in the currency foreign offset the not could BNB accounts in banks' reserves additional lion government into inflows currency significant 2016 saw foreign contrast, By outflows. assets then. to external contributing flows for main reason the BNB accounts: External Cash Flows in Foreign Currency in Foreign External Cash Flows The market value of gross international reserves was EUR 22,708 was reserves gross international down of million, value market The 2017. of end EUR 167 the on million The Amount and Structure of Gross International Reserves Structure International and Gross Amount of The currency revaluation, and external cash flow effects were the main factors affecting main factors external the cash effects and flow were revaluation, currency and management asset from EUR -74 million assets. the income of value market the effect equal foreign external almost an cash had on flows EUR -71 million outgoing in 2017. reserves exchange Bulgarian National Bank. Annual Report • 2017 34 data, anddata, related expectations of anearlier ECB interest rate By the rise. end of the decision to raise federal funds interest rates, better-than-expected euro area economic markets the global financial reflected Federal quarter Reserve’sIn the March first temporarily. Source: Note: Gross International Reserves by Financial Instrument invested into securities. centexpense of most investment. securities assets continued At 57.05 per to be The share of of deposits inthe instrument assetsby rose structure at financial the average share of EUR denominated cent. assets was 92.79 per boosted theThis weight of euro assetsdespite outflows cash external ineuro. The cent was mainlydue cent in2016.This gold to the 0.74 per over price fall the year. The share of gold international ingross cent from to reserves fell 6.46 per 7.02 per 42 elections aboutUncertainty the scope and likelihood of US reform, tax the French presidential tor appetite and risk changing anticipated monetary moves by large central banks. Financial asset prices better global reflected economic prospects whetting inves In 2017 international markets saw financial little share and bond price volatility. The Market Environment andGross Return International Reserves Risk Gross International Reserves by Residual Term to Maturity ones. sector rosethree at year maturity the expenseof the three and to to ten five five year deposits inforeign currency and gold, and short-term securities. Investment inup to tinued to be invested in the sector: up current to a year accounts, maturity short-term By residual to term maturity, some 62.10 per cent of international reserve assetscon- Source: ** *Account balances, payments, and monetary gold. Note:

Dutch and general German elections international affected markets financial moderately. Including instruments in foreign currency and gold. Financial instruments Over ten years Five to ten years years toThree five One to three years Up to ayear sectors Maturity Vault cash* Deposits** Securities** Average values calculated on basis for adaily the period. Average values calculated on basis for adaily the period. the BNB. the BNB. 42 , and US-North Korean tension alsoinfluenced markets, though mostly 27.32 68.78 11.81 23.10 57.41 3.91 2016 2016 0.17 7.50 39.48 57.05 29.05 62.10 3.47 2017 2017 0.01 0.41 8.43 (per cent) (per cent) - Gross International Reserves 35 - only only facility rate deposit securities with below rule on yields (APP) Programme chase securities with yields prioritising (PSPP), Programme Purchase Sector Public the to of facility rate deposit ECB Only securities the than with higher rate. yields that above Bond Covered the programmes: other the under be purchased to -040 per were cent Programme Securities Asset-Backed Purchase the (CBPP3), Programme Purchase (CSPP). Programme Purchase Sector Corporate the and (ABSPP) forward the changed meeting policy monetary June 8 Council Governing ECB The the after period an extended for rates retain to proposing rates, interest on guidance - guid than forward lower setting of option dismissed the also Council The ends. APP forward The deflation. area euro risk of no was there deemed as it rate interest ance remained programme asset purchase extended the of implementation the on guidance duration the size and/or the increase opportunity an to for provided as it unchanged necessary. if future in the programme the of - Septem to halving January duration, APP extended ECB the October 26 on Indeed, BGN 30 billion duration to or scope purchases to ber 2018 net subject a month, the that decided also ECB The performance. target inflation by prompted variations maturing APP from repayments principal reinvesting continue would - con would ECB The end. asset purchases necessaryas net after as long securities for fixed of form in the operations refinancing longer-term three-month main and tinue maintenance last reserve the of end the with until least full at tenders allotment rate 2019. in period confidence greater expressed 14 December The meeting 2017 ECB policy monetary was economy area euro the that stressed and target to inflation area euro in keeping an upturn. entering 22.1 per figure rose sheet 2017 balance Eurosystem The EUR 4472 to cent - bil of early 2017 purchases to mainly due was 2016. This increase of end the on lion bonds, corporate EUR 80.5 billion assets, CSPP of public EUR 634.1 billion PSPP of asset-backed ABSPP of securities, EUR 2.2 billion collateral CBPP3 of EUR 37.2 billion - mon non-standard its amended but unchanged rates interest reference kept ECB The etary measures. Asset Pur extended changed the applied meeting policy monetary 19 January The ECB and ReserveECB Federal Policies quarter demand for low-risk and liquid assets grew, reflecting increased euro area area euro reflecting increased grew, assets liquid and low-risk for quarter demand elections. presidential French the risk to political linked quarter, second the of end the until grew risk appetite investor elections the Following in other spreads yield bond German government securities, narrowing depreciating - Posi dollar. US the on appreciation euro a steady launching and countries, area euro statement 27 June President’s ECB The trends. data area these intensified euro tive bond government area euro markedly boosted deflation of threat the overcoming on rise had rate funds federal June Reserve’s Federal The rates. exchange euro and yields participants. market of most expected effect, by widely being market a moderate uncertainty and Korea North and USA the between quarter third rising tension In the expectations. inflation US lowered and assets safe promoted tax reform US about long-term and medium in mostly yields, bond German government and This US cut maturity sectors. again started yields climbing bond German government and US end year’s the By went tax reform US and expected end to were securities purchases as Eurosystem through. Bulgarian National Bank. Annual Report • 2017 36 ments are exhausted. automatically and from bewithdrawn monetary active policy before- other instru all in October. FOMC intentions are for the Federal Reserve balance sheet to decline not bereinvested into new instruments Implementation of the same type. started andsecurities mortgage-backed in securities the Federal Reserve portfolio would by the year’s amount end. rising, A set, gradually of funds from treasury maturing els just adequate for conducting the monetary policy. Implementation was expected In June the FOMC announced aplan to cut the Federal Reserve balance sheet to lev- that lower one-off 2017 inflation reflected factors. inflation target did not prevent the target rate most FOMC rise, members believing stayed centgrowth under target throughout the 2 per the year. Failure to meet the inmostcast months of personal 2017.Annual consumption expenditure price index cent at the1.50 per end of the year. US inflation alone was lower than FOMC fore- December meetings. The federal funds target rate corridor ranged between 1.25 and target range in three 25 basis points steps. The decisions were at the March, June, and allowed the FOMC to its go late with 2016intention of raising the federal funds rate the long-term equilibrium value of this indicator cent). This at that time (4.6 per lower cent: significantly cent FOMC4.1 per thanthe 4.6 per consensus forecast of US 2017economic largely data matched FOMC expectations. Unemployment fell to 2016. centbasis points and cent -10basispoints on to -0.27 per the to end -0.19 per of from the end of cent. Six 2016at and -0.37 per twelve month deposit rates fell by -5 interest rates alsodropped. At the end of the year the one month rate was unchanged cent cent from in2016.EURIBOR -0.32 per interbank market longer-term deposit year earlier. Average EONIA overnight interest deposit effective rate fell to -0.35 per Excess euro area banking liquidity rose to EUR 1779 billion from EUR 1207 billion a repaid EUR 16.7 billion of their TLTRO I participation ahead of schedule. of thisoperation asbanks on euro area banking liquidity was EUR 216.7 billion, tions (TLTRO II)on 23 March, when 474 banks got EUR 233.5 billion. The net effect andsecurities, the funds allotted inthe lasttargeted longer-term refinancing opera- improved Portuguese economic indicators. and fiscal Moody’s accordingly improved two year and -204basis points sector, inthe ten year maturity significantly reflecting in 2017. Portuguesesignificantly spreads contracted points most: at in the-28 basis Spreads between euro benchmark and area periphery German bond yields dropped those of French, and Austrian Belgian government bonds widened. than two yield. year The spread German of comparable Finnish bonds alsonarrowed, narrowed 7basis points to -0.04 per cent, two year Dutch yield ending the year lower ones. In the segment, two the year maturity yield spread of Dutch government bonds andBelgian, Austrian Dutch ten year government bonds narrowed against German appetite, narrowing euro area bond yield spreads. Over 2017yield spreads of French, ily widened Dutch yield spreads. The French elections’ outcome boosted investor risk and other euro area yield spreads. The March Dutch general elections alsotemporar beforetainty the French presidential elections boosted volatility and widened French Core euro area government bond yield spread developments diverged. Political uncer traded atmaturities negative annual yields. on 2016.By the end of government German the year all bonds under with sixyear points cent sectors to 22 basis and -0.63 and rose ten 14 and 0.43 per year maturity governmentGerman bond yield rose across sectors. maturities Yield inthe two Euro Yields Bond Area US and Government - - Gross International Reserves 37 (per cent) Government Bond Yields in 2017 Yields Bond Government Portuguese credit rating outlook, S&P and Fitch raising it in September and Decem- and September in it raising Fitch S&P and outlook, rating credit Portuguese economic reflected improving steadily spreads bond Irish government Narrowing ber. to Fitch and Moody’s allowing prospects, externalactivity, demand particularly better reflected spreads Italian Lower December. and September in rating raise Irish credit Events instability. political reduced and increase rating credit Italian October S&P’s effect limited on a comparatively uncertainty had Spain in general and in Catalonia maturity year ten and sec- two the in spread yield prices, bonds government Spanish points. 4 basis 21 and narrowing tors significantly curve 73 basis decreased yield (by bond government US 2017 the Over 1.88 perto for rise cent term points basis (69 yield reflectingshort great a points), 2.41 per to cent (4 basis points term drop an insignificant and long sector) year two - increas term maturity short reflected Higher yield FOMC sector). year sector ten for market changed and December, and June March, in rate target funds federal the ing and medium Lower normalisation. policy monetary of rate the about expectations and area euro continuing to related most reflected term factors, yield many long - Politi inflation. than expected US lower and policy monetary accommodative Japan German and elections presidential French the to prior area cal euro instability in the coast hurri- southeastern US disastrous September’s and August elections, general also affected long US tensions Korea North and expectations, tax reform US canes, prices. bond term government Bulgarian National Bank. Annual Report • 2017 38 rises byrises the year’s end. ofbecause the changed market participant expectations of anECB maininterest rates general elections. Inthe US fourth quarter dollar depreciation on the euro was mainly loweredsignificantly European the after French political uncertainty presidential and lar was due to euro area economic mostly data better thananalysts’expectations, and the rates of Federal Reserve target rate increase. The euro appreciation on the US dol- and to hourly pay inthe growth US non-agricultural sector raising market doubts on US dollar continued depreciating on the euro due to unfavourable on data inflation the EUR/USD exchange rate quarter. inthe Inthe first second and third the quarters in Europetainty and geopolitical tension elsewhere had relatively on limited effects measuresof promised expansionary fiscal by the US administration. Political uncer in the early year duestarted to poor market expectations of the scope and likelihood USD 1.20 ofquarters the year and the rate to USD/EUR exchange ranging from USD 1.04 The US dollar depreciated cent on 14.1 per the euro, mostly inthe second and third dollar depreciation. appreciated alongside geopolitical tension between the USA and North Korea and US US administration and the Dutch and French elections. Inthe second year gold half dollar depreciation. Gold was asafe asset amid about political uncertainty the future year gold relatively fluctuated little, driven mostly by demand for safe assets and US between USD 1148 and 1347and EUR 1057 and troy 1212 per ounce. half Inthe first The US cent dollar in euro, gold cent ranging and fell 0.7 per price rose 13.5 per Exchange Rates Gold and The USD/EUR Exchange Rate in2017 EUR 1 (from EUR 0.83 to EUR 0.96 per USD 1). The depreciation USD 1). to EUR 0.96 per (from EUR 0.83 EUR 1 per (EUR) - Gross International Reserves 39 - in 44 (EUR) (USD) per cent. 43 - modifieddura average reserves’ by risk rate measured interest >0), at 95 per cent confidence level and allowing for normal yield allocation means that that means allocation yield normal for allowing and 95 per level (X>0), at confidence cent % = -X VaR cur in any liabilities assets and of value the between difference is the position currency An foreign open 95 per cent of the time maximum net value loss would not exceed X exceed not would loss value net maximum time the of 95 per cent euro. than other rency

43 International reserve reserve International average than the shorter 0.62 years was 2017 duration in 2017. The 0.99 years was tion reserve interest curb international to early 2017 decision the to due 2016 largely for investment of modified duration in the deviation maximum risk. for limit rate The first in the quarters. 0.20 years three -0.20 to from ranged benchmark from portfolios investment risk of limit interest relative quarter fourth the the of beginning the From volatility. yield relative than 0.25 per cent more not basis of the on set was portfolios BNB the on Law the by risk currency reserve constrained was international Gross positions currency foreign open of values absolute the sum of the that stipulation Major Types of Risk of Types Major value-at- by measured sheet balance Department Issue risk in the value 2017 net In basis. an annual on 8.61 per was cent risk (VaR) Troy Ounce Gold Price in 2017 in Euro Gold Ounce Troy Troy Ounce Gold Price in US Dollars Price in 2017 in US Gold Ounce Troy 44 Bulgarian National Bank. Annual Report • 2017 40 reserve management million: to cent EUR -73.02 -0.33 per of total 2017 return. lion income. These three components brought net from earnings BNBinternational liabilities cent positive for at 0.06 per the year, corresponding mil to a EUR 18.04 in euro. The January 2016 BNB interest rate policy made theresult from financial EUR -16.90 million was almost entirely due to the change inthe monetary gold price the price of government bonds in the BNB portfolio. Currency imbalance income of interest rates and higher euro-denominated government bond yields, which boosted negative at EUR -74.16 million: -0.33 per cent mainly the reflected yield. negative This and/orand 3. expenditure income from liabilities. Income from assetsin2017was business procedures for international reserve management. continuedOperational risk to adhering investment strictly constraints and relevant share the of instruments with highest liquidity financial accounted for cent. 48 per liquidity requirements defined assets met strictly All and by the close of 2017 the international reserves. the the year assetswith AAAlong credit term rating accounted cent of for 67 per In 2017the of credit quality investment was and traditionally high by the close of core euro area government and securities government guaranteed debt. andtional liquidity, reserve security the BNBcontinued investing most assetsinto To achieve its main international reserves management objectives of interna high value of international reserves for bank groups. each of BNB counterparty risk the five banks, permissible exposureBNB counterparty reduced cent of by the 1 per market servatively. Early 2017saw new constraints on maximum individual exposures to The BNBcontinued international managing gross reserve investment credit con risk - gold posing the to main currency the risk BNB. positions in foreign currencies in the reporting period, the open position in monetary the market value of monetary liabilities inthese currencies. There were minimalopen currencies other than euro, SDR, and monetary gold, should not exceed 2 per cent of International Reserves Income and Return 1. income from assets inthe original currency; 2. income from currency imbalance Net income from international reserves in euro is the sum of three components: andReturn Efficiency 45 Source: 1 (1+r is ure 53 .8-45 01 0.604 .50.02 4.05 0.47 105.76 -0.11 -24.51 0.38 85.30 First quarter eodqatr-4.1-.3-03 01 174 05 .30.02 4.93 -0.51 -117.49 -0.13 -30.35 -0.63 -142.91 Second quarter hr ure 45 00 30 00 66 00 .70.02 5.27 -0.02 -6.69 -0.01 -3.09 -0.02 -4.51 Third quarter orhqatr-09 00 1.1-.815 .037 0.01 3.79 0.00 1.51 -0.08 -16.21 -0.07 -10.91 Fourth quarter Total

Return betweenReturn time open foreign currency positions. Currency imbalance income isthe result of of the exchange effects rate movements on assetand liability 2 )…(1+r Period the BNB. N )–1. (EUR million) Net income This formula This complies with T 7.2-.3-41 03 1.0-.61.40.06 18.04 -0.06 -16.90 -0.33 -74.16 -0.33 -73.02 (1)+(2)+(3) 0 and T

N N is calculated by chain for linked returns The formula this period. is: R(T (per cent) et return et (EUR million) Income Income Global Investment Performance Standards on assets (1)

(per cent) R eturn eturn 1 in2017 on currency revaluation of (EUR million) assets andassets liabilities Income Income (2)

(per cent) R eturn ( (EUR million) GIPS Expenditure ). ). on liabilities 0 (3) ,T N ) = (1+r (per cent) R eturn 45 1 ) - - ; Gross International Reserves 41 - 3 - - - 0.65 1.52 2.30 1.83 Information ratio Information (basis 2 - 1 8 9 12 13 13 points) Relative Volatility (risk) Volatility 6 1 12 77 80 16 17 Absolute (basis points) 1 - 8 38 21 19 19 17 Relative (basis points) Return 1.29 0.23 -0.35 -0.35 -0.37 Absolute (per cent) Portfolio the BNB. the are interpreted as opportunity cost in portfolio management. management. as opportunity in portfolio cost interpreted are basis. annual an risk The on is management. active portfolio through benchmark from Inf A R Liquid, USD Liquid, Liquid, XAU Liquid, Liquid, EUR Liquid, External manager B, EURExternal B, manager -0.82 External А, EUR manager -0.71 Investment 2, EUR Investment Investment 1, EUR Investment basis. an annual risk on portfolio relative return and portfolio relative between ratio the is ratio ormation sign returns withnegative a return. Relative benchmark against profit returnattained is relative positive portfolio’s risk characteristics portfolio of deviation of degree the indicates risk) benchmark against (relative volatility elative 3 Source: 1 2 Portfolio Return and Risk Return and in 2017 Portfolio national financial institution external managers managed some 4 per cent of gross 4 per gross of some financial cent managed external managers institution national external managers using diversification, additional Beside reserves. international Liquid management. investment market expertise international in exchange helped needs. payment currency BNB foreign immediate assisted mainly portfolios - portfo into split are reserves purposes, international management operational For and goals, investment with each a benchmark, goal, investment and currency by lios from results the and BNB portfolios major shows below table The limits. investment management. their denominated euro risk, most operational cut styles and management diversify To benchmarks with identical portfolios investment two into split being assets continued 2017 inter of end the By BNB teams. different by managed limits, investment and Bulgarian National Bank. Annual Report • 2017 42 Bulgaria’s settlement securities systems are: Bulgaria’s euro payment systems are: Bulgaria’s lev payment systems are: infrastructure. temic and risk integrating Bulgarian payment systems into the European payment oversight of payment efficient mechanisms. The Bank’s major goals are curbing sys- sation, support, and development by assisting the implementation, operation, and The Law on the Bulgarian National the payment Banktasks Bankwith system organi- III. Payment Systems and Payment Oversight 46 availability number of system payments were by 2:30pm. effected RINGS cent offered 100 per cent went cent14 per through of by 82.3 per the 5:30pm. regards As system traffic, cent of payments were processed by noon and 86 per cent by 2:30 pm. The balance of and their average daily number was 3985.In2017,66 per was BGN 2833 million centlion of the (29.5 per average total). The daily value of payments viathe system tomer payments numbered 887,915 (89.8 per cent of the total) for BGN 207,755 mil- on 2016,their number reaching cent higher 988,333 or thanin 2016. Cus- 1.8 per In 2017RINGS processed payments cent million, worth down 9.9 per BGN 702,615 a . On 31 December 2017 the BNBand 27banks participated in RINGS. Bulgaria. helped This mitigate to the risks payment system: one of the major goals of In 2017the RINGS real-time settlement gross system processed most lev payments in Payment SystemsLev

The ratio of time when the system isoperational to scheduled operating time. • • – • • – – • •

Depository. the registration securities book-entry by system, and the run servicing Central th ignated time, operated by BORICA AD. BISER th the TARGET2 national system component, TARGET2-BNB, by the run BNB; AD. BO BORICA AD; BISER RIN RINGS, areal-time settlement gross system operated by the BNB; e book-entry governmente book-entry settlement securities by system, the run BNB; e TARGET2-BNB settlement system: ancillary RICA, for bankcard payments inBulgaria, servicing operated by BORICA GS has these transaction settlement systems: ancillary 46 A7-EUR, asystem for customer servicing transfers to besettled at ades- A, for settling customer transfers at adesignated time, operated by inthe period under review. Payment Systems and Payment Oversight 43 (BGN million)

the BNB. the the BNB. the Distribution of lev payments in Bulgaria by payment system remained unchanged unchanged remained system payment by in Bulgaria payments lev of Distribution 81.9 per effected payments in Bulgaria. processed the 2016. RINGS of cent from gross real-time of operation the for optimal 80 per deemed are cent around Values lev of 0.5 per number total also processed the of RINGS systems. cent settlement in Bulgaria. payments non-cash totalling BGN 12,622.1 mil payments of 122.7 million processed - In 2017 BORICA cash 2016. ATM on 13 per 14.5 per and a rise in value of in number cent lion: cent processed 8.7 per and 2.4 BORICA by cent. increased number and value withdrawal value. and in number 23.5 per cent 24.4 and rose payments card BGN 143,110.5 8.2 per up for million: payments of BISERA million 74.9 processed 2016. on in value 8.8 per cent and number in cent Source: Source: Source: Source: 2017 in 2016 and Value Payment RINGS (BGN million) RINGS Payment Number in 2016 and 2017 in 2016 and Number Payment RINGS Bulgarian National Bank. Annual Report • 2017 44 Distribution of Lev PaymentsDistribution of by inBulgaria Lev Payment System in2017 ment settlement securities at the BNB. tling customer transfers ineuro at adesignated time and the BNBGSSSfor govern- three addressable BIC holders, andsystems: the set two BISERA7-EUR for ancillary On 31December2017the system included the BNB, participant 21direct banks, Source: TARGET2-BNB Payment Number in 2016and 2017 ticipant central banks. tions of its participants and coordination the European with Bankand Central par TARGET2-BNB national system component and isresponsible for the business rela responsible for its system component. From 2010,the BNBoperates 1February the Single Shared Platform (SSP)system, each participating and connected central bank TARGET2 settles euro gross payments central bankmoney. inreal time with It isa Euro Payment Systems Source: the BNB. the BNB. - - - Payment Systems and Payment Oversight 45 (EUR million) BISERA7- Equens and and Equens 47

the BNB. the technical and business requirements for credit transfers and direct debits in euro and amending Regulation Regulation amending and in euro direct debits and transfers credit for requirements business and technical 924/2009. No (EC) Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing 2012 establishing 14 March of Council the of and Parliament European the 260/2012 of (EU) No Regulation 47 Source: Source: 92.4 per banks were to of cent components system other by payments TARGET2 The payments. component all national of value the 75.6 per and of cent number the daily average the 936, was payments TARGET2-BNB ordered of number daily average EUR 1360 peak of daily The reaching number million. payments processed of value with 1551, was daily a transaction participants TARGET2-BNB by ordered payments EUR 4117 million. peak of value trans- euro BISERA7-EUR ancillaryThe customer time designated processes system in BISERA7-EUR. 16 banks participated 2017 December 31 On system The fers. EUR 481 47.7 per for up and million, payments 61,167 number in cent processed 2016. from in value 20.6 per cent Bulgaria in branches bank allforeign and Bank and banks National Bulgarian The Transfer Credit European Pan in the participate and transfers credit SEPA process 260/2012. (ЕU) No Regulation to adherence ensured having Scheme, TARGET2-BNB Payment Value in 2016 and 2017 in 2016 and Value Payment TARGET2-BNB (EUR million) In 2017 TARGET2-BNB processed 237,654 of payments worth EUR 346,434 million. million. EUR 346,434 worth payments of 237,654 processed In 2017 TARGET2-BNB for accounting total) (86.3 per 205,074 the of numbered cent payments Customer grew EUR 10,144 number payment (2.9 per Processed total). million the of cent 2016. on 1.4 per cent value and 6.8 per cent - pro AD, BORICA by operated EUR payment small in euro, payments for system , Clearer with SEPA interoperability ensures and payments cesses SEPA banks in Bulgaria between transfers credit SEPA allowing thus systems, EuroELIXIR States. Member EU other and Bulgarian National Bank. Annual Report • 2017 46 tems Bill In 2017the BNBparticipated and aPayment indrafting Payment Services Sys- tation of payment transaction charges on provider payment service tariffs. ments mainly involve requirements on basic feature payment account and the presen - to update legal payment framework. services before, As the Bill also transposes of the Council of 25 November 2015 on in the payment internal market services of debit cent and of 99.9 per credit cards had migrated to the EMVstandard. cent of ofAs Bulgarian 31December2017,99.4 per cards, including cent 99.4 per of the RINGS and TARGET2-BNB systems: processing, and to in2017the expand BNBasoperator Depository Central services, European Commission internationally promoted market standards, corporate actions European and Securities Markets Authority (ESMA) regulatory technical standards, the Execution of Payment Transactions and Use of Payment Instruments. The BNB amended Ordinance No 3 of 16 July 2009 on the Terms and Procedure for end of 2017. cent of ATMs cent100 per of and migrated POS 99.9 per terminals to EMVby the implementation into was the almost card payments complete, infrastructure with To reconcile the Regulation Depository Central with (EU)No 909/2014 PaymentBulgarian and Settlement System Development 51 50 49 48

Regulation (EU) 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012. settlementsecurities inthe European Union and on depositories central securities and amending Directives Published inthe Darjaven Vestnik, issue 20of 6March 2018. Published inthe Darjaven Vestnik, issue 30of 2017. 11 April and misuse. cards). It was developed by Europay, Mastercard, and Visa to and boostcard payment limit abuse security The EMVisaglobal standard for credit and debit cards basedon microprocessor technology or chip (smart – – –

markets. to boostsafety, and services efficiency transparency ofas ancillary securities the to Annex Regulation (EU) No 909/2014 on processing of corporate actions to instruments registered under financial book-entry item 2(b)of Section Bin andsecurities other payments related to changes incircumstances regard with ments on bonds, book-entry principal and/or interest payments on government dividend payments on shares form, inbook-entry principal and/or interest pay- Its implementation guarantee quick, safe will payments, and effective including la settlement of government transactions securities ineuro; ing the project of Depository Central participation inESROT to ensure cash settlementother cash institutions with ineuro inTARGET2 and for implement- between the Depository Central and other European depository institutions and Regulation (EU) No 909/2014. isalsoacondition This for bilateral connections throughto central beeffected bankaccounts of under 40,paragraph 1 Article allow forwill the euro settlement of the leg system transactions cash of ancillary into TARGET2 through the TARGET2-BNB national system component. This la changes on became effective 18September 2017; standards of the European and Securities Markets Authority (ESMA). These (EU) No 909/2014on improving settlement securities and regulatory technical in the Depository Central settlement securities system inline Regulation with c hanged the RINGS system day schedule to allow for a third settlement request unched the project of incorporating system the Depository Central asancillary unched aproject to allow corporate event payments inRINGS and TARGET2. 51 transposing Directive (EU)2015/2366of the European Parliament and 50 Amend 48 49 of the EMV - Payment Systems and Payment Oversight 47 ------as before. 52 artment Deputy Governor. Except individual administrative deeds for entering, refusal to enter, and deletion of payment and elec and payment of deletion and enter, to refusal entering, for deeds administrative individual Except tronic money institutions’ agents in the BNB register, which remains in the competence of the Banking Banking the of competence in the remains which BNB register, in the agents institutions’ money tronic Dep

52 national principles, standards and recommendations. At the end of 2017 the National National 2017 the of end the At recommendations. and standards principles, national 97 issue Vestnik, LPSPS (Darjaven the BNB and the on Law the amended Assembly bank- enact individual to Council Governing BNB the enable to December 2017) 5 of specifically Banking the proposals further by to deeds supervision administrative ing Deputy Governor than any rather Deputy Governor Department Payment Systems Oversight Systems Payment - Sys Services Payment and Payment on Law the BNB and the on law with the In line payment operators, system payment oversees and Bank regulates (LPSPS), the tems BNB oversees The in Bulgaria. institutions money electronic and service providers inter relevant and statutory requirements European and with national compliance vice provider regulations; introduces additional payment institution and electronic electronic and institution payment additional introduces regulations; vice provider of category new the of registration calls for requirements; licensing institution money institu payment for requirements precise sets service providers; information account for procedures detailed sets out equity institution holding; money electronic and tion coop services for and provide to freedom and establishment right of the exercising - pay and requirements information changes supervisory between authorities; eration security new out sets services extensions; in relevant duties rights and provider ment procedures. complaints details internal payments; on-line or off-site for requirements CPSS-IOSCO like provisions international and European Bill also introduces The the of 2016/1011 (ЕU) infrastructures financial Regulation market and for principles - as bench used indices 2016 on 8 June of Council the of and Parliament European performance the measure to or financial in financialmarks and contracts instruments funds. investment of Directives 98/26/ЕC, 2009/44/ЕC, 2009/110/ЕC, 2010/78/ЕU and 2014/92/ЕU into Directives 98/26/ЕC, into 2014/92/ЕU and 2009/110/ЕC, 2010/78/ЕU 2009/44/ЕC, Services Bill: the transposed Directive Payment by Second The Law. Bulgarian ser services payment new payment and new introduces scope; negative the extends In 2017 the Bank inspected four payment service providers to check whether they they whether check to service payment providers Bank inspected four In 2017 the statutory its and Systems Services Payment Payment and on with Law the complied prior LPSPS safeguards, the Article 21 of of were main breaches The instruments. trans payment individual service of notification payment users, and to information - Three pay money. electronic issuing and payments, online and agents, using actions within set breaches remove to asked inspected in 2017 were servicement providers deadlines. breaches remove to also asked inspected in 2016 were service payment providers Two for notice infringement served was an administrative within A company set deadlines. services. payment unlicensed providing Services Payment Payment and on Law the five under BNB granted The licenses services payment provide to AD BORICA licenced Council Governing The Systems. Smart Pay licence to declined It LPSPS. the of two Article 5, sentence under 4, item - Elec institutions. as payment Prima EOOD and Latius OOD, Best Pay OOD, Bulgaria Credit Cash Services Fintex EAD (formerly for proceedings licensing money tronic request. applicant’s the at EAD) ended Services EOOD Financial Bulgaria Small World from licences withdrew BNB The Bulgaria Envios Master and EOOD Bulgaria Transfer Money Choice (formerly requests. their at EOOD – Bulgaria Centre Change and EOOD) Bulgarian National Bank. Annual Report • 2017 48 resolved infavour of users through payment correspondence. service on Payment and Payment Services Systems and its statutory instruments, or were tions and implementation deadlines. The other involved cases no breaches of the Law corporate users. In14 of payment them, service the Bankissued mandatory- instruc The BNBenquired into 251 complaints submitted by members of the public and and PaymentServices Systems and BNBOrdinance No 16: The year saw these entries and deletions in/from registers under the Law on Payment them also licensed to operate aselectronic money institutions. At the end of 2017there were ten payment institutions licensed by the BNB, three of – – –

ble to operate inBulgaria were listed and 158delisted. 186 in the EUand eligible to operate in Bulgaria were listed and 19delisted. 100 p payment institutions and electronic money institutions inBulgaria; 205 ag agents of providers payment service licensed elsewhere in the EU and eligi- ayment institutions and electronic money institutions licensed elsewhere ents were listed and 96agents delisted inthe public register of licensed Banks’ Reserves at the BNB 49 - In 2017 the share of lev lev of share In 2017 the 54 Reserve assets covering this ratio include funds funds include ratio this assets covering Reserve 53 the BNB. the The sum total may differ from 100 per cent due to rounding. to due cent 100 per differ from may sum total The BNB Ordinance 21 Article 4. BNB Ordinance BNB Ordinance No 21 on the Minimum Required Reserves Maintained with the BNB by Banks, effective Banks, BNB by with the Maintained Reserves Required Minimum the 21 on No BNB Ordinance 10 per at residents attracted from funds on rate reserves required minimum the sets 2016, 4 January as of govern local and central from those 5 per and at cent, non-residents from base, those reserve the of cent ment budgets at nil. at budgets ment

Average daily value for reserve calculation purposes. calculation reserve for dailyvalue Average 54 53 * Note: Source: cash half their and accounts euro and assets in BNB lev in own reserves Banks keep them. part of is deemed in ATMs, including balances, Structure System* Banking Attracted in the of Funds The average daily value of banks’ attracted funds on which minimum required required minimum which on banks’ attracted funds of daily value average The accounts) fund budget government local and central (excluding accrued reserves 11.0 per an to 6.6 per This 2016. rise denominated rose due was in lev cent on cent daily average The liabilities. currency foreign in increase a 1.4 per cent and liabilities budget government local and central in funds (excluding funds residents’ of value attracted from funds cent, 2.8 per ones non-residents’ and cent, 6.9 per rose accounts) attracted government local and Banks’ central cent. banks rising 5.4 per non-resident reserves required minimum of 2.8 per ratio rose funds effective The cent. implicit cent. 9.4 per at unchanged remained IV. Banks’ Reserves at the BNB the at Reserves Banks’ IV. denominated reserve assets was 67.3 per cent on an average day, from 67.2 per cent a a 67.2 per cent from day, an average on 67.3 per cent assets was reserve denominated day an average 26.5 per on cent assets forming reserve euro of share the earlier, year earlier. as a year in banks’ BNB accounts (8.3 per cent) and half the cash balances designated as reserve as reserve designated cash half balances the and cent) (8.3 per in banks’ BNB accounts assets (1.1 per cent). Bulgarian National Bank. Annual Report • 2017 50 basis, from cent 92.0 per in2016. Ordinance No 21accounts cent on exceeded an average minimaby 96.1 per daily cent ayear earlier. cent of against afall Funds 2.2 per inbanks’BNB 3.8 per fell centdecreased of to 47.4 per minimum required reserves. By the year’s end reserves and banks’excess funds the with BNBover the required minimum of reserve assets excess reserves on decreased by average BGN 4.6 billion from the end of September, Banks’ Ordinance 21 Article 4 Reserve Asset Structure Banks’ 4Reserve Asset Ordinance 21Article 55 cut excessThis reserve interest cent. rate to -0.60 per two interest cent values: or the nil per ECB deposit rate facility less 20basis points. On 4October 2017the BNBchanged its interest methodology to pay the lower of under Ordinance cent of No minimum 21averaged required 112.3 per reserves. Banks’excesshigh. funds the with BNBover the required minimum of reserve assets Between January and September 2017bankscontinued to maintain excess reserves Source: Banks’ Reserves at the BNB Source:

From 16March 2016 the ECB deposit rate facility cent. was -0.40 per the BNB. the BNB. 55 In the banks’ fourth quarter (BGN million) Currency in Circulation 51 (BGN million) reached BGN reached up 15,703.2 million, 57 Its currency is mandatorily acceptable as legal tender at face value without without value face at tender as legal acceptable is mandatorily currency Its the BNB. the 56 withdrawn from circulation with no time restriction on exchange. exchange. on restriction time with no circulation withdrawn from Legal tender banknotes, circulating, and commemorative coins issued after 5 July 1999, including those those 1999, including after 5 July issued coins commemorative and circulating, banknotes, Legal tender Law on the BNB Article 2, paragraph 5 and Article BNB Article 5 and 25. the 2, paragraph on Law 56 57 Source: Source: worth 425.8 million, numbered banknotes 2017 circulating of close the By and million), (27.1 6.37 per rose cent number their year, a In BGN 15,333.2 million. 100 banknotes 50 and BGN 10, The million). (BGN 1494.2 cent 10.80 per value their an On banknotes. circulating of number rise the in annual the to most contributed 14.02 per or 14.9 million by increased banknotes BGN 50 of number basis, the annual 12.74 per cent). and (10.99 6.3 million and 8.7 million rose 100s BGN 10s and cent. Banknotes and Coins in Circulation (Outside BNB Vaults) (Outside in Circulation Coins and Banknotes Banknotes and Coins in Circulation (Outside BNB Vaults) (Outside in Circulation Coins and Banknotes currency 2017 circulating of end the At - in Bul issue coin and banknote on Bank has a monopoly National Bulgarian The garia. V. Currency in Circulation in Circulation Currency V. BGN 1550.3 million or 10.95 per cent on 2016. The share of banknotes was 97.64 per 97.64 per was banknotes of share The 2016. on cent 10.95 per or million BGN 1550.3 0.05 per cent. coins commemorative of that and 2.31 per cent, coins of that cent, restriction. The Bank prints and mints banknotes and coins, and keeps and scraps scraps and keeps and coins, and banknotes mints and Bank prints The restriction. withdrawn currency. or uncirculated Bulgarian National Bank. Annual Report • 2017 52 Coins BanknoteIndividual Denomination Shares inthe Total Number of Circulating (16.5 million), which was the incoins(16.5 million), highest growth in 2017(excluding the new the coins share inthe of currency BGN 1 incirculation cent increased by 13.35 per denominations. across all On anannual basis cent (BGN 55.7 million) 18.18 per the number of circulating and cent their coins value (174.8 million), rose 8.26 per In late 2017, 2289.4million coins worth million BGN 362.4 circulated. Year on year, note’s rollover acoin. with and or and cent, 100growth BGN 50 bankBGN 1.35 - the 4.17 per reflecting BGN 2 The average at circulating the close banknote of was worth2017, up BGN 33.85 Source: Banknotes BanknoteIndividual Denomination Shares inthe Total Value of Circulating and 20at 36.12and cent. 17.53 per heldThe BGN 50 the largest value sharecent, at followed 39.41 per by the BGN 100 0.70 percentage points. and BGN 5 10shares rose 0.47 and 0.80 percentage points. centage point annual and drop. 100shares continued BGN 50 by rising, 1.79and centage points on 2016. The BGN 2 comprised 6.18 per cent of banknotes: a 2.31 per The BGN 20 led banknote numbers at 134.4 million or 29.67 per cent, down 1.45 per Source: the BNB. the BNB. - - Currency in Circulation 53 the BNB. the the BNB. the Non-genuine Banknotes and Circulating Coins Circulating and Banknotes Non-genuine Bulgarian 919 non-genuine Analysis retained Centre BNB National In 2017 the banknotes non-genuine retained of share The than last year. 202 fewer banknotes, 0.000263 per from banknotes, circulating 0.000203 per of at cent very low remained year. last cent Source: Source: in BGN 0.01 up BGN 0.16: worth was 2017 of end the at circulating coin average The BGN 2 coin. new the of a result as a year 0.05 per at cent. unchanged stayed in circulation coins commemorative of share The Source: Source: Coins Circulating of Value Total in the Shares Value Individual Nominal

Individual Nominal Value Shares in the Total Number of Circulating Coins Circulating of Number Total in the Shares Value Individual Nominal BGN 2 coin). Over the year the number of BGN 2 coins increased by 13.4 million or or 13.4 million by increased coins BGN 2 of number the year the Over coin). BGN 2 2017. December of end the at million 32.1 reaching 71.75 per cent 29.69 perat falling 0.34 percentage share BGN 0.01The largest cent, the had coin of end the to BGN 0.50 compared of higher was share The coins year. in a points BGN 0.01, of shares the cut BGN 2 coins new the BGN 1 rise and faster 2016. The of 0.50 coins. 0.10, 0.20 and 0.02, 0.05, Bulgarian National Bank. Annual Report • 2017 54 and customer operated machines inline identification with standards. and fitness providers under Ordinance No 18for authorising and testing 215sorting machines BNB conducted spot on-site checks into twenty credit institutions and service five of Banknotes and Coins inCurrency Circulation and its enabling instruments. The to ensure observance of Ordinance No 18of the BNBon the Control over Quality The Bankconducted four checks into full credit provider institutions and aservice and million EUR 34.5 to individuals. sold EUR 44.5million of reserve currency: EUR 10.0 million to budget organisations million from budget organisations and EUR 0.04 million from individuals. The Bank million ofIn 2017 the reserve BNB bought currency, EUR 1.4 including EUR 1.4 coins, down cent 21.81 per ina year. Their share cent. was 0.88 per share of cent. There banknotes processed were was unfit 6.85 per 1.1million unfit banknotes had the largest shares banknotes of at unfit cent. 30.21and The 28.39 per for circulation, and cent) BGN 20 on down 17.7million 2016.BGN 10 (23.37 per checksCurrency and identified integrity some quality 58.0million banknotes as unfit largest nominal value shares at 36.58, 43.36,15.99, 15.67, and cent. 19.34 per this time lastyear. and BGN 10s 20sand and BGN 0.50s BGN 0.20s, had BGN 1s the coins. The number of processed banknotes and coins cent fell 6.40 and on 25.53 per Banknote processing machines tested 845.9million banknotes and 122.1million banknotesBGN 20 returned more often at 4.3and 3.0times. highest value banknotes returned less often, from 0.3 to 1.3times; while BGN 10 and In 2017 banknotes recirculated an average through BNB tills of 2.1 times. Lowest and millionBGN 137.7 or cent 0.77 per on the prior year. notes and coins, million were worth BGN 17,737.5 from withdrawn the BNB:down million cent or onBGN 259.0 1.57 per 2016.Over the same period Bulgarian bank- million of circulatingBanks deposited banknotes BGN 16,186.8 and coins, down in the Law on paragraph 1 and the the BNBArticle 25 2017 Minting Programme. million. The BNBlaunchedBGN 2779.4 commemorative five coins asprovisioned In 2017 contractors supplied 66.2 million banknotes and 179.9 million coins, worth coins, and scrapping Bulgarian banknotes unfit and coins. notes and coins and foreign currency, exchanging damaged Bulgarian banknotes and delivering, repaying, processing, authenticity checking and fitness of Bulgarian bank- BNB issue and operations cash include: banknote printing, coin minting, accepting, BNB Issue and Operations Cash banknotes. sis Centre retained 7645euro banknotes, 445US dollar banknotes, and 177other On evaluating foreign suspect banknotes and coins, in 2017 the National- Analy and Their share 23BGN 0.20s. low was alsovery cent. at 0.000033 per There were 766 non-genuine retained coins: 22 BGN 2s, 246 BGN 1s, 475 BGN 0.50s retained non-genuineall banknotes. cent. The 19non-genuine 5,and 100banknotes cent comprised of BGN 2, 2.07 per cent,banknotes followed at 58.22 per and 10at by 20.78and the 18.93 per BGN 50 banknote was most popularThe BGN 20 among retained non-genuine Bulgarian 58

Check the BNBwebsite for new banknotes, circulating, and commemorative coins. 58

Maintaining Banking System Stability and Protecting Depositor Interests 55 -

59 totalled BGN 81.5 billion. The share of resident claims fell fell claims resident of share The totalled 81.5 billion. BGN 60 Protecting Interests Depositor the BNB. the Maintaining Banking System Stability and System Banking Maintaining Based on individual supervisory statements as of end-December 2016 and 2017, submitted by 24 February by 2017, submitted 2016 and end-December supervisory as of individual Based on statements 26 February2017 and 2018. 1 – MPF1). Form BNB (Macroprudential the Source:

59 60 Source: Source: Domestic and Foreign Bank Market Shares by Asset by Shares Bank Market Foreign and Domestic Assessment of the State of the Banking System Banking the State of the of Assessment credit of levels observing while adequate activities conducted Banking 2017 were in - reten asset quality to led improve to Actions position. capital liquidity and institutions’ non-performing of share and risk. volume The credit in the trend downward the of tion sheets. risk in bank balance credit (potential) residual alongside declined loans with half almost somewhat, assets changed liquid institutions’ structureThe credit of All BNB. with cash the balances cash and of form the in remaining liquidity banks’ of 20 per more of or cent supervisory observed the institutions recommendation credit entity deposits. legal and household for asset cover liquid large a acquiring group banking European a leading continued, banks of Consolidation institution. credit - pro profit, a BGN 1150 million reported system banking the 2017 December 31 As of equity. and assets return on acceptable viding sys The 97.8 billion. BGN to cent) (6.2 per BGN 5.7 billion rose assets system Banking securities holdings. and advances, and loans rising deposits, showed sheet balance tem’s EU bank subsidiaries equity, Bulgarian banks with predominantly of shares market The and 23.5, 75.2, at unchanged remained branches and banks non-EU and branches, and 1.3 per cent. balance system’s the 55.9 per of five cent comprised assets banks’ big the end-2017 By sheet. advances and loans Gross VI. to 86.0 per cent in favour of non-resident ones rising to 14.0 per rising to cent. ones non-resident of in favour 86.0 perto cent Bulgarian National Bank. Annual Report • 2017 56 (annual change) Balance of SheetDynamics Indicators Selected from cent, 54.5to 60.9 per the euro share from falling 43.1to cent. 37.5 per creditgross portfolio foreign shows currency structure lev-denominated items rising cent)sector their fell BGN82million(11.9 per share cent. The declining to 1.1 per cent), their(25.0 per share reaching cent. Claims on 4.5 per the general government to cent.ing corporations other Loans to financial 35.3 per also rose BGN0.5 billion 59.1 per to cent. households Loans rose BGN1.2billion (6.5 per cent), their share- ris porations cent) cut their (BGN20million, portfolio 0.1 per share led which at still banks) rosetral to BGN56.1billion. Aslight decrease of loans to non-financial cor The credit gross portfolio (except loans and advances to credit institutions and cen - Source: byBanking Source System Structure Deposit an annual basis. porations’ deposits rose inabsolute most significantly by terms BGN2.8billion on Volumes across grew institutional sectors except corporations. other financial Cor Banking system deposits cent) rose to BGN5.1billion BGN83.7billion. (6.5 per Source: the BNB. the BNB. (per cent) (per cent) - - Maintaining Banking System Stability and Protecting Depositor Interests 57 (per cent) fell to BGN 4.2 billion and remained entirely entirely remained and BGN 4.2 billion to fell 61 the BNB. the advances less the inherent accumulated impairment. accumulated inherent the less advances Net non-performing loans and advances are calculated as the gross figure of non-performing loans and and loans non-performing gross figure of as the calculated are advances and loans non-performing Net 61 Gross non-performing loans and advances coverage ratio was 49.4 perwas ratio with coverage cent advances and loans non-performing Gross - poten representing advances, and loans non-performing Net impairment. inherent sheets, risktial in bank balance credit Source: Source: Shares of Gross and Net Non-performing Loans Advances and Non-performing Net and Gross of Shares - non-finan by followed cent, 59.1 per at leading continued share deposits’ Household government general 28.9 per at and institutions credit The cent. cial corporations 3.3 perto dropping financial 2.4 per and other corporations 6.3 to rose cent, shares 91.1 per non- to rose of expense deposits the at cent domestic of share The cent. deposits euro the cent, 57.3 per 55.7 to from rose share lev the currency, By residents. 34.4 per to 35.4 cent. falling from - com other Accumulated billion. 12.6 BGN equity 3.6 per to rose sheet cent Balance greatly. financial assets contributed available-for-sale from income prehensive 2017 gross non-performing end-December By improving. Asset quality continued Non- BGN 8.3 billion, advances. and were exposures mainly loans comprising ratio, exposure non-performing The BGN 38 million. securities were performing improved definition, (EBA) Authority Banking European broadest the to according year. the of end the at 8.9 perto cent (16.7 per BGN 1.7 billion some by declined advances and loans non-performing Gross (5.2 per The BGN 4.0 billion cent). rose advances and gross loans total while cent), ratio its and points 2.7 percentage contracted share advance and loan non-performing past advances and loans non-performing of 10.2 perfell to gross The amount cent. 17.7 per cent. basis or annual an on BGN 1.0 billion by fell a year over due covered by a BGN 7.3 billion capital excess over the 8 per cent regulatory minimum. regulatory 8 per cent the over excess capital a BGN 7.3 billion by covered non- much, change not did advances and loans structureThe non-performing of 72.5 per at Instruments end-2017. by dominating cent debt financial corporation expense the claims at writing off irrecoverable risk included curb credit banks used to repossession. collateral and loans, selling provisions, of Bulgarian National Bank. Annual Report • 2017 58 Non-performing and Advances Loans by Sector Source: and on onReturn Return Assets Equity end of the year. ROA and ROE declined slightly on 2016,to 1.18and cent 9.15 per respectively at the The mainbanking system profitability indicators remained acceptable by end-2017. 50 million or cent 6.2 per on 2016. In 2017 impairment costs on loans and receivables were BGN 755 million, down BGN non-residentwith banks,mainly parent companies. share of claimson credit institutions continued largely rising, through placements during the boosted the lastquarter share cent of of to securities 14.2 per assets. The most were issued by the general government sector. The increase in bonds mainly liquid assets. on Securities the assets or noside risk high impairment carried since Balance sheet assets other thanloans retained share ahigh their of with good quality Source: the BNB. the BNB. (per cen t) Maintaining Banking System Stability and Protecting Depositor Interests 59 t) (per cen , and 0 per cent countercyclical capital buffer). buffer). capital countercyclical cent 0 per , and 62 the BNB. the The systemic risk buffer is cumulative with the other systemically important institution (O-SII) buffer set set buffer (O-SII) institution systemically important other with the risk is cumulative buffer systemic The http:// BNB website: see the buffers, capital on information more For banks. systemically important for www.bnb.bg/BankSupervision/BSCapitalBuffers/index.htm

The increase in the common equity tier one capital boosted tier one capital and bank- and capital one tier boosted capital equity one tier common the in increase The 3.7 per or BGN 415 million to rose cent own funds Regulatory equity. system ing comprehensive accumulated growing other to due was increase The BGN 11.5 billion. reserves. other and income basis annual an on risk rose exposures, credit riskweighted mainly exposures, Total risk structure. credit in the a substantial in change result not did but 62 Source: Source: main The fell annually 4.7 per BGN 3.9 billion. to cent income operating total Net a financial and instruments from structure a fall in its income in net were changes that and cent 68.9 per fell to income interest net of share The income. rise net in other 25.6 per to cent. rose commissions and charges from income net of 5.0 per or BGN 2.7 billion, was million, BGN 142 down cent income interest Net fellBGN 272 million 8.2 per or income Interest year. previous with the compared 2016, its end on cent 26.1 per or BGN 130 million declined expenditure Interest cent. income. interest of that outpacing drop 46.1 per to the rose end-2017 ratio 43.1 in 2016. By on cent income cost to The 19.9 by from 19.8 to slightly fell ratio income operating total net to loss impairment end-2016. Credit earlier. a year from little moved ratios capital 2017 banking of close the At conservation capital cent (2.5 per requirements buffer capital to adhered institutions risk buffer systemic cent 3 per buffer, Net Operating Income Structure Operating Income Net Bulgarian National Bank. Annual Report • 2017 60 (per cent) Requirements Indicators Capital Selected under Regulation (EU)No 575/2013on Capital 64 63 In 2017 the liquidity position Source: (BGN million) Indicators Liquidity underSelected Ordinance No 11of the BNB debt. By end-2017 leverage cent) ratio continued (10.68 per low to reflect banking system regulatory minimum increased to BGN 7.3 billion at the end of 2017. cent. Thethe capital excess cent over year at 20.41,20.86 and 22.08 per the 8 per The common tier one, equity tier one capital and total capital adequacy ratios ended Source: folio increased faster thanin2016. of increased deposits of non-financial corporations and households. The credit port-

flow reporting. liquidity reporting requirements harmonises 2018. This inearly EUliquid asset and inflow and cash out Regulation (EU)No 575/2013 and Delegated Regulation of (EU) 2015/61 the Commission introduce new A mandatory leverage requirement in2019. isexpected 63 the BNB. the BNB.

64 of the banking system enhanced in the further context (per cen (per cen t) t) - Maintaining Banking System Stability and Protecting Depositor Interests 61

66 was 71.5 per was (73.5 cent 65 the BNB. the The LTD indicator uses data from the MPF1 reporting template with gross loan portfolio as denominator as denominator portfolio with gross loan template MPF1 reporting the data uses from indicator LTD The bank figures). bank and central (except as denominator deposits and Institutions. Credit on Law the Article 1 of paragraph 3a, under Register Public BNB The

for the prior year). The improvement was due to the faster growth rate in deposits in deposits growth faster rate the to due was improvement The year). prior the for portfolio. credit banking in that to compared ones) institution credit (except 65 66 Source: Source: 51.6 perassets at followed unimpaired cent, led receivables 2017 lease of end the At assets at impaired led agreements lease under Receivables 35.2. at loans consumer by credit consumer 31.5 and at business to related loans other by 53 per followed cent, 15.4 perat cent. Breakdown of Financial Institutions’ Assets by Type of Business Business of Assets Type Institutions’ by Financial of Breakdown In 2017 14 new companies were listed into the Register of Financial Institutions Institutions Financial of Register the into listed were companies In 2017 14 new Three financial up. winding or trading of termination to due deleted were three and services, their recognition mutual passport European single provided institutions 187 listed were there period, the of end the At supervisory BNB. notifying the bodies insti- credit of cent 7.9 per or BGN 7.7 billion assets were financial Their institutions. in 2016. 7.5 per cent assets, from tutions’ leading companies leasing unchanged, type remained by business Asset of breakdown institu 11, and - at claims acquirers 123, loan at institutions lending by 46, followed at guarantee conducting financial or institutions or in credit holdings acquiring tions 7. at transactions Financial Institutions Recorded in the BNB Register in the Institutions Recorded Financial The liquid assets ratio calculated under the BNB Ordinance No 11 reached 38.97 per 38.97 per 11 reached No BNB Ordinance the under calculated assets ratio liquid The 38.24. from cent (LTD) ratio deposit to loan December the of end the At Bulgarian National Bank. Annual Report • 2017 62 Dynamics ofDynamics Balance Sheet Indicators by Year growth, includinggrowth, past unallocated years’ profit. ing companies. profit left The marginal reserves rise asthe maininternal source of business cent at lending remaining 57.5 per companies cent at leas and 31.2 per centFinancial to BGN1.8billion, rose institutions’ 20.4 per equity distribution by indebtedness stayed cent. at 14 per of growth significant balance sheet compared figure to the profit marginal Sector rise. onReturn assets(4 per cent) and on (16.6 per return cent) equity declined due to the ing companies. In 2017annual profits were slightly up on the prior year, mostly down to the lend- Source: Breakdown Funds of Attracted source remained unchanged following the general trend over the years. of resourcesIn the total attracted structure (BGN5.4billion) the funds breakdown by remaining good. assets (including leases) held financial cent 80.6 per from 81.1 in2016,claim quality the institutions largest with The 20financial share of loan total gross portfolio Source: the BNB. the BNB. (BGN million) -

Maintaining Banking System Stability and Protecting Depositor Interests 63 - - - Euro and 68 as before. 67

69 EBA/GL/2014/04. (ESRB/2012/2). institutions credit of funding on ESRB Recommendation the A4 of Recommendation Except individual administrative acts for listing, declining to list, and deletion into and from the Register Register the from and into deletion and list, to listing, declining acts for administrative individual Except Department Supervision Banking with the remain which Institutions Credit on Law the Article of 3a under Register the and Register Central Credit the from and into delisting and listing for and Deputy Governor, Deputy Governor. Department Banking with remain the which Boxes, Deposit Safe and Accounts Bank of

pean Systemic Risk Recommendation. Board pean Systemic 68 69 67 Off-site Supervision risks potential which and problems identify to supervision worked In 2017 off-site on and shocks absorb ability to institutions’ effect credit an adverse on have might banks’ finan of - monitoring continuous on This relied assessment. risktheir profile capacity institutions’ to asset quality and trends of analyses in-depth cial status and also rates lending and deposit low amid Risks profitability to pressure. liquidity meet significantmerited attention. liquidity day-to-day including assessments, liquidity and adequacy capital Periodic attracted on BNB recommendations of observance into looked monitoring, position supervisory supervision priority an off-site in the evaluation and review coverage: fund financial perfor institutions’ credit of assessment comprehensive A (SREP). process At the end of 2017 the BNB adopted amendments to the Law on the BNB and the the BNB and the on Law the to amendments adopted BNB 2017 the of end the At whereby 5 December 2017) 97 of issue Vestnik, (Darjaven institutions Credit on Law the purview of in the placed acts supervision are administrative banking individual Banking the heading Deputy Governor the of proposal the at Council Governing Deputy Governor any not Department, Supervision on banks’ reports of assessment and review the from emerged risk and profile mance - liquidity ade internal and (ICCAP) process assessment capital adequacy internal the potential identified Supervisors plans. (ILAAP), funding and process assessment quacy measures. alleviation launched and institutions credit risks individual at unacceptable in 2017. Supervisors continued supervisory of implementation measures Monitoring - require with regulatory line into operations bring to five banks’ moves reviewed - reme appropriate taken had institutions the that established reports Regular ments. - com specific and units of functions and operations their improve to dial measures managing risks, and and controlling, monitoring, assessing, to withmittees regard analyses. supervisory adequacy capital internal and reports improving supervi boost helped - priority, in supervisory another is Participating which colleges in Bulgaria. licensed subsidiaries group bank European effectiveness at sion - Invest and Institutions Credit of Resolution and Recovery the on Law the to Pursuant revised 2016 and updated the assessed revised Bank and the Firms (LRRCIIF), ment consolidated to subject groups part not of are banks which domestic of plans recovery - check Thisinvolved review LRRCIIF. the of Article paragraph 1 6, supervision under criteria plausibility overall and quality, integrity, applied institutions credit if ing of complexity and scope, nature, the and specific with their circumstances consistent addressed institutions credit whether monitored Bank the In addition, business. their review The review. plan 2016 recovery the by identified deficiencies and weaknesses signifi improved coordination draftingand their and plans recovery that identified assessed and Supervisory reviewed still colleges revisions. needed some though cantly, subsidiaries. companies’ EU parent of plans recovery the harmo- on Guidelines with in line EBA plans all banks’ funding BNB reviewed The institutions credit of plans funding for templates and nised definitions Banking SupervisionBanking Bulgarian National Bank. Annual Report • 2017 64 paring the relevant reports. ment and controlling the registration of operational all events and deadlines in pre - related operational exposure introducing scenarios, risk aperiodic stress test require- operational management risk by updating the applied stress test methodologies and Operational reviews and risk assessments resulted inasking some banksto improve order to take timely actions aimed at mitigating credit and concentration risks. ing nascent credit exposure problems to bemonitored in and analysed periodically warning systems by quantitative tightly defining and for qualitative criteria identify- credit monitoring risk brought recommendations to some banks to update early develop reliable assessments of inherent and their risks capitalcoverage. Continual into managementthe risk framework to integrate bankoperations them in all and mendations concerned incorporating internal capital assessment process and ICAAP valuations,loan security and adopting realistic implementation Other terms. recom to change internal lending improving rules, borrower creditworthiness analysesand Findings measures and resulted prescriptions insupervisory to banks’ managements adequacy and planning. intorisks management internal risk and evaluation systems incapital to bereflected to internal assessment of under bankstability stress, incorporating significant all scriptions on amethodology to prepare documentation on ICAAP and approaches nal capital adequacy assessments. Others failed implement to fully pre- supervisory Some banks have yet to improve their overall approach to and internal risk inter nesses, and internal audit frequency were implemented partially. security, reserve information centres, business continuity, recurrent budgeting weak- assessment.failed Recommendations supervisory on operational management, risk IT tions improved management internal risk and tightened internal controls which had dures, corporate management risk culture, policy, and internal audit. Some- institu Recommendationsassessed. concerned improvements ininternal and rules proce - reports addressing shortcomings ininstitutions’ control mechanisms was thoroughly Implementation recommendations of supervisory contained inprevious inspection and control framework and on the capital position of the credit inspected institutions. objective was to assessthe impact of these recommendations on management the risk mentation of measures and recommendations from review. the 2016 asset quality The their internal capital needs inanalysing capital adequacy. Inspections covered imple- was paid to the organisation, and rules methodology credit institutions useto identify mainly on existing processes and systems for Close risks. attention managing specific Theresupervision. were 14inspections over the year. On-site inspections focused In 2017the BNBcontinued conducting inspections alongside supervisory day-to-day On-site Inspections roeconomic shocks. and financial The simulation results were one information source down method and its main aimwas to assessresilience adverse to hypothetical mac- of macroprudential monitoring of to banking risks system stability. It usedthe top- A capital stress test under 80bof Article the Law on Credit Institutions formed part liquidity positions continued to bemonitored daily. areas likekey non-performing risk loans and indebtedness. credit institutions’ All BankingAnnual Business Survey augmented Aspects macroprudential analysesof sive set of indicators, thematic studies, and improved comparative assessments. The and profile risk developments sought to identify vulnerabilities through anexten- banking system stability.affecting Athorough analysisof intermediation financial Macroprudential supervision in 2017 focused on developments in inherent risks Macroprudential Supervision - - Maintaining Banking System Stability and Protecting Depositor Interests 65 - - Systemic risk buffer level was confirmed 3 per was at risk level cent buffer Systemic 70 For more information on capital buffers, see the BNB website: http://www.bnb.bg/BankSupervision/ BNB website: see the buffers, capital on information more For BSCapitalBuffers/index.htm.

of the bank risk exposures of Bulgarian banks. The review acknowledged banking banking acknowledged review The banks. Bulgarian risk bank of the exposures of key its financial and in the system, position structuralsystem’s leading its features, the of development sustainable the to support and in financial intermediation role banks’ at looked Bank the O-SII, for buffer quantifying the When economy. national introduction. buffer since importance systemic changing from losses system potential analyses of and assessments Quarterly macroprudential - growth used countercy periods credit in excessive risk accumulation systemic cyclical its from ratio GDP to credit the of deviation negative the Given buffers. capital clical countercyclical the risk, and systemic cyclical no was in 2017 there value, long-term nil. at stayed buffer capital risks system and banking announcing entailed mandate macroprudential Bank’s The trends. major in changes noted Reports Supervision Depository/Banking Data Single Optimising analytical and supervisory needs. and information framework financial reporting the 70 anteed deposits at four credit institutions. Breaches in calculating deposit bases and bases and deposit in calculating Breaches institutions. credit four at deposits anteed them removing for recommendations and found were amounts deposit guaranteed made. against Measures on Law a new draft of the active on in expert BNB was The debates terror and laundering money national the on continued Work Laundering. Money - Direc under committed is (NRA) Bulgaria ist financing risk which assessment to in the significant progress provided resources administrative The tive (ЕU) 2015/849. an complete to information required the analysing and gathering of process overall end. NRA year’s the of stage by important BNB the to institutions credit signals on practice poor and complaints of number The Services and Users Product Financial for Information Updated declining. continued - com conciliation special before and institutions credit to complain to way the explains charges. and rates, interest loans, consumer like matters on disputes reviewing mittees Specific Supervisory Activities expertise and a reliable effort create to systemic the on Specific supervision focused through criminal proceeds of transfers prevent to environment backed technology financialthe system. financing terrorist and laundering money preventing systems reviewed Inspections with the compliance achieving at aimed framework legislative national changing amid the use of the of prevention the 2015/849 on (EU) in Directive down laid principles financing. On-site terrorist or laundering money purposes of the financial for system addressed Fifty-five recommendations 27 breaches. banks found ten at inspections risk higher customers. of diligence capacity due administrative and two at Commission Supervision withFinancial inspections the Interinstitutional statutory showed custodians fund insurance pension banks acting as supplementary compliance. guar reporting on adherence Guarantee Deposit Bank on inspected Bank The Law in the supervisory review and evaluation process of bank capital adequacy under under adequacy bank capital of process supervisoryin the evaluation and review modelled, risk were ratios credit system banking Key scenarios. adverse and baseline equity system adequate showed Results variables. macroeconomic major to subjected shocks. hypothetical aggravated and withcapacity basic cope to institusystemically - important other risk and systemic the of reviews saw year The risk (O-SII) buffers. tions Bulgarian National Bank. Annual Report • 2017 66 Victoria AD’s shares. CreditAmerican Bank AD and Investbank AD to acquire directly Commercial Bank evant applying sixmonths, bankwithin the Bank granted preapprovals to Bulgarian intentions to transform the banksubject to acquisition through merger the with rel- 28a,paragraph 3ofArticle the Law on Credit Institutions and of in view bothbanks’ Commercial BankAD. Following assessment of compliance setout the with criteria in Commercial BankVictoria by assignees inbankruptcy of the insolvent Corporate equity. The applications were inresponse to the sale of shares and claimsinand on AD and Investbank AD applied to acquire 100 per cent of Commercial Bank Victoria taking and imposition of afine. tor’s prompted signal office aninspection against acompany for unlicensed deposit ofwarned administrative inwriting breaches of BNBRegulation No 26.Aprosecu- of unclear ownfunds origins. The year saw four institutions charged financial and ing institutions, new financial the Bankdeclined to register three companies because ownersqualifying or members of institution’s boards. financial Alongside register From its international contacts, the Bankreceived numerous references on persons – information they present to consumers. diation were during the inspected year. Several received to instructions change the intermediaries. More than70companies of suspected unauthorised credit interme- on Real for Estate Loans Consumers listed 24Bulgarian and nine EU Member State Credit Intermediaries. The Credit Register Intermediary under 51of Article the Law also published new Guidelines on the implementation of BNBOrdinance No 19on Consumers, the Bank automated registrations and paperwork submissions. The Bank To simplify credit registration intermediary under the Law on Real for Estate Loans 74 73 72 71 sonal Finance S.A. of France intended to operate inBulgaria through abranch. In August the ECB ascompetent authority the advised BNBthat BNPParibas Per requirements the BNBconcurred inconsent. sent on branch closure. Onassessing compliance bankoperation with termination its Bulgarian branch. IšBank AG’s competent authority the notified BNB of its con In August 2017 IšBank AG of the Germany notified Bank of its intention to close notices inBulgaria services direct to 288. notices to the BNB from their licensing authorities, bringing the number of received provide under the services mutual recognition of single European passport through Over the year 22new EUMember State credit institutions exercised the freedom to graph 3of the Law on Credit Institutions the Bankgranted the requested approval. of compliance of the declared acquisition setout 28a,para- the criteria with inArticle 67.646407 per cent of Municipal BankАDpaid-in share capital. Following assessment In December2017Novito Opportunities Fund AGmvK applied to acquire Bulgarian BankAD. Group. The Bank subsequently authorised CIBANK AD’s merger into the United United Bulgarian was Bank approved, (UBB) equity making the of UBB part the KBC in March; aKBCBankN.V., Belgium application to acquire directly 99.91 per cent of application to acquire 100 per cent of Commercial BankVictoria was declined equity BNB completed preapprovals for two acquisitions: bank equity aDCommerce Bank There were no new bankoperations licences or banklicensing procedures in2017.The Issue of Permits, and Licences, Approvals

BNB letter of 2018. February BNB decision of January 2018. In March 2018 the BNBtook decisions on both procedures. UBB. In October CIBANK AD requested, and in January the BNBgranted the merger of CIBANK the AD with 71 72 Inthe second of half 2017the Bulgarian Credit American Bank 74 73 - - - Maintaining Banking System Stability and Protecting Depositor Interests 67 - - - - The legal legal The 76 - EAD terminat Finance Personal BNP Paribas to BNB consented the 75 In January 2018. In January 2017. 97 of issue Vestnik, Darjaven in the Published

75 76 Participating in Single SupervisoryParticipating in Single Colleges Mechanism vulnerability a prior was and risk profile parent and group of awareness Gaining ity. Colleges discussed strategic plans for bank groups and subsidiaries, analysed the analysed the subsidiaries, and groups bank for plans strategic discussed Colleges ity. 2017 of results the bank groups, on environments operational markets’ key of impact supervisory main findings all of the and tests, significant stress reviews, ECB super capital on cooperating continuously and information visory Exchanging measures. groups. relevant on making decision joint to contributed assessments liquidity and weaknesses, Plans still focus. showed another formed plans recovery group Reviewing significant sub of especially insufficient cover to pointing authorities all competent eight on decisions joint by followed was review plan recovery group 2017 In sidiaries. in Bulgaria. groups bank European intensive involved UBB the of takeover Group КВС the for moves Preapproval KBC. for supervisory ECB team responsible joint with the exchange The Regulatory Framework and Internal and Rules Framework Regulatory The regime the improve to amendments in drafting legislative involved BNB was The parties:- adminis related banks to of exposures the from risk stemming regulating bank, the controlling persons with shares, higher qualified or shareholders trators, exposures). (internal parties as related identified other and subsidiaries, Supervisory measures supervisory five for banks framework supervisory on saw 2017 imposed measures weaknesses remove to supervisoryreceived banks prescriptions other Two breaches. operations. in their Subsequently, mechanism for transposing EBA guidelines, recommendations, and other measures measures other and recommendations, guidelines, EBA transposing for mechanism Article 16 of Regulation (ЕU) No 1093/2010 grounds of the on law Bulgarian into . streamlined was provid standard a regulatory adopted Commission European 2017 the of end the At 1 from impact IFRS 9 implementation the mitigate to measures transitional for ing to changes potentially in negative phase to institutions This 2018. allows January - banks’ readi five BNB surveyed The years. over leverage and ratios, capital capital, financial of impairment and measurement, classification, 9 IFRS introduce to ness ratios. capital and capital, impairments, changed of idea a realistic gain assets and remained and final implementation the in of stages were banks suggested results The buffers. and requirements capital minimum above sufficiently and capitalised a Bank Supervisory 9 February approved 17 of Resolution Council BNB Governing Development and Reform Supervision Banking the under formulated Manual Process rules. interaction sets and duties rights and units defines individual Plan. It ing its payment institution business from 1 February from business Personal BNP Paribas 2018. institution payment its ing a branch. through in Bulgaria operations institution will credit S.A. launch Finance 19 new members supervisoryboard for 28 management and approvals saw year The a for granted was approval One directors. executive also for whom banks, 22 of at country bank branch. a third of manager deputy a for another and bank procurator capital one in banks’ tier instruments of recognition for six authorisations were There instrument. a debt of early repayment for one and Bulgarian National Bank. Annual Report • 2017 68 resolution authorities. of half ready 2018.Inthe in the review the first BNBconsults group-level and national the next annual resolution plan review in May and June 2017. Updates should be after the KBCGroup took over the United Bulgarian Bank.These colleges launched Seven international resolution colleges worked inthe second of half 2017:one fewer European Union. for determining minimum requirements for own funds and eligible liabilities in the 2017. The minimum requirements finalisation besetafter of the legal will framework The plans setno minimum requirements for funds own and eligible liabilities for corporationssignificant their within groups and functions. their define critical banking groups. The plans assessthe eight banking group subsidiaries in Bulgaria as aries. They alsoinclude additional detailed assessments of interdependencies within The plans include resolution strategies for banking groups subsidi- significant and all porations inbanking groups and functions, their critical and business model analyses. 2017.Theearly plans include assessments of bankgroup resolvability, cor significant colleges, the BNBadopted resolution plans for relevant groups and subsidiaries by for the relevant bank groups and their subsidiaries licensed in Bulgaria. Within these worked on assessing the opportunities for resolution and preparing resolution plans tion authority and other resolution authorities of companies subsidiary from the EU leges for resolution were inwhich active the BNBjointly the with group-level resolu groups from the EU(banking of groups). half 2017eight Inthe international first col- BNB participates ininternational colleges for resolution of cross-border banking aresolutionAs authority of banksof subsidiary parent companies from the EUthe responsibilities. authority, internal setpreparation rules and decision making procedures and assigned duties under paragraph 1 Article 2, of the LRRCIIF on decision making asaresolution settlerules internal Ordinance implementation. To facilitate BNBresolution practical of the LRRCIIF. paragraph 2 and Article 54, New paragraph 3 internal Article 46, to temporary administrators or specialmanagers of abankwas adopted pursuant to BNB on the information and documents proving compliance the with requirements under the Commission Delegated Regulation (EU)2015/63. setting third banksand country branches dues to the BankResolution Fund (BRF) internal and rules instruments. statutory Among them was adetailed methodology discharging other BankLRRCIIF duties continued. The Bankadopted anumber of dures for acommon approach to assessments and analysesinresolution plans and on resolution plans. Development and improvement of methodologies and proce- In 2017the BNBasabodyresponsible for resolution of credit institutions focused (LRRCIIF) the resolution tasks BNBwith of credit institutions. The Law on the Recovery and Resolution of Credit Institutions and Investment Firms VII. 77 nisms (OJ, L11of 17 January 2015,p. 44). pean Parliamentpean and of the Council regards with to ex-ante Delegated Regulation (EU) 2015/63 of 21October 2014supplementing Directive 2014/59/EU of the Euro

Institutions BNB W ork on Resolution of Credit co ntributions to resolution mecha financing 77 Ordinance No 9of the - - - - VII BNB Workon Resolution of Credit Institutions 69 - ing resolvability and preparing resolution plans. plans. resolution preparing and resolvability ing at dues Fund Bank Resolution system BNB set 2017 banking the In March this to apportioned In April 2017 it BGN 111,274,000 requirements. LRRCIIF to term within in the set the Fund the into All banks. dues individual their banks paid LRRCIIF. As resolution authority of cross-border banking group subsidiaries the BNB is an BNB is an the subsidiaries group banking cross-border of authority As resolution Bank session. executive extended (SRM) Mechanism Resolution Single the of observer 2017. drafts for plan resolution group banking debate helped SRM representatives assess for information institution credit collecting standardised continued BNB The Bulgarian National Bank. Annual Report • 2017 70 coordination the within EMU, including concrete steps towards its deepening. package of documents aimed at strengthening national economic policy and fiscal Monetary Union (EMU) and EU funding. In December 2017 the EC presented a Commission reflection papers focused debate on the future of the Economic and EU development inthe next decade of inview current challenges. Two European White Paper on the Future of Europe initiated debate on possible five scenarios for capital market union, and raiseconfidence system. inthe The March financial 2017 recover economic promote growth, investment, establish a functional integrated In 2017EUbodies and institutions focused on the implementation of measures to intheVIII. Participating ESCBand EUBodies 78 heightened geopolitical uncertainty, might renew concerns over public and private The probablerisks. marketspremia global risk financial reassessment which, amid Board. The four 2017General Board’s meetings mainlydebated stability EUfinancial The BNBGovernor and Governor BNBDeputy are members of the ESRBGeneral Authority, and of Colleges Supervisors The European Systemic Board, the Risk European Banking BNB representatives sat on 12 ESCB committees, central bankobservance of the prohibition of monetary and financing, public finance. and the ECB reports on non-euro area EU countries’ outlook and monetary policies, ings addressed important issues of economic development, performance, EUfinancial and the ECB President and Vice President. The four 2017ECB General Council’s meet- The BNBGovernor sits on the ECB General Council EUcentral bankgovernors with The European System of Banks Central on Econometric Modelling. In May 2017 the BNB hosted the ESCB Monetary Policy Committee Working Group cial instruments contracts. and financial provisions from Regulation (EU)2016/1011on indices- usedasbenchmarks infinan toBill amend the Law on Payment and Payment Services Systems some to transpose Law on Credit Institutions to change the BNBdecision making framework; and the regard particular banking with supervision to related the to parties; Bill amend the the internal market; the to Bill amend the Law on Credit Institutions to strengthen and Payment Systems Directive to (EU) 2015/2366on transpose in payment services lowerPayments gradually with limits; the to Bill amend the Law on Payment Services heldgaria consultations: two written on the Bill to amend the Law on Limiting Cash consultations Member with States on ECB purview. within bills Over the year Bul- central banking issues. The Bankalsohelped formulate ECB standpoints inwritten policy, payment and settlement reporting systems, and statistical research, and other and working groups helped elaborate ECB instruments on monetary and banking Human Resource Conference. Bankrepresentatives on ESCBbodies, committees, the Committee Statistics (STC). the Monetary Policy Committee (MPC),the and Market Payments Infrastructure Committee (MIPC),and Relations Committee (IRC), the Committee Legal (LEGCO), the Market Operations Committee (MOC), Information Technology Committee (ITC), the Internal Auditors’ Committee (IAC), the International the Banknotes Committee (BANCO), the Eurosystem/ESCB Communications Committee (ECCO), the The Accounting and Monetary Income Committee (AMICO), the Financial Committee Stability (FSC), 78 46 working groups, and the Participating in the ESCB and EU Bodies 71

- 80 and international colleges for resolution for colleges international and 79 For more information, see Chapter VI. see Chapter information, more For VII. see Chapter information, more For

79 80 BNB representatives took part in the discussions of the EU Council Working Party Working Council EU the of discussions partthe in took representatives BNB legislative EC concrete on formats different in Services, meets Financial which on Party helping meetings, Working 25 on sat representatives Bank Eleven proposals. curb to measures of a package on proposals EC debating and Ministrythe Finance of Supervision. Financial of System European the of rewiew risks the system and banking The Ecofin Council and Economic and Financial Committee Financial and Economic Ecofin and The Council (EFC) ures to curb risks to systemically important institutions and risks in the residential residential risks the in and curb risks institutions systemically to to important ures - occupa the for scenario adverse the approved Board General The property sector. and Insurance European the by coordinated tests stress institutions’ retirement tional adopted Board General June 2017. The in (EIOPA) Authority Pensions Occupational Sec- loans. non-performing cut to recommendations and principles core approaches, stressed and derivatives market EU addressed meetings Board’s half General year ond sys- spot possible to awareness markets derivatives data better and yet for need the policies. macroprudential relevant develop risks and temic trans to - effects moves and cross-border policy macroprudential Bank reported The cross-border on with Recommendation ESRB 2015 line in accountability and parency measures. policy macroprudential for reciprocity voluntary and effect assessment - countercycli setting and recognising on ESRB Recommendation with the Compliance assessment assessed. overall The was countries third to exposures for cal rates buffer banks the for rates buffer countercyclical setting for responsible body a as BNB the of Recommendation. the of requirements with the Bank complies the is that in Bulgaria in financial intermediation role increasing their and funds investment growing Fast of end the at financial Therefore, future. crisis serious in the in a more result could liquidity to risk related systemic the tackling recommended Board General 2017 the - EU mactopruden improve to funds investment by leverage use of the and imbalances sector. asset management the to applicable tial framework Board, General ESRB the of work the in involved actively were Bank representatives posi- preparing task forces, and groups, working two Committee, Advisory Technical consultations. and written meetings, procedures, at discussed topics on tions the in 2016, in which established Force Task High Level Board ESRB General The low of portfolio a compiling continued Deputya Governor, by represented is BNB - risk securities com low of creation potential the explored Force risk Task The assets. of diversifieda portfolio by backed (tranches) claims subordinated and senior prising the of conclusions key the discussed risk Having sharing. without bonds government ESRB website. the on publication its approved Board General the in December, report with supervisory the Cooperation colleges debt in set EU countries, was identified as a key risk despite expectations of world and and world of expectations risk as a key despite identified was in set EU countries, debt structural banking also discussed meetings Board’s General The recovery. European qualityasset States, set Member in profitability poor from vulnerabilities cyclical and On property sector. residential the in dynamics price to risks and related degradation, approved Board General the framework, EU macroprudential the of review EC the buffers. structural on macroprudential amendments legislative proposed meas macroprudential 2016 States’ Member addressed Board General March The continued in 2017. in continued Bulgarian National Bank. Annual Report • 2017 72 Directive II a Bill ona Bill Payment and Payment Services Systems The BNBhelped harmonise Bulgarian and EUlaw. Bankrepresentatives helped draft funding, methodology, and alternative and preventive measures. Debate also aimed EDIS scope and membership, based contribution risk calculations, desire additional analysis of EDIS including effects, on non-euro area countries. pean Deposit Insurancepean Scheme (EDIS) proposal. Hoc Working on the Party Strengthening of the Banking Union debating the Euro- Bank representatives sat on seven technical level deliberations of the EUCouncil Ad proposals to amend regulations on ESApowers, management, and financing. AuthoritiesEuropean Supervisory (ESA) and the ESRB. Discussions focused on EC cial Supervision legislative package integration on financial further and reforming the Bank representatives debated the 20September 2017EC European System of Finan- importantglobal systemically banks). ties under the Financial Board Stability total loss absorbing standard capacity for recovery and resolution (the framework on minimum own funds and eligible liabili addressed bankprudential requirements and liquidity (capital, and supervision) ing Standard on Financial Instruments (I-FRS 9) impact. BNB representatives also of bankcreditors satisfying and the phase-in of the International Financial Report- and resilience to shocks. external went Priority to the legislative package components tive proposals to reduce banking and system risks boostcredit institution stability In 2017the BNBtook innegotiations part on the November 2016package of legisla- 84 83 82 81 and sector. the financial contributed to formulating Bulgarian standpoints on key economic governance areas By participating in the Council of Ministers Council for European the BNB Affairs, GovernorDeputy attended. the EMU for the September Informal meeting Ecofin which the BNB Governor and a The Committee helped prepare discussions on technologies financial and deepening the EC Communication on the European System of Financial Supervision review. Committee alsoaddressed EUmoves further to strengthen included supervision in ment to complete the Banking Union based on existing Council commitments. The Committee members held a preliminary debate on the EC Communication on - agree the EMU, sustainable development funding, reforms. and Member State structural Second year Economic half and Financial Committee debate addressed deepening on the Future of Europe. ing non-performing loans at the EUlevel and scenarios inthe the White five Paper meeting, which included the BNB Governor and Governor, Deputy discussed reduc- of the Capital Markets Union by 2019.The Committee and informal its Ecofin April reduction and sharing. Attention went on progress towards the laying foundations the implementation of measures agreed towards Banking Union and key issues of risk trends, and EUgovernment debt markets. Another circle of regular topics concerned on reviewing the economic stability, situation, to financial risks sector EUfinancial The BNBparticipated inthe Economic and Financial Committee. Debate focused

ment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU)No 596/2014. as benchmarks instruments contracts and infinancial financial or to measure the performance of invest Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used R ment inthe internal market, services amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on pay For more information, seeChapter III. Report,See BNB Annual 2016, p79. egulation (EU) No 1093/2010, and repealing Directive 2007/64/EC. 83 and implementing some elements of Regulation (EU)2016/1011. 82 transposing the Payment Services 81 The Government and the Bank 84 - - - International Relations 73 - TAIEX). The Bank provided provided Bank The TAIEX). eign fiscal depository. and agent Settlements International Bank for equity in the Bank holds National Bulgarian The a meetings: regular bank governors’ BIS central on sat BNB Governor (BIS). The - pros and development economic world on debate and cooperation for forum major profit allocated net BIS Governors The financial markets. pects, international and BNB receiving 2017, the June in late Meeting Shareholder Annual General the at 8000 shares. its for dividend EUR 2.9 million IMF Bulgaria’s Governors. of IMF Board the on Bulgaria represents Governor The 0.21 per shares: 10,427 voting IMF voting or of 896.3 million cent is SDR quota IMF regular the to delegation a Bulgarian led BNB Governor the In October shares. meetings. annual Group Bank World and Thirty. of Group the to USD 10,000 BNB contributed In April the 2017 visited the Turkey of Republic the Central of Bank the of In February representatives and cooperation of areas discussed possible They relations. boost bilateral BNB to the Centralof Bank for session training a ran Bank the expertiseMarch In sharing. Pericles the by funded representatives Mint State Turkish and Turkey of Republic structures, and analysis centres’ functions, national at looked It programme. EC 2020 other and euro the in protecting best practice and experience at and organisation, counterfeiting. from currencies and banks central with Western cooperation up ramping continued BNB The - rep Montenegro April In Central Bank of preparations. EU accession their backing - Techni Enlargement Commission’s European the BNB under visited the resentatives ( mechanism Exchange cal Information Assistance and ESCB Montenegro Central Bank of on roadmap a developing on assistance technical membership. Central Statistical Bank representative Department a Portuguese invited BNB The experience Portuguese heard Bank The statistics. of area the in projects present to harmonised ensuring for importance key of is which project AnaCredit ECB the of monetary in commitments SSM and ESRB, ESCB, Eurosystem, data on detailed and analysis, and policy macroprudential financial stability, risk management, policy, statistics. European supervision, and banking Belarus bank of a central Bank, hosted World the through BNB, the In November institutions credit of resolution and recovery for framework share to delegation experience. in level summit at Bank also participated the cooperation, regional up step Helping Balkan and Sea Central Region Asia, Black of Club Central Banks Governors’ the Countries. - interna in participate Bank to the Bank entitles National Bulgarian the on Law The cooperation. policy credit and monetary, furthering currency, organisations tional sover is BNB the financialinstitutions, international in participates Bulgaria Where IX. International Relations IX. International Bulgarian National Bank. Annual Report • 2017 74 institutional sectors’ quarterly financial accounts.institutional sectors’ financial quarterly cial accounts of the general government sector, government and statistics, all finance accounts,On financial the BNBcontinued to compile- on data the finan quarterly analyses. stability the Holdings Securities project Statistics on compiling and statistics sundry financial taining a Bulgarian member database. securities As of the ESCB, the BNB took in part Work continued on the Database project Securities ESCBCentralised and on main- foreign currency liquidity template. ments, international investment position, debt, external gross and the and reserve In 2017 the BNB continued gathering and disseminating on data the balance of pay- go live in 2018. broadening the scope of information for the updated version of the register, due to companies and head Implementation offices. began of new ECB requirements on payment system operators, insurance and reinsurance companies, alongside holding investment funds and their management companies, providers payment service and mation on credit institutions, money market vehicle funds, financial corporations, Data (RIAD)continued.Institutions contains and This Affiliates reference infor Work on providing and maintaining up-to-date information to the ECB Register of tional information statistical userrequirements and ESA2010implementation. securitisation, and interest rates, Updating methodological guidelines and reporting forms on instatistics monetary information on insurance expanded statistics to include flow data. tions, insurance and investment funds, and pension fund assets and liabilities. ECB The BNBcontinued gathering and publishing on statistics - non-bank institu financial assessing the degree of convergence. non-financial corporation deposits and loans, and the long-term interest rate for by quantitative categories and business, interest applied by MFI to household and nating MFIbalance sheet and data information on deposits and loans broken down In monetary and interest rate the statistics, Bank continued collecting and dissemi Bank disseminates timely and up-to-date other to users. data all to the ECB, Eurostat, the ESRB, the IMF, and other international institutions, the the ECB. Alongside regular submissions of reliable and sound information statistical the Law on the Bulgarian National 5of Bankand Article the Statute of the ESCB and compiles,The BNB collects, and publishes information statistical under 42 of Article X. Statistics 89 88 87 86 85 Regulation (EU) No 1374/2014 of the European Bank of Central 28 November 2014 on reporting statistical Regulation (EU) No 1075/2013 of the European Bank of Central 18October 2013concerning on statistics Regulation (EU) No 1073/2013 of the European Bank of Central 18October 2013concerning on statistics Regulation (EU)No 1071/2013concerning the balance sheet of the institutions monetary sec financial Under Regulation (EC) No 501/2004 of the European Parliament and of the Council, Guideline of the July 2013 on Government Finance (ECB/2013/23). Statistics Bank inthe Field of Financial Quarterly Accounts (ECB/2013/24), (recast) and Guideline of the ECB of 25 European Bankof Central 25 July 2013on Reporting the Statistical Requirements of the European Central st tor and Regulation (EU)No 1072/2013of the European Bankof Central 24September 2013concerning the assets and liabilities of vehicle financial corporations engaged in securitisation transactions. the assets and liabilities of investment funds. requirements for insurance corporations. atistics on interest rates applied by monetary institutions. financial 87 insurance companies, 85 investment funds, 88 and pension funds, continued to addi satisfy - 86 financial vehicle financial corporations engaged in 89 Work ended on compiling and - - - Statistics 75 - tification for all standard data categories. As data complier for SDDS Plus categories, categories, Plus SDDS for As data complier all data categories. standard tification for Summary in National published information of updates regular continued Bank the schedule. data dissemination the to Plus) (NSDP Plus Data Statistical Information Integrated the elaborating and developing Bank continued The Statistics. They Rate Interest and Monetary for System Information the and System statistical quality and information of reliability the improve management, automate administrative the reduce greatly and disseminates, and processes BNB receives, the statistical of submission electronic offering by entities legal and individuals on burden declarations. and reports disseminating quarterly financial accounts data of all institutional sectors from the the from all sectors data of institutional quarterlydisseminating financial accounts available. series time longer make 2012 to 2006 to quarterfourth of macroeconomic provides BNB regularly the with BIS requirements, In compliance statistics. Data Special the standard, statistical IMF the data dissemination of As coordinator cer metadata annual completed BNB the Plus), (SDDS Plus Standard Dissemination Bulgarian National Bank. Annual Report • 2017 76 nance No 22 Following the of amendments the Law on to Credit Article 56 Institutions Register sets out CCRoperation, scope, procedure, terms, and information flows. Payment Systems (reporting units). BNBOrdinance No 22on the Credit Central institutions extending loans 19of under the Article Law on and Payment Services to Bulgarian institutions, banks,other and financial payment and electronic money The Bulgarian National Bankmaintains aninformation system on customer debt The Credit Register Central XI. 91 90 Source: CCR Searches by Units Reporting by Month and 8000self-employed persons practising liberal professions or crafts. 38,000 non-residents not registered at Bulgarian addresses or BULSTAT/PIK coded, rowers numbered 2,383,000,of whom 2,240,000individuals, 97,000legal entities, Bor milliona balance from sheet exposure BGN 67,809 million. of BGN 70,216 At the end of 2017the CCRlisted 5,130,000 loans from 4,945,000 ayear earlier, with and four left the Register information system asthey trading. ceased and three payment institutions. Over the year institutions 14new entered financial By the end of 2017 the CCR had 207 participants: institutions, 28 banks, 176 financial real time. It includes and loan arrears, repaid status, loans for years back. five Register information does not depend on amount. The CCR provides information in pants to assesscustomer creditworthiness better. boostRegister informationwill quality. allow- The additional CCRpartici will data New requirements for information on co-borrowers, guarantors, and avalists on loans No 22 on the Credit Central Register. charges. and setscharging terms This procedures under 28of Article the Ordinance

Published inthe Darjaven Vestnik, issue 103of as of 2016, effective 1January 2017. Published inthe Darjaven Vestnik, of issue 98 2016.

The Central Credit Register and theThe Credit Register Register Central the BNB. of BankAccounts and Boxes Safe Deposit 91 introduced methodology for calculating statement and certificate 90 (number) Ordi- - The Central Credit Register and the Register of Bank Accounts and Safe Deposit Boxes 77 - - (number) the BNB. the The Register of Bank Accounts and Safe Deposit Safe Boxes and Bank Accounts RegisterThe of 3 on launched (RBASDB) Boxes Deposit Safe and Bank Accounts of Register The BNB and (LCI) Institutions Credit on Law the Article of 56a under 2017 January attorneys, and holders, numbers, account bank lists Register 12. The No Ordinance branches. bank foreign banks and by supplied holders box deposit and - authori judicial to access information Register grants Institutions Credit on Law The Ministry the authorities), Office, investigation the and Prosecutor’s (Courts,ties the Crime Organised Combating and Directorate Police National Chief Interior the of Revenue National the Security, National for Agency State the Directorate, Chief Assets Illegally Com of Acquired Forfeiture and Corruption Countering the Agency, Source: Source: art the information of state to adhering system information CCR has a modern The technologies. data processing new on based interfaces user three on use requirements improve to registers credit European with other information exchanges Register The and compiling CCR information performance. methodological and technological its best practice. relevant follows maintenance summary statistical annual information analyses, and research, CCR provides The other and IMF, the ECB, the project, Business Doing the Bank under World the to bodies. international in Article 56а listed of bodies other and proceedings, bailiffs in enforcement mission, to available also became February Register the From Institutions. Credit on Law the bank branches. foreign banks and CCR Searches Based on Applications /Letters Submitted to the BNB by Month by BNB the to /Letters Submitted Applications Based on CCR Searches - 15,480 appli were 2017 there In information. debt to access entities legal poses) and entities. legal by 196 and individuals 14,085 by statements: CCR for cations Residual debt up to BGN 5000 predominated with individuals (63.7 per cent), debt of of debt cent), (63.7 per with individuals predominated BGN 5000 to up debt Residual (34.7 per cent). entities with legal predominating BGN 5000 50,000 to - creditworthi borrower assess wishingto creditors to essential was information CCR aspect this. an important to added loans repaid arrears and data on Historical ness. monthly average The searches. 7,258,000 electronic In 2017 the conducted Register participants. other by 31.7 and banks by cent 68.3 per which of 605,000, was number pur probate for (including individuals 22 grant No Ordinance Articles 22 of 21 and Bulgarian National Bank. Annual Report • 2017 78 RBASDB 56аof Searches under the on Law Article in2017 Credit Institutions Institutions conducted searches on 508,066 individuals. Bodies entitled to Register access 56a,paragraph under 3of Article the Law on Credit of electronic statements cent. was 92 per access began being provided in stages to relevant bodies. At the year’s close the share At launch, the Register issued mainly paper statements. 2017 electronic InFebruary accounts. deposit boxes. By the end of new closed and 2017it listed 2.98 million 3.45 million At launch the Register held bank details accounts of 16.62 million and 32,000 safe Source: RBASDB Statement Applications Entitiesin2017 by and Individuals Legal entities conducted 82searches. individuals (including heirs of deceased persons) conducted 1683searches and legal Ordinance No 12 grant individuals and legal entities access to Register In2017 data. 56a,paragraph 4ofArticle the Law on Credit Institutions 12of and Article BNB Source: the BNB. the BNB. (number) (number) The Central Credit Register and the Register of Bank Accounts and Safe Deposit Boxes 79 - BNB Ordi prompted 92 changes introducing RBASDB statement charges. The methodology methodology The charges. statement RBASDB introducing changes 93 Published in the Darjaven Vestnik issue 98 of 2016. 2016. 98 of issue Vestnik Darjaven in the Published 2017. 49 of issue 2016; 103 of issue Vestnik, Darjaven in the Published

92 93 Amendments to Article 56 of the Law on Credit Institutions Credit Article 56 on to Law the Amendments of nance No 12 No nance establishes the terms and conditions for determining the fees provided for in Article for provided fees the determining for conditions terms and the establishes - informa Register additional also called for 12. Changes No BNB Ordinance the 16 of and Parliament European the 655/2014 of No (EU) Regulation to with regard tion Order Preservation Account European a 2014 establishing 15 May of Council the of matters. civil in commercial and recovery debt cross-border facilitate to procedure on EU experience applying by data boosts its quality reliability and RBASDB The registers. bank account Bulgarian National Bank. Annual Report • 2017 80 85 per cent85 per was inBNBaccounts and the 19domestic rest with banks. MF under from 43was BGN 2,005,500, LBNBArticle in2016. BGN 1,681,600 missions Charged on Processing Government TransactionsSecurities and from the Revenue raised in2017 from system participants under the Tariff of Fees and Com- reserve informationand fiscal servicing. system for debt; registering external and and servicing the IOBFR system for budget settlementsecurities system; the Register of Special Pledges; the ASROAD automated for government registering and servicing trading; securities the GSSSgovernment system for conducting government auctions; securities the ESROT electronic system tory pursuant to contract. for These duties call maintaining and improving the GSAS The Law agent on deposi the and as the- the acting BNB tasks official fiscal Bank with XII. The Agent Fiscal and Depository State 94 inprevious2016. As banksheld years, five over cent 70 per of these balances. Budget entities’ account balances outside the cent central on bankrose by 20.6 per Source: Budget Entities’ Domestic Accounts with Banks(BNBexcluded) million, balance ofall budget entities’ accounts (including municipalities) at BGN 11,011.8 IOBFR, a system designed for that purpose. Summarised information setsthe over ments on budget operations entity and balances at the BNB and Bulgarian banks via Providing state budget information under the MFcontract involved issuing 984state- Information Service

Foreign currency account balances are recalculated inlevs at the BNBexchange rate on 31December2017. the BNB. 94 Function down 8.5 per cent million on or 31December2016.Some down 8.5 per BGN 9401.8 (BGN million) -

The Fiscal Agent and State Depository Function 81 (BGN million) liquidity portion: BGN 9765.1 million on 31 December BGN 9765.1 31 December on portion: liquidity million 95 were effected, comprising EUR 1032.1 million principal and EUR 1032.1 and principal effected,million comprising were 97 Based on that information and upon MF clearance, payments of of payments MF clearance, upon and information that Based on 96 the BNB. the Under the government debt agency agreement between the BNB and MF. BNB and the between agreement agency debt government the Under 2017. 31 December official BNB for the rate at in euro recalculated was total payments The According to § 1, item 41 of the Additional Provisions of the Law on Public Finance, the fiscal the Finance, reserve is an Public on Law the of Provisions Additional the 41 of § 1, item to According their and municipalities (excluding accounts bank entities’ all budget of balances the comprising indicator EU funds. on claims and assets other and units) spending budget

2017. Of this, BGN 5293.7 million was allocated to earmarked funds: the State Fund Fund State the earmarked BGN 5293.7 million funds: this, 2017. Of allocated to was MF the Fund), Silver (the System Pension State the Stability of the Guaranteeing for Teachers’ the and Agency Disbursement Agricultural Fund the State Fund, National Fund. Pension EUR 241.2 million interest. EUR-denominated obligations registered in AS ROAD on on in AS ROAD registered obligations EUR-denominated interest. million EUR 241.2 EUR 7874.7 million. 31 December were 96 97 95 Source: Source: Bank, instructions task the joint BNB Governor and Finance of Minister Standing banks under by security pledged monitor to Ministry the Finance, behalf of of on tally to with and it IOBFR Law Budget 2017 State the and Finance Public on Law the daily. balances foreign government’s the on information up-to-date maintains system AS ROAD The is calculating functions, agency its Bank, as part of the which on financial obligations agent. paying and Structure of Bank Account Balances within Balances in 2017 Structure Fiscal Scope Reserve the Bank Account of Approximately 90.0 per cent of budget funds at the BNB and other domestic banks banks domestic other BNB and the at funds 90.0 per budget of cent Approximately fiscal the reserve’s formed EUR 1273.3 million Bulgarian National Bank. Annual Report • 2017 82 million issuer. The 27circulating MFissues had anoverall nominal value of BGN 6711.6 compared to 2016)of corporate event payments on and behalf for the account of the 10.5-year issues were 0.1,0.5 and cent, 1.7 per respectively. medium and long-term bonds comprising 27.6 and cent. 72.4 per underwent no structure essential changesThe maturity from the end of 2016,with USD-denominatedcent, and EUR and issues cent. redeemable in levs at 0.9 per at 76.7 per cent, followed by EUR-denominated issues redeemable ineuro at 22.4 per not change, BGN-denominated with issues redeemable inlevs the with largest share Source: cent sold of all bonds. 46 per cent of the scheduled volume. and non-primary dealer banksbought Primary nearly The total volume of government or 98.7 per sales securities was BGN 789.5 million, institutions bidding million. BGN 752.4 lion. cent of Over 60 per bids were made. by banks (BGN 1141 The total nominal value of government offered securities for sale was BGN 800 mil eight months. issues. The average weighted residualof sold to term maturity issues was seven years ment viathe securities GSASsystem. They offered three medium and two long-term The MFissuing policy in2017involved 11auctions for BGN-denominated govern- Government TradingServicing Securities 100 99 98 ESROT million registered BGN 1028.7 Note: in 2017 Average Yield Annual Attained at Domestic Government Auctions Securities

Minister of Finance under 152,paragraph 9of Article the Law on Public Finance. the MF register/accounts on from instructions the title holder and transferred to the disposition of the rate for 31December 2017. The total was reduced by the amount of government removed securities from The lev equivalent of government denominated securities in foreign currency is calculated at the BNB lated at the BNBrate on the date of payment. The lev equivalent of payments on foreign currency denominated government issues securities was calcu Eleven dealers were primary selected under MF and BNBOrdinance No 15. The MF announced no government bond auctions inAugust 2017. the BNB. 100 or 0.2 per cent less or thanat the 0.2 per end of 2016.Bond did currency structure 98 Average annual yields of four year, 7.5-year and 99 (down BGN 288.1 million or 21.9 per cent million or (down 21.9 per BGN 288.1 4 million), non-bank (per cent) - - The Fiscal Agent and State Depository Function 83 - - reaching reaching (BGN million) 103 was 2.8 against 2.9 in the 2.9 in the 2.8 against was 102 while increasing in portfolios of non-bank non-bank of in portfolios increasing while 101 the BNB. the Liquidity ratio is the ratio between the volume of secondary market government bond transactions con transactions bond government secondary market of volume the between ratio is the Liquidity ratio all specific a to date transactions on settled transactions of number the of ratio the is ratio Settlement period. reporting the for system within the settlement and registration to subject The ESROT system registered no transactions between customers of the same participant. same the of customers between transactions no registered system ESROT The cluded over a year and the volume of circulating government securities by that year’s end. end. year’s that securitiesby government circulating of volume the and a year over cluded

100 per cent. - gov domestic in operations unblocking and blocking ESROT period review the Over under accounts bank entities’ budget in securing funds to securities related ernment totalled BGN 3010.1 mil Pledges - Special on Law the and Finance Public on Law the 2016. BGN 3083.8 million for from lion, securities, at government domestic in circulating trade Reflecting market secondary bond in major declined investment securities portfolio 2017 government of end the and BGN 75.9 million) banks (down corporations categories: insurance and holder BGN 50 million) (down funds pension , for BGN 100.4 million) (up and individuals and corporations financial institutions, - expo holder bond BGN 12.6 million). (up government Thiseign changed investors 67 per 31 December 2017 to: with on banks; 23 per cent sures with insurance cent 9 per funds, financial institutions, pension with and cent non-bank corporations 102 103 101 The secondary government bond market liquidity ratio liquidity market bond government secondary The Source: Source: BGN 19,040 was in ESROT securities registered government of value nominal The 2016. on 1.7 per cent down million, (52.7 per cent), ones one-day 83.7 per including at share cent, largest the had Repos and securities sale Government securities. government in lev-denominated mostly transac Of this, - 16.3 per cent. or totalled BGN 2660.5 million transactions purchase between those million, BGN 1250.1 for accounted participants ESROT between tions participants’ ESROT between and BGN 1410.4 million for customers and participants BGN 434.9 million. for customers Volume of Transactions in Tradable Government Securities Government in Tradable Transactions of Volume - govern provided and problems no encountered participants ESROT year. previous - (DvP) settle versus delivery payment the for euro and cash in levs and bonds ment ratio settlement averaged the securities transactions, government of ment Bulgarian National Bank. Annual Report • 2017 84 at BGN 6711.6 million.at BGN 6711.6 ticipants’ customers. Account nominals the with amount tallied of outstanding issues governmentown portfolios, securities 279for encumbered bonds, and 374for par them, 27were for government of securities the issuer (the MF),467 for participants’ ment system under BNBOrdinance No 31on Government Settlement. Securities Of On 31December2017there were 1147accounts inthe government settle securities - for contingency for rules interaction between systems operated by the BNB. Holders of Government inthe Issued Domestic Securities Market and cent 1 per on 31December2016). corporations and cent foreign individuals, with and 1 per investors (from 68,24,7 105 104 market organised by the Bulgarian Stock Exchange. Under §9of Final Provisions Exchange ADsystem to –Sofia admit government trading securities inthe regulated link between the BNBGovernment Depository and Securities the Bulgarian Stock the with MF, agreed As the BNBcompleted its preparations inproviding adirect needed. if upgrades, smooth 15 debtfuture managementits operationsfoster setby thewill issuer. This tion go hand architecture inhand business will with process optimisation involving business the with line requirements approved by the MF.in Migrating to newsystem hardware, software,the and applica- of version new a to move to BNB the ing allow- finalised, was project upgrade GSAS the of stage first the 2017 of end the At System Development ment bond market. customers. There were no breaches of instruments statutory regulating the govern- at banksparticipating inESROT and performing sub-depository functions for their actions inGovernment inOctober there Securities, were joint on-site inspections In compliance Ordinance with No 15of the MF and BNBon the Control over Trans Over the review period the ESROT cent availability, offered 99.8 per Source: exchange rate for 31December 2017. The lev equivalence of government issues securities denominated inforeign currency isshown at the BNB The ratio of time when the system isoperational to scheduled operating time. the BNB. 105 104 with no call no with call - - The Fiscal Agent and State Depository Function 85 - the Minister of of Minister the 106 Published in the Darjaven Vestnik, issue 29 of 7 April 2017. 7 April 2017. 29 of issue Vestnik, Darjaven in the Published

Finance and the BNB Governor approved Rules for Admission to Government Securi- Government to Admission for approved Rules Governor BNB the and Finance - Comple and Market – Sofia Regulated Exchange Stock Bulgarian the on Trading ties Securities Government BNB, withthe SecuritiesTransactions Government of tion govern bourse allowing thus AD, Central Depository the Banks and Sub-Depository 2017. 1 November on launch to trading bond ment 106 of Ordinance on Amendment of BNB and MF Ordinance No 5, No MF Ordinance BNB and of Amendment on Ordinance of Bulgarian National Bank. Annual Report • 2017 86 and 2016was published. topics. In2017 thematic research on house price dynamics in Bulgaria between 2000 ticular economic issues are presented under briefly special headings and in dedicated ments inasetof key macroeconomic indicators. The results of BNB analyses of par The Economic quantitative Review assessments alsocarries of anticipated develop- ity. It developments also analyses external the Bulgarian affecting directly economy. their the linkwith development of the real economy, and their on bearing price stabil- forecasts, analyses of the balance of payments flows dynamics, monetary aggregates, EconomicThe BNBquarterly Review presents information and Bulgarian economic new submissions, of which sixwere published. Discussion Papers research series. The BNBPublications Council reviewed eleven nomic science and practice inthe area of macroeconomics through and its finance In 2017the BNBcontinued to encourage the research potential of Bulgarian eco- ous and of forecasting aspects BNB’s analytical activities. to improve related BNBforecasting. Satellite models were developed to support- vari Testing and honing the basic model for BNBmacroeconometric forecasting continued academia, and non-governmental organisations. Bank featured research results intechnical reports and seminarsfor other bodies, business cycles, and the potential mismatch between labour supply and demand. The investment,driving the transmission mechanism, relations between and the financial porations, of the non-financial effects corporations’ debt on the economy, factors The 2017Research Plan covered analysis of labour costsetting innon-financial cor and improving forecasting and modelling tools. ported the Bank’s operations by analysing individual economic processes and issues formulation. Specialised research under the 2017to 2018BNBResearch Plan sup- pared support by the BNBexperts Bank’s management decisions and economic policy Economic research, Bulgarian economic analyses,and macroeconomic forecasts pre- XIII. Research - - Human Resource Management 87 - - Developing and maintaining competitive human resource management remained a a remained management resource human competitive maintaining and Developing - socia and working a favourable providing included in 2017. Priorities objective key career ensuring their and qualified keep employees attract to and environment ble per to linked remuneration and assessment employee of Optimisation development. in 2017. continued statutory adherence and formance 96 Of them, earlier. year 862 a from 876 employees, BNB had 2017 the of end the At BNB The absences. long-term covering 2016), seven 80 in (from recruits new were highly recruiting qualified Bank The staff with staffingcontinued in line its policy. 2016), attracting 19 in 800 applicants. (from advertised 33 vacancies (from retire 25 to in 2016) including 64 in 2017 (from left employees Seventy-eight absences. covering been had Three leavers 14 in 2016). 8.9 per cent. in 2016 to 7.4 per cent from slightly Staff increased turnover (from structure cent 73.9 per attainment at staff led graduates educational University 85.2 per them 11.1 per withand of degrees master’s cent earlier), 73.1 a year cent By 2016. in 25 from doctorates, had employees Twenty-four withbaccalaureates. staff support by 60.2 per at followed share cent, largest the held specialists category, 30 to up employees (17.9 per of (21.9 per share The management cent). and cent) points, 2 percentage by fell olds year 40 to 31 of that and point 1 percentage by rose were 2017 women of end the At practically remaining unchanged. groups age other staff. of 36.1 per cent men and 63.9 per cent by skill and acquisition knowledge and areas business across experience Exchanging internally moving in 2017. Employees continued units and positions between moving EU short- and ECB on worked in 2016. Three 67 BNB employees 23, from numbered term assignments. employee’s each account into taking performance, to pay relates BNB remuneration goals. Bank tasks and to contribution a variety take to of opportunities plentiful employees offered schedule annual The intrabank and training Induction programmes. boosting qualification and training skills, and knowledge, spread and sooner perform employees new helped refreshers information. operation, register credit on sharing information and training internal saw year The cash operations. and issuing and requirements, statistical information work, stopping without attainments educational their boosted employees Seventeen baccalaureates. for nine and degrees, master’s for three doctor’s, for five reading in employees from attention certification drew and learning Distance programmes man reserve on programmes international in participating units, specific functional part in three took employees Ten security. information and audit, internal agement, certified the participants. attracting most programmes, financial one analyst law, audit, seminars in internal and specialised courses inland took Employees as well security, and procurement public management, resource human accounting, - con boosted training technology Information development. in personal as training imparted advanced and data storage, and communications secure taught fidence, skills. web and networking, software, digitalisation, finance and XIV. Human Resource Management Resource Human XIV. Bulgarian National Bank. Annual Report • 2017 88 conditions. Seven of 36applicants were approved for the traineeships programme. scholarships, guest researcher programmes, recruitment procedures, and employment young professional fora, presenting its development career programmes, traineeships, two master's degree scholarships. In2017the Bankwas at two student career and scholarship programme for master’s and doctor’s degree holders. The Bankawarded knowledge acquisition and research. Twenty-three applicants enquired into the annual With students, the BNBcontinued providing opportunities career and encouraging awareness, and motivating staff. Health at and work safety training focused on limiting occupational instilling risk, courses improved Employees speaking skills. also attended courses inother languages. Targeted courses, English advanced business and English, conversation English bodies. supervisory nars, and working meetings on ESCBcommittees and working groups and European also enjoyed interest. Bankemployees continued to take specialised courses, semi- sonal development. On-line economics, and banking finance training supervision and market operations, information systems, international cooperation, and per management, development and application, markets, assetmanagement financial stability,financial prudential regulation and credit institution resolution, policy group expert meetings, training, practical and conferences inbanking supervision, institutions and training centres. Employees attended international courses, seminars, The BNBcontinued cooperating ESCBcentral banksand with international financial Source: on 31December Structure Staff the BNB. (per cen t, number) - BNB Internal Audit 89 Audits minting Coin counterfeiting against coins and banknotes of Protection quality Audit BNB Internal of Assessment bank supervision internal the efficiency of and Adequacy review overall framework: regulatory BNB Internal past from recommendations on up Follow audits Programme Audit feguarding assets; feguarding fective attainment of objectives and tasks; tasks; and objectives of attainment fective programmes; and efficient operations and fective eliability and completeness of financial and operational information; operational financial and of completeness and eliability egal, regulatory, internal rule, policy, procedure, and contractual observance. observance. contractual and procedure, policy, rule, internal regulatory, egal, the BNB. the l ef r ef sa

– – – – – BNB Functions Banknotes and coins and Banknotes coins and Banknotes Audit Internal statements and accounting Financial systems securities settlement and Payment System Settlement Gross Real-time RINGS, 2017 30 June as of Statements Financial BNB Consolidated financial and stability Supervision organisation and control, Planning, monitoring Result BNB budget the reporting and Drafting, implementing, Source: Source: and information on focused audits Programme Committee Auditor ESCB Internal - Imple systems. securities settlement and payment and technologies communication monitored. was recommendations audit past of mentation with external work Unit Audit Internal coordinated Auditor BNB Chief the In 2017 team. auditing Auditors Court of Bulgaria of Republic the and auditors - con regulations draft internal on opinions submit to continued Audit BNB Internal BNB functions. cerning major BNB Internal Audit ProgrammeBNB Internal Audits Audit BNB internal audit conforms to the International Standards for the Professional Professional the for Standards International the to conforms audit BNB internal ESCB Internal Auditors, Internal of Ethics Codeof the Auditing, Internal Practice of BNB. the by approved Rules Audit and Rules Committee Auditor Unit Audit Internal annual the under eight which of audits eleven were In 2017 there ESCB the under three and Council BNB Governing the by approved Programme risk- manage of assurance sought Audits Programme. Committee Auditors Internal risks ensure: to inherent of management and control ment, XV. BNB Internal BNB Audit XV. Bulgarian National Bank. Annual Report • 2017 90 operating expenditure. cent of budget 91.9 per centSocial expenditure of was and BGN 2,164,000: 2.8 per Persons. current retirement obligations and unused paid leave under IAS 19, Income of Hired budget cent of and operating 34.3 per expenditure. of The BNB had BGN 936,000 Payroll, cent including of or social and 97.7 per healthcare, costBGN 26,943,000 cent of operating expenditure. Depreciation expenditure was BGN 11,101,000 or 79.3 per cent of budget and 14.1 per andlegal banknote services handler preventive maintenance. and specialclothing costBGN 108,000, BGN 205,000. including Consultancy services protection and health at and and work safety other costBGN 276,000 legal services tection costBGN 828,000. Major building maintenance cost BGN 1,467,000. Judicial BGN 226,000. insurance Property expenses were pro and BGN 101,000. fire Security and heating and water were bills Electric cost BGN 802,000 cost BGN 584,000. and refuseProperty collection Mail,telephone levies were BGN 1,333,000. and fax notable in thisgroup. Equipment maintenance subscriptions costBGN 1,923,000. modules and BORICA at BGN 1,006,000, were AD subscriptions at BGN 527,000 Bloomberg, Reuters, mandatory TARGET2 and other systems at BGN 1,094,000, of operating expenditure. Software maintenance subscriptions at BGN 3,471,000, cent of cent budget 68.3 per and 18.6 per costBGN 14,602,000: services External on inventories. (BGN 222,000) occupied the largest share in this group. The Bank spent BGN 130,000 ing expenditure. Vehicle consumables and office fuel and spares (BGN 304,000) cent of cent budget of operat 68.8 per and- 1.1 per Materials costBGN 838,000: budget and cent 33.8 per of operating expenditure. and depreciationMaterials, services, accounted for cent BGN 26,541,000: 72.2 per of rentals for Bankissue and operations cash costBGN 233,000. and on processing cash was BGN 63,000 cash consumables Premise BGN 205,000. memorative coin design competitions. Spending on machines for circulating servicing banknote and coin design accounted for included This BGN 33,000. four 2018com Governing Council 2017 Commemorative Coin Programme New costBGN 746,000. of on which circulatingminting BGN 12,116,000, BGN 11,370,000 coins. The BNB cent of Bank operating expenditure. New and coin banknotes cost BGN 7,015,000 Currency cent circulation of or budget 91.3 per costBGN 19,666,000 and 25.0 per In 2017the BNBspent or BGN 78,511,000 cent 83.6 per of budget. ExpenditureOperating tion requirements. Expenditure and Investment Programme. The Bank adheres to environmental protec- Internal Rules on Implementing, Drafting, and Reporting the BNBBudget: Operating report onThis Bankbudget implementation comprises two sections pursuant to BNB XVI. BNBBudget Implementation in2017 - - BNB Budget Implementation in 2017 91 The BNB Investment Programme BNB Investment The cost BGN 2,558,000 programme 17.5 per or annual Bank investment The of cent budget. BGN 99,000: cost 4.6 per modernisation and cent refurbishment construction, New programme. investment of 3.9 per cent and budget of Cash BNB Plovdiv the for permit procedures services, building and fees, Technical cost BGN 75,000. design BGN 24,000 cost Centre and cost BGN 251,000: investment equipment other and vehicle, equipment, and Machine programme. investment of 9.8 per cent and budget of 14.3 per cent to Security cost BGN 5000. amounted upgrades systems equipment operations Cash including equipment, other purchasing on BGN 156,000 BNB spent The BGN 90,000. BGN 29,000 conditioning air for office equipment, BGN 59,000 building main for equipment. centre staff office other and holiday BGN 20,000 for and cost BGN 2,208,000: and 20.6 per budget of cent development system Information programme. investment of 86.3 per cent cost BGN 1,756,000, and BGN 486,000Software purchases licence including for upgrades. BGN 1,270,000 for exist- up backing and expanding, updating, cost BGN 452,000,for mainly Hardware systems. ing membership. ESCB to related expenditure investment No and selection, contractor tendering, public involved programme investment The or suspended, were ended, procedures procurement Some implementation. project of groups expenditure investment essential two Bank analysed the The postponed. analy- The modernisation. and refurbishment, construction, and systems information 2018. for projects some postponing priorities, sis assigned Other administrative expenditure was BGN 1,135,000: was expenditure administrative Other 49.4 per budgeted of cent BGN 87,000 worth travel Inland expenditure. operating total of cent 1.5 per and funds unrelated travel Foreign checks. and logistics cash centre regional mainly involved cost BGN 247,000. EU bodies Staff BNB other annual The ESCB and to Education part in took cost BGN 608,000. Programme Employees Training Professional and international banks and central EU by seminars organised and courses professional information language, learning, in distant participated They financial institutions. abroad. and home at training other and technology, - 2.6 per operat BGN 2,062,000 and BNB spent The of cent (60.6 per budget of cent European the to contribution annual The ESCB participation. on expenditure) ing on BNB representatives for BGN 1,225,000. was budget Travel Authority Banking training cost BGN 622,000 and groups working and committees EU other ESCB and Centralised Securities was Database the to BGN 26,000. contribution annual The Econometric Committee Policy BGN 139,000.Monetary ESCB an hosted Bank The BGN 34,000. at meeting Group Working Modelling Bulgarian National Bank. Annual Report • 2017 92 BNB Budget Implementation 2017 asof 31December Source: Section II.InvestmentSection programme expenditure I.Operating Section ESCB membership investment Expenditure on BNBcomputerisation vehicles, and other equipment Expenditure on machines, equipment, modernisation Construction, refurbishment, and ESCB membership Other administrative expenditure Social activities Staff and depreciationMaterials, services, Currency circulation the BNB. Indicators 31 December 2017 31 December (BGN’000) Report 78,511 26,943 26,541 19,666 2,558 2,208 2,062 1,135 2,164 251 99 0 (BGN’000) Budget Budget 2017 14,647 93,934 10,736 27,582 36,771 21,523 2,149 3,405 2,298 2,355 1758 4 Implementation (per cent) 17.5 83.6 14.3 20.6 97.7 72.2 91.3 60.6 49.4 91.9 4.6 0.0 XVII. BNB Consolidated Financial Statements for the Year Ended 31 December 2017

Independent Auditor's Report to the Governing Council of the Bulgarian National Bank ______94

Statement of Responsibilities of the Governing Council of the Bulgarian National Bank ______98

Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2017 ______99

Consolidated Statement of Financial Position as of 31 December 2017 ______100

Consolidated Statement of Cash Flows for the Year Ended 31 December 2017 ___ 101

Consolidated Statement of Changes in Equity for the Year Ended 31 December 2017 ______102

Notes to the Consolidated Financial Statements______103 94 Bulgarian National Bank. Annual Report • 2017 BNB Consolidated Financial Statements for the Year Ended 31 December 2017 95 96 Bulgarian National Bank. Annual Report • 2017 BNB Consolidated Financial Statements for the Year Ended 31 December 2017 97 98 Bulgarian National Bank. Annual Report • 2017 detect frauddetect and other irregularities. such steps to safeguard the assetsof the Bulgarian National Bankand to prevent or cial position of the Bulgarian National Bank.It hasoverall responsibility for taking proper accounting records to disclose reasonable with accuracy at- any time the finan The Governing Council of the Bulgarian National Bank is responsible for maintaining ards adopted by the European Union. Council are prepared inaccordance the International with Financial Reporting Stand - statementsThe financial of the Bulgarian National Bankapproved by the Governing formance for the period. and approving statements financial to present the position Bank's financial and per The Governing Council of the Bulgarian National Bankisresponsible for preparing National Bank Statement of Responsibilities of the Governing Council of the Bulgarian Governor of the National Bulgarian Bank Dimitar Radev Dimitar - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 99 - 177 177 (18) (18) 9,727 4,499 41,717 2016 (5,228) (BGN’000) 384,906 384,924 384,906 384,924 (22,278) (109,480) - 80 80 7,400 2,770 36,759 (1,261) (4,630) (1,261) 318,137 398,031 246,626 375,753 (71,511) (102,086) (215,534) 384,747 (216,795) 384,729 (399,523) 72,435 (216,715) (215,454) (216,715) (215,454) (113,368) 494,404 7 7 8 9 10 Appendices 2017 Interest income Interest expense Interest Other comprehensive income that cannot income Other be comprehensive reclassified in point profit into or loss at a future time Profit to: attributable Bank the of Equity holder interest Non-controlling to: attributable income comprehensive Total Bank the of Equity holder interest Non-controlling Other comprehensive income comprehensive Other that can income Other be comprehensive reclassified in point profit into or loss at a future time Total comprehensive income for the period the for income comprehensive Total Net interest income interest Net income commission and Fee expense commission and Fees (Loss)/profit for the period the (Loss)/profit for Net fee and commission income commission and fee Net financial and assets from (losses)/gains Net loss or profit in the value fair at liabilities income operating Other operations banking from income Total expenses Administrative (Loss)/profit for the period the (Loss)/profit for period the for income comprehensive Total Other comprehensive income, total income, comprehensive Other The accompanying notes on pages 103 to 136 form an integral part of the Consolidated Financial Financial of the part Consolidated an integral form to 136 103 on pages notes accompanying The Statements. Consolidated Statement of Comprehensive Income Income Comprehensive of Statement Consolidated 31 December Ended 2017 Year the for 100 Bulgarian National Bank. Annual Report • 2017 as of 31 December 2017 as of 31December Consolidated Statement of Financial Position Statements. The accompanying notes pageson 103 to 136 form an integralConsolidated part the of Financial Capital Other assets Intangible assets Tangible assets Financial assetsavailable for sale or loss Financial assetsat fair value through profit metals Gold, instruments ingold and other precious Cash and deposits inforeign currency ASSETS Total equity Total assets Total liabilities Total liabilities and equity Non-controlling interest Reserves Other liabilities in international institutions financial Borrowings against Bulgaria’s participation other borrowings Liabilities to government institutions and institutions Liabilities to banksand other financial Currency incirculation LIABILITIES EQUITY Appendices 32,5,9 28,928,706 17 22,353,795 16 14,783,663 15 14 20,948,427 13 12 11 24 23 11,800,095 14,670,285 10,993,617 22 14,152,921 13,892,496 21 15,703,197 20 19 18 23 31 December 48,462,076 48,462,076 44,095,496 4,366,580 ,3,0 2,293,978 2,131,506 2,822,205 2,785,663 ,4,2 4,559,518 4,341,723 3,515,099 3,274,519 2017 5,2 165,285 156,021 231,667 82,238 00020,000 20,000 4,426 4,857 31 December 49,080,114 49,080,114 44,495,819 4,584,295 2016 357,419 (BGN’000) 82,040 4,237 4,777 BNB Consolidated Financial Statements for the Year Ended 31 December 2017 101 (1,180) 213,982 (19,640) (19,640) (BGN’000) 10,951,676 14,835,050 - - 469,532 - - (628,992) 6,708 279 (357) 373 9,285 (1,727) 14,857 7,870 45,120 (382,419) (5,572) (9,597) (8,574) (4,814) (7,341) (2,288) (2,970) 311,919 394,965 (64,218) (17,704) 1,550,276 1,428,103 6,493,039 (2,611,616) (777,789)(806,478) (189,727) 5,223,021 (125,752) (215,454) 408,448 (172,805) 10,749 6,153,389 3,904,741 6,162,674 3,883,374 14,835,050 20,997,724 9 (14,857) (31,394) 11, 17 15, 16 14,609 16,642 Appendices 2017 2016 Dividends received received Dividends Acquisition of tangible and intangible assets intangible and tangible of Acquisition Interest received Interest Interest paid Interest Increase in currency in circulation in currency Increase (Increase) in gold, instruments in gold and other precious metals precious other and in gold instruments in gold, (Increase) Dividend income Dividend (Decrease)/increase in due to government institutions and other other and institutions government to in due (Decrease)/increase liabilities the financial for institutions international to in debt Increase IMF in the quota Bulgaria’s of Republic the of increase liabilities in other (Decrease)/increase (Increase) in financial assets available for sale for in financial assets available (Increase) IMF in the quota Bulgaria’s of – Republic assets in other (Increase) financial other institutions banks and to in due (Decrease) Other adjustments Other profit through in financial value fair assets at Decrease/(increase) loss or Depreciation assets tangible disposal of on Profit/(loss) market arising from financial liabilities assets and on Profit/(loss) movements associates of Profit Net cash flowNet (used in) financing activities in cash cash increase and equivalents Net beginning at period cashCash of and equivalents period of end the at cashCash and equivalents dividends and interest Cash flows from INVESTMENT ACTIVITIES INVESTMENT ACTIVITIES activities cash in) investing flowNet from/(used ACTIVITIES FINANCING budget state the to Payments Net cash flow from/(used in) operating activities cash in) operating flowNet from/(used Change in operating liabilities in operating Change Net cash flow from operating activities in operating cash changes flowNet from before liabilities assets and operating assets in operating Change OPERATING ACTIVITIES OPERATING (loss)/profit Net Adjustments - State Financial of the part Consolidated an integral form to 136 103 on pages notes accompanying The ments. Consolidated Statement of Cash Flows Cash Flows of Statement Consolidated 31 December Ended 2017 Year the for 102 Bulgarian National Bank. Annual Report • 2017 for the Year 2017 Ended 31December Consolidated Statement of Changes inEquity ments. The accompanying notes pageson 103 to 136 form an integralConsolidated part the of Financial State - Balance asat 01January 2016 Profit for the period other income Other comprehensive income Other comprehensive income, total period Total comprehensive income for the owners: Contributions by and distributions to Transactions owners, with total Balance as at 31 December 2016 Balance asat 31December Balance asat 01January 2017 (Loss)/profit for the period other income Other comprehensive income: Other comprehensive income, total period Total comprehensive income for the owners: Contributions by and distributions to Transactions owners, with total Balance as at 31 December 2017 Balance asat 31December Republic of Bulgaria contribution to the budget of the minority shareholders dividend paid by subsidiaries to Republic of Bulgaria contribution to the budget of the minority shareholders dividend paid by subsidiaries to Capital 000163640910425464604,220,086 4,600 4,215,486 4,059,150 136,336 20,000 000164544313459584774,584,295 4,777 4,579,518 4,423,103 136,415 20,000 000164544313459584774,584,295 4,777 4,579,518 4,423,103 136,415 20,000 000144342820432734874,367,580 4,857 4,362,723 4,208,260 134,463 20,000 8,4 8,4 177 384,747 384,747 - - 9(7 1)- (18) (97) 79 - 9(7 1)- (18) (97) 79 - 934603479177 384,729 384,650 79 - 1,4)(960 - (19,640) (19,640) - - 107 107 - (1,057) (1,057) - - 2554 2554 80 (215,534) (215,534) - - 192 9 121 - (1,261) 691 (1,952) - 192 9 121 - (1,261) 691 (1,952) - 192 2483 2675 80 (216,795) (214,843) (1,952) ------Revaluation monetary of non- of assets and other reserves 2,9)(20,697) (20,697) Special ------capital and reserves Total controlling interest Non- Total equity (BGN’000) (215,454) (216,715) (19,640) (20,697) 384,924 384,906 (1,057) (1,261) (1,261) (18) (18) - - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 103

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ough purchase of debt instruments, to the Council of Ministers, municipalities, as as municipalities, Ministers, of Council the to instruments, debt of purchase ough ross international reserves; reserves; international ross g ing to affect the stability of the banking system; banking affectthe to stabilitying of the stitutions and electronic money institutions in the country; in the institutions money electronic and stitutions thr enterprises; and organisations institutions, municipal and government other as to well bankin Items financialDerivative instruments value financial fair at instruments Non-derivative loss or profit through financial assets Available-for-sale assets non-current Tangible Defined benefit liability Regulation • The • The set Statements, Financial Consolidated the BNB approved the of Council Governing The 18 April 2018. 136, on 93 to pages on out • The • The • The • Regulation • • Establishment • Maintaining • Exclusive Ap Basis o St U In preparing these Consolidated Financial Statements, the Bank has made judgements, judgements, made has Bank the Statements, Financial Consolidated these preparing In liabilities, and assets of amounts affect that reported the assumptions and estimates as at payables and receivables contingent of disclosure the expenses, and and incomes based are assumptions and judgements estimates, These date. Statements Financial the actual therefore Statements; Financial Consolidated the of date the as at data available on estimates. these differ from may results future est thousand (BGN’000), which is the functional currency of the Bank. They are prepared prepared are Bank. They the of currency functional is the (BGN’000), which est thousand an alter on measured are which items, following the for cost basis, except a historical on date: reporting each basis as at native The consolidated financial statements are presented in rounded to the near the to rounded lev in Bulgarian presented are financial statements consolidated The These consolidated financial statements have been prepared in accordance with- Interna accordance in been prepared have financial statements consolidated These Union. European the by (IFRS) as adopted Standards Reporting Financial tional The Bulgarian National Bank (the ‘Bank’) is 100 per cent owned by the Bulgarian state state Bulgarian the by 100 per is owned cent ‘Bank’) Bank (the National Bulgarian The - Bank is gov the of operation The Bulgaria. of Republic the bank of central is the and been effective has since which (LBNB), Bank National Bulgarian the on Law by the erned 1997. 10 June be summarisedmay Bank as: activities the principal of the this Law, Under

estimatesse of and judgements 2. Standards plicable 3. f Preparation 1. Principal Activities and atute Notes to the Consolidated Financial Statements Financial Consolidated the to Notes 104 Bulgarian National Bank. Annual Report • 2017 ssumptions and estimation uncertainties estimation ssumptions and udgements ssociates f Consolidation ubsidiaries 4. clarifications and standards amended and ew

above amendments to standards on has no the effect Bank’s statements. financial and have no impact on the Bank’s position financial or performance. The adoption of the rates; changes infair values and other changes. The amendments presentation affect only losing control of subsidiaries or other businesses; of the changeseffect in foreign exchange includingactivities; changes from flows, changes cash financing from arising obtaining or closing balances inthe statement of position financial for liabilities from arising financing disclosure requirement isby providing atabular reconciliation between the opening and flows andcash non-cash changes. The Amendments specifythat one the way to fulfil changes inliabilities including from arising activities, financing changes from arising The objective of these amendments isto enable usersof statements financial to evaluate (Amendments): Disclosure Cash Initiative Flows of IAS 7Statement not impacted position the financial or performance of the Bank. taxable profit; combined versus separate assessment. Adoption of these amendments has in the fair value; recovery of anassetfor amount; more probable thanits acarrying future Income Taxes regard with to: any deductible temporary differences upon arising adecrease for unrealised losses inorder to address inpractice diversity inthe application of IAS 12 The objective of these amendments the isto clarify accounting for deferred assets tax IAS 12Income Taxes (Amendments): Recognition Deferred of Tax Assets for Unrealised Losses year, except for the following amendments to IFRSsadopted asof 1January 2017: The accounting policies adopted are consistent those with of the the previous financial ments seenote 6(e)and note 15. and non-financialfinancial assets and liabilities. For information on fair value measure- Some of the Bank’s accounting policies and disclosures require fair value measurements of reasonable and appropriate for the Bank(ref. note 10). lead to adjustments inthe year; next management financial however considers them to be rate turnover, of staff future level of salaries and discount factor, which assumptions may calculations basedon assumptions, actuarial mortality plan) benefit usecertified defined Measurements of the present value of long-term obligations (following to retiring staff a note 18). incirculationThe Bankhasestimated cash and classified (ref. liability asa financial prospectively. The estimates and main assumptions are on revised an ongoing basis and are recognised ing The Bank’s period. share of associates’ net results subsequent to acquisition isdis- corresponding to the Bank’s share in the associates’ funds own asof the end of the report- in the Bank’s Consolidated Financial Statements using method the equity asanamount ther enterprise, nor subsidiary joint venture. Investments inassociates are accounted for Associates are those entities inwhich influence, but the Bankhassignificant which are nei- is disclosed separately from Capital and Reserves under the Non-controlling Interest item. Bank’s subsidiaries, which corresponds to the shareholders’ minority proportionate share, control commences until the date that control The ceases. share inthe net assetsof the the subsidiaries are included inthe consolidated statements financial from the date that entity, and is able to influence through that return its powers. statements The financial of the Bank isexposedto or over hasrights the variable from return its participation inthat Subsidiaries are the entities controlled by the Bank.Control over existswhen anentity A S N A J Basis o BNB Consolidated Financial Statements for the Year Ended 31 December 2017 105

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rency, net revaluation gains on securities, net gains from gold revaluation, net gains from from gains net revaluation, gold from gains securities, net on gains revaluation net rency, denominated liabilities assets and of revaluation from gains net and futures, of revaluation currencies. in foreign Dividend income is recognised in profit or loss when the Bank establishes the right to right to the Bank establishes the when loss or is recognised in profit income Dividend investments available-for-sale arising from differences currency Foreign income. receive loss. or recognised in profit are loss or profit through value fair at financial liabilities assets and from gains/losses Net cur in foreign operations from gains securities, in net operations from gains net includes • F I S ii) R i) Cl T - receiv and loans Bank’s the financial investments, Bank recognisesThe trading assets and originated. are they which at date the cost on amortised at financial and liabilities ables, date trade All initially the are recognised financial financial on other liabilities assets and For the purposes of measuring financial instruments subsequent to initial recognition, initial recognition, to financial measuring subsequent instruments purposes of the For categories: four Bank classifies financial into the the instruments holds Bank the that profit those or loss are through value instrumentsFinancial fair at not are that investments include These profit. short-term purpose of the primarily for liabilities particular effective and instruments any purpose and hedging for designated held derivatives under receivables financial Net instruments. of sales short-term from as trad - reported are any, if purchased, as options as well value), fair (positive trading for as as well value), fair (negative trading for derivatives All under assets. ing liabilities net liabilities. as trading reported are written, if any, options a to money providing Bank through the by issued instruments are Loans and receivables taking. profit short-term of intention with the created those than other debtor fixed and financialHeld-to-maturity payments assets with assets are determinable fixed or maturity. to hold ability to and intent maturity has the Bank the that financial cat all- assets be classified cannot are other assets that in any Available-for-sale initial recognition. at sale for as available financial as those assets designated as well egory, • Interest income and expense are recognised in the ‘profit or loss’ using the effective the inter using loss’ or ‘profit recognised in the are expense and income Interest All receivables and payables, incomes and expenses, as well as intragroup profits, resulting resulting profits, as intragroup as well expenses, and incomes payables, and All receivables are these where except eliminated, are group, within transactions the inter-company from immaterial. esti the discounts precisely which rate the is rate effective The interest method. rate est liability financial the asset or term of the over income and cash future payments mated is determined rate effective The interest liability. asset or the carrying the of to amount thereafter. change not does liability and financial the asset or of initial recognition the on and fees all costs and transaction includes rate effective the interest of calculation The include costs Transaction rate. effective the interest part integral an of are that points a finan of - derecognition or issue acquisition, the to costs directly attributable incremental liability. or cial asset include: loss or profit of statement in the expense presented and income Interest closed in ‘profit or loss’ as investment income/expenses and is added to/subtracted from from to/subtracted is added and income/expenses as investment loss’ or in ‘profit closed investment. carrying the the of value

ecognition assification b) instruments inancial a) recognition ncome ransactions eliminated onconsolidation 5. ignificant Policies Accounting 106 Bulgarian National Bank. Annual Report • 2017 air value measurement and disclosureair value principles and measurement measurement cost mortised priate. Fair value the credit of reflects risk the instrument and includes adjustments to take them and abid or askprice adjustment is applied only to the net open position asappro- Where the Bankhaspositions mid-market offsetting risks, with prices are used to measure basis of the relative adjustment risk of each of the individual instruments inthe portfolio. portfolio-level adjustments are to allocated the individual assetsand liabilities on the position (or paid to transfer a net short position) for exposure. risk Those a particular or credit are measured risk on the basisof aprice that would bereceived anet to sell long credit that are risk managed by the Bankon the basisof the net exposure to either market Portfolios of liabilities assetsand financial financial that are exposedto market and risk price. tions at anaskprice when assetsor liabilities measured at fair value have abid and anask assetsandThe Bankrecognises long positions at abid price and liabilities and short posi- market or data the transaction isclosed out. of the instrument but not later thanwhen the valuation issupported wholly by observable difference issubsequently inprofit recognised or loss on anappropriate basisover the life the difference between the fair value at recognition initial and the transaction price. This markets, at recognised fair then value instrument the isinitially financial adjusted with assets or liabilities, nor based on a valuation technique based only on from data observable and the fair value isneither evidenced by quoted price market inanactive for identical a differencefinds between the fair value at recognition initial and the transaction price, transaction price, i.e.the fair value of the consideration given or received. When the Bank The bestevidence of the fair value of instrument at recognition initial afinancial isthe transactions inthe same instrument or based on other available observable market data. ation techniques and tests them for validity using prices from observable current market of factors the inherent risk-return The instrument. inthe Bankcalibrates financial valu- Inputs to valuation techniques reasonably represent market expectations and measures acceptedwith economic methodologies for pricing instruments. financial factors that market participants would consider indetermining aprice, and isconsistent market inputs, relies aslittle aspossible on to the estimates specific Bank,incorporates all between market participants. The chosen valuation technique makes maximum use of tion technique isto estimate the price that would beobtained inanorderly transaction able inputs and makes minimum use of unobservable The aim of data. using avalua- If no quoted price market inanactive isavailable, the Bankusesthe most relevant- observ information on anongoing basis. the assetor take liability frequency place sufficient with and volume to provide pricing marketin anactive of that Amarket instrument. is considered iftransactions for asactive Whenever possible, the Bankmeasures the fair value of aninstrument using quoted prices measurement date. The fair value of the of non-performance effect reflects aliability risk. such market is available, then in the most advantageous and accessible market on the in anorderly transaction between market participants inthe principal market or, ifno Fair value isthe price that would bereceived an assetor to sell paid to transfer aliability for impairment. between the amount initial amount, and recognised the maturity minus any reduction plus or minus cumulative amortisation interest using aneffective rate for the difference asset or is measured liability upon the recognition, initial minus principal repayments, The amortised costof asset or a financial is the liability amount at which the financial includes attributable directly acquisition costs. ments which are not at recognised fair value through profit or loss the amount recognised Financial measured instruments are at initially fair value, and for- instru those financial expense. that moment on, any changes intheir fair value are by recognised the Bank asincome or at which the to Bankbecomes the contractual provisions aparty of the From instrument. iv) F iii) A BNB Consolidated Financial Statements for the Year Ended 31 December 2017 107 v v v) D Financial assets which are not carried at fair value through profit or loss are reviewed at at reviewed are loss or profit through carried value not fair at are assets which Financial assets Financial impairment. of is evidence there whether determine to date reporting each that event a loss of as a result impairment of evidence is objective if there impaired are on an impact had event loss the that asset and the of initial recognition occurred after the estimated. can be reliably cash which future flows the equity instruments, financial assets, including from loss impairment of evidence Objective under restructuring loans of his obligations, repay inability to a borrower’s or is a default issuer the or borrower a that indications Bank, the for financial conditions unfavourable active an securityof disappearance the business, of out go financial a would instrument of significant or continuous a case in of Furthermore, information. public other or market, evidence is objective in equity there instruments an investment of value fall market in the equity instruments. these of impairment of Financial assets and liabilities are offset and the net amount presented in the statement of of statement in the presented amount net the offset and are liabilities and assets Financial and recognised amounts offset the right to Bank has a legal the when, financial position basis. a net liability on the asset or the settle to intends IFRSs, or permitted under when basis only a net on presented expenses are and Income Bank’s the in as such transactions similar of group a from arising losses and gains for operations. trading The Bank derecognises a financial asset when the contractual rights to the cash flows from cash from flows the contractual rights to a financial the Bank derecognises The asset when contractual the of receipt the rights to the transfers it when or financialthe asset expire, substantially in which all financial transaction the asset in the risks and cash from flows transferred in Any transferred. financial holding are asset the of ownership of rewards Bank, is recognised a separate as the by kept or been originated has financial assets, which liability. asset or discharged are contractual a financial obligations derecognises Bank its The liability when expired. or cancelled or of statement assets recognised transfers its in it whereby transactions into Bank enters The trans- the of substantial rewards risks the all and or either retains but financial position, retained, are all or substantial If a part risks rewards them. and of a part of assets or ferred financial position. of statement the from derecognised not assets are transferred the then for are, all substantial or rewards risks a part and of of with assets retention of Transfers agreements. repurchase or securitieslending instance, all transfers substantial risks nor and retains neither Bank the where In transactions the retain not does asset if it the financial a derecognises it asset, of ownership of rewards recognised are transfer in the retained obligations asset. rights The that and of control the of control where In transactions respectively. as liabilities as assets and separately continuing its of extent the to asset recognise the to continues Bank the asset is retained, the in changes to exposed is Bank the which to extent the by determined involvement, asset. transferred the of value service to financial transferred the obligation the certain In retains Bank the transactions criteria. derecognition the meets if it is derecognised asset transferred The a fee. asset for the whether on depending servicing the contract, liability is recognisedAn for asset or - perform (liability) for than adequate is less (asset) or than adequate servicing is more fee servicing. the ing account of the credit risk of the Bank and the counterparty where appropriate. Fair value value Fair appropriate. counterparty the where and Bank the risk of credit the of account as liquidity risk or such factors, other any for adjusted are models from obtained estimates a third-party participant market Bank believes the that extent the to uncertainties, model a transaction. in pricing account into them take would of end the as of hierarchy value fair the of levels between Bank recognisesThe transfers has occurred. change the which during period reporting the assets of ii) Impairment i) Offsetting erecognition 108 Bulgarian National Bank. Annual Report • 2017 nvestments for trading held assets/liabilities iii) Financial 1) Held-to-maturity investments or loss. changes inthe fair value are as net recognised income from trading operations inprofit the statement of position financial and transaction in profit costs recognised or loss. All Initially, assets and financial liabilities held for trading are recognised at fair value in profit. or holds of aspart aportfolio that ismanaged asawhole the of with purpose short-term acquires or incurs principally for the of purpose selling or repurchasing inthe near term, Financial assetsat fair value through profit or loss include instruments which the Bank instrument availableequity for sale inother recognised isdirectly comprehensive income. nised inprofit and loss. However, any subsequent recovery inthe fair value of animpaired in profit and loss, then the impairment loss isreversed and the reversed amount isrecog- objectively linked to anevent that the after occurred impairment loss had beenrecognised fair value of animpaired available debt security for sale increases and the increase be can impairment loss previously inprofit recognised or loss. If, inasubsequent period, the cost, net of any principal repayment and amortisation, and the current fair value, less any tive loss that from istransferred profit or loss isthe difference between the acquisition thering cumulative loss to that profit inequity hasbeenrecognised or loss. The cumula- Impairment losses on available-for-sale investment are securities by recognised transfer tion inthe impairment loss isreversed through profit and loss. unwinding of the discount. When asubsequent event reduces impairment loss, the reduc- loans and receivables. Interest on the impaired asset continues to through berecognised ment losses are inprofit recognised or loss and inan allowance reflected account against flowsfuture discounted cash by interest the original effective rate of the Impair asset. amountbetween of the carrying assetand the the financial present value of the estimated Impairment losses from at amortised costare measured assetscarried asthe difference benchmarked outcomes against actual to ensure that they remain appropriate. elling. Default rates, loss rates and the timing of expected future recoveries are regularly such that losses the are actual likely to be greater or less than suggested by historical mod- ed for management’s judgement asto whether current economic and credit conditions are of the probability of default, timing of recoveries and the amount of loss incurred, adjust In assessing collective impairment modelling the Bankusesstatistical of historical trends loans and held-to-maturity investment characteristics. similar risk with securities are collectively assessedfor significant individually impairment by grouping together are evaluated on a portfolio basis. and Loans held-to-maturity investments that are not investments held on which to maturity noimpairment specific losses have been charged are evaluated loansto maturity and significant individually for impairment. specific All both individual and loans group and significant individually level. investments All held The Bankconsiders the need of impairment of loans or investments held at to maturity investments asheld inthe current to year and maturity the following two years. available-for-sale investments. aresult of As thisreclassification, the Bankmay not classify be areclassification of the entire portfolio of investments held inthe group to of maturity of the assetsheld that are not to due falling maturity inthe immediate future, there should interest rate method. of In case sale or reclassification of more part than an insignificant Held-to-maturity investments at amortised are cost on carried the basis of an effective assets. financial are not designated at fair value through the profit or loss, and are not available for sale that thepayments Bankhasthe maturity intent and fixed and ability to hold to maturity, Held-to-maturity assets are financial non-derivative or fixed determinable assets with ix) I v - - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 109 - P E Go ii) D i) S Depreciation is provided on a straight-line basis at prescribed rates designed to write to designed rates prescribed basis at a straight-line on is provided Depreciation assets intangible and equipment plant, property, of amount revalued of cost the down rates depreciation annual The depreciated. is not Land useful lives. estimated their over as follows: used are The separately accounted for costs incurred to replace a component of an item of property, property, of an item of a component replace to costs incurred for accounted separately The when only capitalised capitalised. All costs are are subsequent other equipment and plant will flow equipment and plant property, of item the in benefits embodied economic future as incurred. loss’ or All Bank. the recognised in ‘profit to costs are other - state assets in the fixed tangible of groups other and buildings land, presents Bank The in allowed approach alternative the as per amount revalued at financial position of ments - state in the measured are assets intangible The Equipment. and Plant IAS 16 Property, impairment and depreciation, accumulated less cost, at financial position the of ment losses. professionally assessed by is regularly which value fair at measured are buildings and Land accumulated any and asset, by asset property is done of revaluation The qualified valuers. gross carrying the against is derecognised date amount revaluation the at depreciation the asset. When the of amount revalued the to restated amount net the and asset, the of is reflected directly increase in other the revaluation, of as a result assets increases of value the revaluation, of as a result decreases assets of value the When income. comprehensive a in case of and equity, in reserve revaluation the decreasing is recognised by decrease loss. or is recognised profit as an expense in difference the shortage, For the purposes of measuring the equity investments subsequent to initial recognition, initial recognition, to subsequent equity investments the measuring purposes of the For value. fair at measured are financial and assets classified are as available-for-sale they 14. note in set out Bank are the by held investments Details of The BNB as a central bank maintains particular volumes of gold as part of Bulgaria’s Bulgaria’s as part of gold of particular bank maintains as a central BNB The volumes the BNB, the on Law the of with requirements the In compliance reserves. international and possession with acquisition, the connection in necessary any take action Bank may monetary Consequently, gold. monetary including reserves, gross international of sale fur BNB without the used by be immediately may reserves international as part of gold of requirements the to asset. Pursuant monetary a as it determines which constraints ther to Statements’ Financial Basis in the Defining Valuation the for Provisions ‘General the as an asset gold monetary the of valuation and recognition Bank defines the the IFRS, the base for appropriate and reliable most as the loss or profit through value fair at reported this financial asset. of valuation a subsequent - Bul London the on based value market at measured are metals precious other and Gold date. reporting the fixing at Market in euro lion 2) Available-for-sale investments 2) Available-for-sale be classified cannot that assets in any non-derivative are investments Available-for-sale whose and market in the quoted not financial Equity assets. of category investments other sale for carried are cost. All at measured available other reliably be cannot value fair carried value. are fair at investments is sold investment recognised directly in equity the are until value fair in the Differences - recognised equityin recog losses are and gains cumulative the when fully impaired or loss. or nised in profit

epreciation ubsequent costs e) assets intangible and equipment plant, roperty, d) quity investments c) metals precious other and ld 110 Bulgarian National Bank. Annual Report • 2017 g) oreign exchange f) of impairment eversals of recoverableculation amount of assets

ber 2016are as follows: The exchange rates of the major foreign currencies as of 31 December 2017 and 31 Decem- losses on revaluation of outstanding forward contacts are in profit recognised or loss. Outstanding forward contracts inforeign currency are marked to market. The gains and exchange rate at the date that the fair value was determined. ties denominated inforeign currency are retranslated to the functional currency at the assets and liabilities are inprofit recognised or loss. Non-monetary assetsand liabili- that day. Foreign currency gains and losses resulting from the revaluation of monetary currencies at the reporting date are translated at exchange the official rate of the Bankon exchange on the transaction date. Monetary assets and liabilities denominated in foreign Gains and losses inforeign arising currencies are translated to BGNat rates the of official amount ofcarrying the asset before recognising impairment losses. mates used to determine the recoverable amount and may be reversed only up to that Impairment losses of tangible assetsare reversed fixed when achange occursin the- esti determined for the cash-generating unit to which the asset belongs. asset that does not generate largely independent inflows, the cash recoverable amount is market assessments of the time value of money and to the the specific For asset. risks an to their present value using the Bank’s incremental borrowing rate current that reflects and value inuse. Inassessing value inuse,the estimated flows future are cash discounted The recoverable amount of the Bank’s assetsisthe higher fixed of the net price selling assets are not depreciated until they are brought into use. Expenditures incurred for the acquisition of property, plant, equipment and intangible will beavailablewill against which the unused losses tax or The credit beutilised. tax can A deferred toasset is recognised tax the extent that is probable that future taxable profits amount already charged or reported as other directly comprehensive income. changes inthe rates tax isrecorded inthe statement of comprehensive income up to the ofperiod assetrealisation or settlement. liability on the The effect deferred from tax The deferred iscalculated tax using rates tax which are to beapplied expected for the amountstaxation and purposes theof carrying assets and liabilities. balance sheet method liability temporary on differences all between the amounts usedfor rate tax oreffective the current one at the reporting date. Deferred isderived tax using the payable calculated on the basisof the taxable expected income for the period, using the aries for the period comprises current and tax deferred Current tax. comprises tax tax The Bankisnot subject to income from tax its core Income activities. from tax subsidi- iv) R iii) Cal Taxation F Intangible assets fixed Motor vehicles Fixtures and fittings Computers Plant & equipment Buildings US dollar Currency Euro Special drawing rights Gold ryone G 170 1troy ounce: BGN 2148.21 1 troy ounce: BGN 2117.09 1Dcme 0731 December2016 31 December2017 1 :BGN 1.63081 1 :BGN 1.95583 1 :BGN 2.32249 1 :BGN 1.85545 1 :BGN 1.95583 1 :BGN 2.49434 30–33.3 20–25 15–20 (per cent) 8–25 3–15 2–4 BNB Consolidated Financial Statements for the Year Ended 31 December 2017 111 - St Em C P S T Standards issued by IASB/IFRIC but not yet effective and not early adopted up to the date date the to up early adopted effective not yet and not but IASB/IFRIC by issued Standards standards This is of listing below. listed are Bank financial the statements of issuance of Short-term employee benefit obligations are measured on an undiscounted basis and basis and an undiscounted on measured are benefit obligations employee Short-term amount the A liability is recognised for service provided. is related expensed as the are Bank has if the plans profit-sharing or cash a short-term bonus under expectedbe paid to services past of provided as a result this amount pay to constructive obligation a present Bank recognises as a The can reliably. be estimated obligation the and employee, the by expected leave annual to costs related estimated the of amount undiscounted liability the completed. period the service for employee’s the for in exchange be paid to minate employment before the normal retirement date, or to provide termination benefits termination provide to or date, retirement normal the before employment minate benefits for Termination redundancy. voluntary encourage to made offer an of result a as of an offer Bank has made recognised as an expense if the are redundancies voluntary of number the will offer and the that be accepted, is probable it redundancy, voluntary after than 12 months more payable If benefits are can reliably. be estimated acceptances value. present their to discounted are they then period, reporting the - demon is committed Bank the recognised as an expense when benefits are Termination ter either to plan detailed a formal to withdrawal, possibility of realistic without strably, The Bank has the obligation to pay certain amounts to each employee who retires in in retires who employee each to certain pay to amounts obligation the has Bank The Code in Bulgaria. Labour the Article 222, § 3 of of requirements with the accordance - con employment the of termination on Code requirements, Labour these to According to obliged is employer the retirement, to entitled become has who employee an tract of date the at If, salary. gross monthly twice his/her to amounting compensation him/her pay the years, more or ten for Bank the by has been employed employee the retirement, of statement the of date As the salaries. at is six gross monthly compensation the of amount the of amount approximate the estimates Management Bank’s the financial position, of projected actuarial an the based on using report all employees for expenditures potential main assumptions, the and obligation the of amount estimated The method. credit unit the to disclosed is made, been has obligation the of estimation the which of base the on 10. note in Statements Financial Cash and cash equivalents consist of cash in hand, current accounts and time deposits deposits time and accounts current cash in hand, of consist cash equivalents and Cash months. three than less with maturities of The Bank’s policy of distribution of profit from banking operations is defined in the Law Law defined is in the operations banking from profit of distribution of policy Bank’s The policies accounting and financial statements of preparation rules for Internal BNB. the on 2007, 1 January effective from Council Governing the of decision a upon adopted were BNB. the on Law the with 2 of Article and 1 36, paragraphs in compliance are which and gains net unrealised reserves special allocates Bank to rules, the these to According or currency foreign in denominated liabilities assets and of revaluation arising from losses the BNB, the on Law the Article 2 of 8, paragraph of requirements the to According gold. expenditure annual its over revenue annual its of excess the of cent 25 per Bank sets aside after the BNB, the on Law the Article to 3 of 8, paragraph According Fund. a Reserve into risk market losses cover allocate reserves to Bank may the Fund, Reserve the to allocation alloca the - to Subsequent Council. Governing the of a decision upon reserves other and to remainder the stipulates Bank the BNB, the on Law the by required as reserves of tion is expenditure over revenue of excess of distribution The Budget. State the into be paid 23. in note set out deferred tax assets are reduced to the extent that it is no longer probable that the related related the that probable longer no is it that extent the to reduced tax are assets deferred tax benefit will be realised.

k) effective early yet adopted not not and issued but andards hort-term benefits employee ermination benefits j) benefits ployee h) currency deposits inforeign and ash inhand h) Bank the of rofit policy distribution 112 Bulgarian National Bank. Annual Report • 2017 lyse and assess the impact of the new standard on position its financial or performance. unchanged.tially The standard hasnot beenyet endorsed by the EU. ana- The Bank will accounting model exemptions. for certain leases, with Lessor all accounting- issubstan IFRS 16requires lessees to most recognise leases on their balance sheet and to have asingle of leases for to acontract, bothparties i.e. 16 setsout the principles for the recognition, measurement, presentation and disclosure forThe standard iseffective annual periods beginning on or after 1January 2019.IFRS IFRS 16 Leases position or performance of the Bank. endorsed by the EU. It isnot that expected these amendments would impact the financial elect to apply the modified retrospective approach. have These clarifications not yet been expedientspractical for entities that either apply retrospectively or IFRS15 fully that accounting of and property intellectual royalties. also provide The clarifications additional as applications of control principle and of licensing providing additional guidance for erations including the assessment of whether is a principal an entity or an agent as well the wording of the ‘separately identifiable’ principle, of principal versus agent consid Customers, the particularly accounting of identifying performance obligations amending intentions when developing the requirements inIFRS 15 Revenue from Contracts with earlier application The objective permitted. of the the isto clarifications clarify IASB’s applyThe clarifications for annual periods beginning on or after 1 January 2018, with IFRS 15 Revenue from (Clarifications) Contracts with Customers or performance of the Bank. estimates. It is not that expected these amendments would impact position the financial contract assetand account liability balances between and periods key judgements and disaggregation of total revenue; information about performance obligations; changes in plant and equipment or intangibles). berequired, Extensive disclosures including will assets that are not an output (e.g. of ordinary the activities , sales entity’s of property, to the recognition and measurement of gains and losses on the sale of some non-financial of revenuetype transaction or the industry. The standard’s requirements also apply will enue from earned acontract acustomer with limited exceptions), (with regardless of the earlier application IFRS 15 permitted. establishes model aapply five-step that to will rev- forThe standard iseffective annual on beginning periods or 1January after 2018with IFRS 15 Revenue from Contracts with Customers Statement of Changes asaresult of inEquity application initial of IFRS9. The Bankdoes any not tangible expect impact on the Statement of Financial Position and Bank in 2018. fromarising reasonable further and supportable information being made available to the assessmentThis isbasedon currently available information and may besubject to changes During 2017, an theimpact assessment Bank has started of three of aspects all IFRS 9. restate comparative information. The Bankplans to adopt the new standard on the not required date and effective will ing, the requirements are generally applied prospectively, some with limited exceptions. is required but providing comparative information isnot compulsory. For hedge account- hedge accounting. Except for hedge accounting, retrospective application of the standard ing for instruments project: financial classification and measurement, impairment and previousand all versions of IFRS9.9brings together of three aspects the all account- Instruments that replaces IAS39Financial Instruments: Recognition and Measurement ly adoption In July permitted. 2014,the version IASBissued the final of IFRS9Financial forThe standard iseffective annual on beginning periods or ear 1January after 2018with IFRS 9Financial Instruments: classification and measurement intends to adopt those standards when they become effective. disclosures, position financial or performance when applied at afuture date. The Bank and interpretations issued, which the Bankreasonably to have expects animpact on the customer (lessee) and the supplier (lessor). - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 113 IFRS 17 Insurance Contracts Insurance IFRS 17 2021 with after 1 January or periods beginning on annual is effective standard The for from 15 Revenue IFRS also entity applies the that permitted provided application earlier - Con IFRS 17 Insurance Instruments. IFRS 9 Financial and withContracts Customers disclosure and presentation measurement, recognition, for principles the tracts sets out principles similar of application the requires it In addition, contracts. insurance issued of - a discre containing contracts investment and contracts reinsurance also to with regard to companies require is to this standard of objective The feature. tionary participation reflects fairly that these in a way contracts insurance to related information the provide effect the of evaluate to financial statements users of enables This information contracts. cash flows and performance financial position, the on 17 IFRS by covered contracts the applicable not is It EU. the by endorsed been yet not has standard The company. the of Bank. the to Consolidated 10 in IFRS Statements Financial Amendments in and Investments IAS 28 between and SaleAssets of its or Contribution an Investor Ventures: and Joint Associates Venture or Joint Associate in requirements the between inconsistency acknowledged an address amendments The an between assets of contribution or sale with the IAS 28, in dealing in those IFRS 10 and a transac- is recognised when loss A full or gain venture. joint or associate its and investor involves a transaction is recognised when loss a partial or or gain a business involves tion this effective of the date postponed IASB The business. a constitute not do that assets equity the method on project research its of outcome the pending indefinitely amendment expected is not It EU. the by endorsed been yet not have amendments These accounting. of Bank. the of performance or financial the position impact would amendments these that Share- of Measurement and Classification (Amendments): Payment IFRS 2 Share-based Transactions based Payment 2018, 1 January after or on beginning periods annual effective are for amendments The the on requirements provide permitted. amendments The with application earlier of measurement the on conditions non-vesting and effects vesting the of for accounting set- with transactions net a payment share-based for payments, share-based cash-settled terms and the to modifications for and tax obligations withholding for feature tlement transaction the of classification the changes that payment a share-based of conditions the by been endorsed yet not have equity-settled. amendments These to cash-settled from Bank. the to be relevant would amendments these expected that not is It EU. with Instruments Financial 9 IFRS Applying (Amendments): Contracts Insurance 4 IFRS Contracts IFRS 4 Insurance 2018. 1 January after or on beginning periods annual effective are for amendments The effective different the arising from issues address is to amendments these of objective The standard. contracts insurance new upcoming the IFRS 9 and of dates Consideration Advance and Transactions Currency Foreign 22 IFRIC 2018 after 1 January or periods beginning on annual is effective for interpretation The the determine to how addresses permitted. This interpretation with application earlier ini- use on to rate spot exchange the determining purpose of the for transaction the of date derecognition the on it) part of (or income expense or asset, related the of tial recognition of receipt or payment the liability arising from non-monetary asset or a non-monetary of been endorsed yet has not interpretation The currency. in a foreign consideration advance its on interpretation new the Bank will The of impact assess the analyse and EU. the by performance. or financial position Treatments Tax Uncertainty 23 over Income IFRIC 2019 after 1 January or periods beginning on annual is effective for interpretation The tax accounting income addresses permitted. This interpretation with application earlier 12. The IAS of application the an uncertainty to surrounding relate tax treatments where as together or uncertain separately tax on treatments guidelines provides interpretation 114 Bulgarian National Bank. Annual Report • 2017 or 1January of 2018.Summary amendments and related standards are provided below: standards which for are effective annual periods beginning on or after 1January 2017 In the 2014–2016annual improvements cycle, the IASBissued amendments to three ImprovementsAnnual to IFRSs2014–2016Cycle amendments on position its financial or performance. have not yet beenendorsed by the EU. analyse and assessthe impact The of Bank will the tailment or settlement applying the affects asset ceiling requirements The amendments The amendmentsoccurred. how also clarify the accounting for a plan amendment, cur of the annual reporting period after a plan amendment, curtailment or settlement has assumptionsarial to cost and determine net current interest service for the remainder earlier applicationwith The amendments permitted. require entities to- useupdated actu The amendments for are effective annual periods beginning on or after 1January 2019, (Amendments):IAS 19Employee Benefits plan amendments, curtailments and settlements. would impact the position financial or performance of the Bank. ments have not yet beenendorsed by the EU. It isnot that these expected amendments amount ofthe carrying long-term interests from that arise applying IAS 28. The amend- applies IAS 28. In applying IFRS 9,the does not entity take account of any adjustments to methodequity isnot applied. applies entity An IFRS9to such long-term interests before it stance, form of part the net investment inthe associate or joint venture but to which the Financial Instruments to long-term interests inanassociate or joint venture that, insub- earlierwith application The Amendments permitted. applies that anentity clarify IFRS 9 The amendments for are effective annual periods beginning on or after 1January 2019, associates and joint ventures IAS 28Investment in Associates Joint and Ventures (Amendments): long-term interests in ments would impact the position financial or performance of the Bank. amendments have not yet beenendorsed by the EU. It isnot that expected these amend- hensive income, subject to the assessment of the business model inwhich it isheld. The assetto bemeasuredfinancial at amortized costor at fair value through other compre- payment of areasonable negative compensation amount, the amendments require the Specifically, for assetthat contains a financial aprepayment option that may result in the interest but do not meet that condition only asa result of anegative prepayment feature. that would have flows that cash are contractual otherwise solely payments of principal and earlier application permitted, propose achange to IFRS9for assets financial particular The amendments, for effective annual periods beginning on or after 1January 2019with features negative with compensation (Amendments): measurement and prepaymentIFRS 9FinancialInstruments: classification thatexpected these amendments would berelevant to the Bank. supported by evidence. These amendments have not yet beenendorsed by the EU. It isnot from, investment when property there isachange inthe useof such which property is earlierwith application The amendments permitted. transfers of clarify to, property or The amendments for are effective annual periods beginning on or after 1January 2018, IAS 40 Investment Property on position its financial or performance. endorsed by the EU. analyseand assessthe impact of The Bankwill the new interpretation and accounting of changes andin facts circumstances. The interpretation has not yet been a group, examinations by authorities, tax reporting methods for uncertainties reflecting IFRS • • ard (effective forard (effective annual periods beginning on or after 1January 2017),and of Entities: Interests clarification IFRS 12Disclosure inOther of the scope of the Stand- 1 January 2018); exemptions for adopters first-time for (effective annual periods beginning on or after time Adoption of International Financial Reporting Standards: deletion of short-term

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accounting of previously held interests in joint operations; in joint interests held previously of accounting instru on - payments of tax consequences income Clarification on Taxes: IAS 12 Income and classified as equity, ments requirements the costs meeting Costs: borrowing ClarificationIAS 23 Borrowing on capitalisation. for measuring an associate or joint or an associate measuring Ventures: and Joint Associates in IAS 28 Investments afterJanuary 1 or periods beginning on annual (effective for value fair at venture 2018). • • • market • credit • liquidity • operational I The improvements to IFRSs 2015–2017 Cycle have not yet been endorsed by EU. The Bank Bank The EU. by been endorsed yet not have Cycle IFRSs 2015–2017 to improvements The financial its statements. on amendments the of impact the assessing of process is in the • • IFRS F Ge This note provides information on the Bank’s goals, exposures to each of the above types above the of each to exposures goals, Bank’s the on information provides Thisnote management. and risk measurement for processes and policies the risk and of achieve Bank aims to the reserves, gross international the of management of process In the returns maximise situ to - first, assets, in the high then security the and liquidity of and strategy on mainly depends investment Its financial global markets. current the of ation and arrangement board a currency under bank operating a central of specificthe function BNB. the on Law the of requirements with the in full compliance comparatively of in assets invested is reserves international BNB’s of portion major The issuers highly rated by securities issued coupon and as discount risk, such credit low short- financial and institutions), supranational or agencies government (governments, remaining The banks. with first-rate placed foreign deposits gold or currency term foreign in the kept gold in monetary and IMF with the BNB accounts on SDRs in is held portion vaults. Bank’s risk man an independent by handled are management reserve international risksThe of The Bank is exposed to the following types of risk in relation to the financial the instruments to types risk following in relation the of Bank is exposed to The operations: agement unit. It is directly responsible for strategic asset structuring- strategic bench up setting for and is directly responsible unit. It agement management investment submitting and preparing reserves, international the for mark in the changes the of is made review On a quarterly overall basis, an approval. for limits required, if and reserves, structure international and of amount the conditions, market monitoring The updated. are (benchmarks) portfolios model and limits investment the are a daily Reports basis. on is undertaken procedures rules, and limits, underlying of and management reserves operating international of needs both the for prepared regularly management. Bank’s the to information updated providing are invest, BNB may the asset classes, in which financial and instruments All approved the and main portfolios define the documents The specified documents. in internal and currency rate, interest credit, all for limits (benchmarks), portfolios model respective It is not expected that these amendments would impact the financial position or perfor or financial the position impact would amendments these expected that not is It mance of the Bank. the of mance IFRSs 2015–2017 Cycle to Annual Improvements are which amendments IASB issued the cycle, improvements annual 2015–2017 In the - amend 2019. Summary of after January 1 or periods beginning on annual effective for below: provided are standards related and ments

neral provisions risk of management 6. а) Disclosure Policy Riskinancial Management overview and ntroduction 116 Bulgarian National Bank. Annual Report • 2017 edit risk edit b) iquidity risk iquidity c)

party (concentrationparty limit). exposure of the BNBto acountry, aswell asanindividual exposure to anissuer/counter class in the Issue Department balance sheet, and (ii)anindividual maximum acceptable foreign currency reserves:: (i) amaximum or minimum limit on the weight of each asset Two of limits are basicsetwhich types are calculated on the basis of the market value of ment of funds in managing the international reserves are asfollows: According to these requirements, the approved of instruments for financial invest types requirements of 28of Article the LBNB. freely convertible developed currency inline aninternally with methodology the as per top two grades by two internationally credit recognised rating agencies and are payable in institutions or international organisations financial whose debts are one rated with of the debt instruments issued by foreign governments, central banks,other foreign financial graph 3of the Law on the BNB. According to these requirements, the BNBmay invest in internationalgross reserves isassessed inline the with requirements 28,para- inArticle debt instruments the Bank has invested its own funds. The credit in managing BNB’s risk probability of insolvency of or aBNB’s the counterparty insolvency of anissuer, inwhose sales of foreign banks. currency Ingeneral, with thiscredit isassociated the risk with public institutions. The Bankassumes credit alsoinoperations risk of purchases and ties and where incases on as anintermediary it acts of behalf the government or other The BNBisexposedto credit through its risk trading operations and investment- activi involved inthe process. dures regulating the performance of the functions and units of tasks the mainstructural The international reserves management isgoverned by of rules behaviour and proce- ties of the Bank. operational and risk, give alistof the foreign institutions financial which are counterpar Bank maintains aminimum level of of currency on liquidity by basisto adaily type ensure side,liability deposit/investment are primarily accounts and settlement accounts. The The instruments forstructure. funds, attracting which are provided to customers on the that of assets by means of investments instruments of in financial a different maturity to maintain abalance of betweenThe BNBis striving funds attracted the and maturity ate time frame incompliance the with respective market conventions. its being unable anasseton to sell international markets at afair value anappropri within - being unable to meet its obligations when due and the second comprises aspect the of risk positions. for is risk It manifested aspect the isprimarily in two the Bank of aspects: first inthe funding arises risk Liquidity of the Bank’s coreand inthe management activities of deposits • L Cr purchases • • tri-party • automatic • investment • bonds • deposits •

commercial co face value date on and the without maturity any embedded option; tions – issuers of covered bonds bonds. must aone-off All bewith payment of their ties, including central banksor supranational institutions; financial f ered bonds; agencies,financial banks,and issuers institutions – of other financial European cov- g o inancial agencies, institutions, specialisedfinancial - banksand institu other financial overnment guaranteed institutions, supranational institutions, specialised financial ut through the Bank’s maindepository asathird party; unterparties, includingunterparties, central banksor supranational institutions; financial

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BNB Consolidated Financial Statements for the Year Ended 31 December 2017 117 Total (BGN’000) - 11,800,095 - 14,783,663 - 2,822,205 - 28,928,706 - 14,670,285 - 20,948,427 - 2,785,663 - 13,892,496 - 10,993,617 - 22,353,795 - 51,360 - 49,275 maturity Undefined Undefined Over Over 5 years - - 18,977,716 43,863,829 ------1,903,608 2,131,506 -- - - 15,703,197 15,703,197 - - 3,274,519 3,274,519 5 years From 1 to 1 to From ------2,049,218 2,293,978 ------3,515,099 3,515,099 - - - 14,152,921 14,152,921 ------From 1 year 3 months to to 3 months ------3 months From 1 to 1 to From - - - - 18,246 33,114 15,126 5,333 28,816 244,760 253,399227,898 618,114 6,777,831 14,677,416 27,035 Up to to Up 1,712,660 4,399,265 5,688,170 - - 1,139,949 1,682,256 1,185,358 2,436,966 6,902,621 13,940,161 4,463,600 2,785,663 2,766,605 2,923,074 5,303,938 (569,343) 660,543 1,865,353 13,940,161 4,463,600 (15,618,802) 4,741,512 6,950,120 (1,678,335) 1,502,709 14,677,416 27,035 (17,074,108) 4,404,837 1 month discount from the fair value), at which they could be sold on on be sold could they which at value), fair the from discount 14,670,285 13,225,289 907,472 650,902 - - 13,892,496 20,327,135 621,292 15,813,602 5,059,808 7,553,523 13,940,161 4,463,600 2,049,218 48,879,912 16,382,945 4,399,265 5,688,170 - - 17,668,020 44,138,400 16,659,101 2,923,074 5,303,938 23,609,221 1,244,739 6,806,647 14,677,416 27,035 1,903,608 48,268,666 all BNB payments in foreign currency. To better manage the risk arising from liquidation liquidation risk arising from the manage better To currency. in foreign all BNB payments to liquidity subject rank by grouped are in financiallatter the instruments, positions of difficulty of level (i.e. the types different the financial instruments of set for crisis. are Limits of in time market the ranks. liquidity the based on - Bank has defined require the strategy, liquidity riskAs overall management its part of for and euro in denominated assets liquid of portfolio a of management the for ments cash its meeting purposes of the for currencies other in denominated assets maintaining outflows. and inflows maturity term the to residual from by analysed financial liabilities, assets and Bank’s The or agreement subsequent any of date the to financial position of statement the of date as follows: are maturity, contractual Total financial liabilities Total Asset-liability maturity mismatch Liabilities to banks and other financial other banks and to Liabilities institutions institutions government to Liabilities borrowings other and Bulgaria’s against Borrowings financial in international participation institutions Financial assets at fair value through through value fair at assets Financial loss and profit financial assets Available-for-sale assets Other financial assets Total liabilities Financial circulation in Currency Asset-liability maturity mismatch assets Financial currencies in foreign deposits and Cash other and in gold, instruments Gold, metals precious Liabilities to government institutions institutions government to Liabilities borrowings other and Bulgaria’s against Borrowings financial in international participation institutions financial liabilities Total Available-for-sale financial assets Available-for-sale assets Other financial assets Total liabilities Financial in circulation Currency financial other banks and to Liabilities institutions Financial assets Financial currency in foreign deposits and Cash other and in gold, instruments Gold, metals precious through value fair assets at Financial loss and profit As of 31 December As of 2016 As of 31 December As of 2017 118 Bulgarian National Bank. Annual Report • 2017 arket risk risk arket risk arket d) institutions ticipation ininternational financial Borrowings against Bulgaria’s par- and other borrowings Liabilities to government institutions cial institutions Liabilities to banksand other finan- As of 31 December 2016 ofAs 31December Currency incirculation 2017 ofAs 31December Currency incirculation institutions ticipation ininternational financial Borrowings against Bulgaria’s par- and other borrowings Liabilities to government institutions cial institutions Liabilities to banksand other finan-

maximum values have beencalculated. the last date for the period, the average value for the whole period and the minimum and rency and interest rate isalsopresented. risk For each of the parameters, the value asof interest income of assets,respectively have The correlation beenused. between the cur derived from time series of observations 30 daily of total income, currency income and To calculate the and currency overall interest risk risk, the rate empiric risk, distributions, used in this report is based on a 95 per cent confidence level and a one-day holding period. probability aconfidenceand acertain (called with level or confidence interval). The VaR VaR isanindicator of the maximum loss over period of time (holding acertain period) The table below presents one important measure of market i.e. Value risk, (VaR). at Risk document Investment Limits for the Management of the Gross International Reserves. sheet. Market exposure ismanaged risk inaccordance inthe the limits specified with risk market conditions and to changes of inthe Issue structure Department liability balance of The instrument. Bankmanages its financial portfolios inresponsetype to changing market value market whichcurrent conditions financial bestreflects for the respective of changes inthe market conditions. The instruments are evaluated on basisat adaily fair instruments are financial subject to market i.e. the of risk, All risk impairment as a result The outstanding of contractual maturities the Bank’s liabilities financial are asfollows: M M Currency risk Interest rate risk Correlation (percent) Currency risk risk Overall Interest rate risk Correlation (percent) Overall risk Overall so 1Dcme 07 vrg aiu Minimum Maximum Average ofAs 31December2017 so 1Dcme 06 vrg aiu Minimum Maximum Average ofAs 31December2016 Book value 418404,3,5 632954392956463-17,668,020 - 5,684,693 4,399,299 16,382,945 44,134,957 44,138,400 383894,5,7 669022922852521-18,977,716 - 5,295,291 2,922,288 16,659,082 43,854,377 43,863,829 180051,9,5 ,1,6 ,9,9 ,8,9 - 5,684,693 4,399,299 1,712,660 11,796,652 11,800,095 460251,7,8 14,670,285 14,670,285 14,670,285 4129114,152,921 - 14,152,921 5,295,291 2,922,288 2,766,586 10,984,165 13,892,496 10,993,617 13,892,496 13,892,496 15,703,197 15,703,197 ,1,9 3,515,099 3,515,099 ,7,1 3,274,519 3,274,519 (19,015) (36,097) (15,779) (26,878) (16,146) (5,099) (014) 0.40 Gross nominal outgoing cash flow 1 month Up to 2,2)(431 (4,815) (54,391) (25,729) 3,4)(096 (17,401) (60,966) (35,740) 2,4)(847 (4,010) (48,467) (23,240) 2,3)(107 (9,456) (51,037) (28,539) 1,7)(312 (2,470) (23,182) (11,870) 516 1,6)(1,638) (12,169) (5,166) - - - - 0.45 0.33 From 1to 3 months 3,515,099 ------3,274,519 - - - 14,152,921 - - - - 15,703,197 - - - - - 3 months to 1year From From .2(0.14) 0.72 0.90 From 1to 5 years (BGN’000) (BGN’000) 0.01 5 years Over

- - - - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 119

Over Over 3 months 3 months (BGN’000) From 1 to 1 to From 3 months Fixed rate instruments rate Fixed Up to to Up 1 month instruments Floating rate rate Floating 51,360 14,226 4,020 33,114 - 49,275 15,123 3 5,333 28,816 244,760 - 244,760 - - 227,897 - 227,897 - - Total 1,662,158 - 1,662,158 - - 1,681,530 - - 1,681,530 - 8,783,597 - 551,444 2,925,847 5,306,306 1,523,731 1,523,731 - - - 1,418,752 1,418,752 - - - 29,096,173 68,446 1,195,920 2,446,452 25,385,355 22,540,705 121,501 259,529 643,586 21,516,089 10,170,026 - 82,000 4,399,586 5,688,440 19,298,362 554,761 (2,274,007) 669,402 20,348,206 21,229,354 10,040,696 (3,359,571) (1,654,370) 16,238,599 45,662,404 2,078,492 12,478,278 5,068,988 26,036,646 45,324,199 11,459,448 11,048,369 1,271,477 21,544,905 26,364,042 1,523,731 14,752,285 4,399,586 5,688,440 24,094,845 1,418,752 14,443,940 2,925,847 5,306,306 Interest-bearing asset/liability gap Interest-bearing asset/liability gap Financial Assets at Fair Value through Profit or or Profit through Value Assets Fair at Financial Loss Financial assets at fair value through profit or loss or profit through value fair assets at Financial As of 31 DecemberAs of 2017 Interest-earning assets currency in foreign deposits and Cash 20,844,164 11,322,824 8,898,782 622,558 - As of 31 DecemberAs of 2016 Interest-earning assets currency in foreign deposits and Cash 14,588,581 1,995,820 11,033,578 907,892 651,291 Available-for-sale financial assets Available-for-sale Available-for-sale financial assets Available-for-sale Gold, instruments in gold, and other precious precious other and in gold, instruments Gold, metals Gold, instruments in gold, and other precious precious other and in gold, instruments Gold, metals Other interest-earning assets interest-earning Other Other interest-earning assets interest-earning Other Total Total Interest-bearing liabilities financial other institutions banks and to Due 14,670,285 - 14,670,285 - - Interest-bearing liabilities financial other institutions banks and to Due 13,892,496 - 13,892,496 - - Liabilities to government institutions and other other and institutions government to Liabilities borrowings Liabilities to government institutions and other other and institutions government to Liabilities borrowings Borrowings against Bulgaria’s participation in participation Bulgaria’s against Borrowings financial institutions international Borrowings against Bulgaria’s participation in participation Bulgaria’s against Borrowings financial institutions international Total Total Total Total I The Bank’s operations are subject to the risk of interest rate fluctuations, which impact impact fluctuations, which rate interest risk the of to subject are operations Bank’s The - liabili interest-bearing and investments) (including assets interest-earning of prices the an asset of value market in the change effect the the of measures duration Modified ties. 1 per of (1/100th cent) point basis 1 a to response in points percentage in (liability) as such parameters technical portfolios’ In addition, levels. rate interest the in change curve, monitored etc yield . are the of in a fixed point duration (convexity), protuberance a risk by is limited rate interest the BNB, the by held portfolio each a daily For basis. on of deviation a maximum for limits investment the by and (benchmark) portfolio model first the In benchmark. respective the of that from portfolio the of modified duration the set as was portfolios investment risk of rate interest relative the year the quartersthree of - respec the of that from portfolio the of modified duration the of deviation a maximum risk limit interest relative quarter fourth the the of beginning the From benchmark. tive i.e. risk measure accurate more the of basis the on set been has portfolios investment of relative yield volatility measure. volatility yield relative base in the changes risk the of involve rates with floating interest liabilities Assets and rates. interest the serves determine to which risk nterest rate 120 Bulgarian National Bank. Annual Report • 2017 urrency risk urrency yield of curves the relevant assets,is asfollows: interest rates, assuming aconstant spread of assetsand liabilities and parallel shifts inthe ofThe analysis of the the Bank’s sensitivity approximation) assets(to first to changes in over the one-year period the yield remains curve unchanged. scenarios assume that the change in yields takes place at the beginning of the period, and points parallel decrease inthe yield alsofor curves aperiod of 12months. The second two points parallel increase inthe yield for curves aperiod of 12 months; and (iv) a50basis instant and parallel increase; (ii)a100basispoints instant parallel decrease; (iii)a50basis The standard include scenarios the following changes inyield (i)a100basispoints curves: ment scenarios are monitored. assetsand liabilitiesfinancial to various standard and non-standard interest rate move- For interest managing and rate the risk band of interest rate of changes, the sensitivity liabilities denominated inthese currencies. monetary gold, may not deviate by more than+/-2 per cent from the market value of the BNB, the total market value of assets in a foreign currency other than the euro, SDR and ofture assetsand that of liabilities. According 31,paragraph 3of to Article the Law on the To there minimise currency risk, isalimit to the mismatches between the- currency struc other than the euro. ian levs, by are movements affected in the exchange rate of the lev against the currencies the Bulgarian currency to the euro, the Bank’s statements, financial prepared inBulgar With the introduction of the currency board arrangement inBulgaria and of the fixing foreign currencies other thanthe euro. to when currency entering risk into instruments denominated transactions infinancial in ofture assetsand that of liabilities. From anaccounting point of view, the Bankisexposed For the Bank, a currency exists where risk there is a mismatch between the currency struc C so 1Dcme 06(3,1)7450(329,892) 734,510 (734,510) ofAs 31December2016 so 1Dcme 07(6,4)3009(172,698) 360,049 (360,049) ofAs 31 December2017 Other SDR Pound sterling Japanese yen US dollar Bulgarian lev and euro and reserves capital Liabilities, Other Gold SDR Pound sterling Japanese yen US dollar Bulgarian lev and euro Assets 100 b.p. intraday instant parallel increase 100 b.p. intraday instant parallel decrease 1Dcme 0731December2016 31 December2017 50 b.p. parallel increase in the beginning of the 48,462,076 44,951,608 48,462,076 42,115,441 3,424,985 2,748,964 3,527,917 16,382 69,100 68,818 period 623 253 60 1 - beginning of the decrease inthe 50 b.p. parallel 49,080,114 45,195,831 49,080,114 42,298,587 3,676,477 2,784,379 3,786,748 (227,714) (12,338) 206,925 209,554 ( (BGN’000) period BGN’000) 880 453 300 93 1 - - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 121 92 300 2,629 (427) 110,271 2,784,379 (2 897 444) 59 253 (282) 102,932 (15,759) 2,748,964 (2,836,167) 31 December 201731 December December 2016 31 Japanese yen Japanese sterling Pound US dollar US SDR Other Net position Net euro and lev Bulgarian Gold D V : Quoted market price or closing price for positions for which there is a reliable is a reliable there which for positions for price closing or price market Level 1: Quoted market; yield the about information market observable based on techniques Level 2: Valuation is there which securities for debt measure to is used methods curve. This of category market. reliable no not are financial liabilities assets and on inputs where techniques, Level 3: Valuation data. market observable based on

• • • U ii) i) The fair values of financial assets and liabilities traded in international financial markets financial markets in international traded financial liabilities and assets of values fair The - clos or quotations market based on are information market is available there which for need the reduces information and prices market observable use of The prices. market ing uncertainty the associated also reduces and estimation and judgement management for information and actual prices of market availability The values. fair of with determination the and specificevents because of changes and markets and products on depending varies all other of values fair the Bank determines The financial markets. of conditions general a valuation using by quotes market current no are there which financial for instruments of means by is computed value present net The value. present a net based on technique instrument. The relevant the for necessary, where spreads, credit curves and yield market of reflects price which the value a fair determine is to techniques valuation the purpose of date. reporting the financial on the instrument fair of measurement with the respect to framework control a established has Bank The risk an independent set by are financial controls instruments of values fair The values. actual information; the price checking include: controls Specific unit. control and analysis and approval development, if necessary, and, models valuation current of reviews regular The Bank measures the fair value of financial instruments using the following hierarchy hierarchy following the financial using instruments of value fair the Bank measures The methods: of The determination of fair values of financial assets and liabilities for which there is no no is there which for liabilities financial and assets of values fair of determination The - account described in the techniques valuation of use the requires price market observable trans- is not price whose and financial infrequently trade that instruments For policy. ing on depending judgement expert’s an requires and objective less is value fair the parent, risks other and assumptions, pricing uncertainty, factors market concentration, liquidity, affecting particular instrument. the The Governing Council discusses the development, selection and disclosure of critical critical of disclosure and selection development, discusses the Council Governing The application. as their well as assumptions, and policies accounting financial the risk to management. notes the supplement disclosures These - environ financial economic global and in a gradually improving Bank is operating The years. last few the over market Bulgarian the influencing been positively has which ment will years few next still the in monetary maintain to be priorities major Management’s and liquidity position stable Bank’s the keep financial country, stabilityand system in the reserves international techniques, and methods valuation Bank’s continuously improve financial markets. international on control and management

aluation financial of instruments etermination values fair of e) assumptions and judgements accounting sing 122 Bulgarian National Bank. Annual Report • 2017 maturity. approximately equal to their reporting value asthey are interest-free and of no definite The fair value of the liabilities for participation ininternational institutions is financial ment institutions isapproximately equal to the reporting value as they are short-term. The fair value of due to banks and other institutions financial and of liabilities to govern hierarchy where afair value measurement iscategorised, are analysed inthe table below: Financial instruments not measured at fair value, but by applying a level of the fair value els. does The data not include instruments reported equity at acquisition cost(note 14). The table below instruments reported analyses financial at fair value using valuation mod comparison of from data various information sources,. etc introduction of new valuation models; follow-up verification by means of analysisand 31 December 2016 31 December 2017 31 December 31 December 2016 31 December 2017 31 December Total or loss 14,783,663 Financial assetsat fair value through profit precious metals Gold, instruments ingold, and other Cash and deposits inforeign currency Total or loss 20,948,427 Financial assetsat fair value through profit precious metals Gold, instruments ingold, and other Cash and deposits inforeign currency Total institutions participation ininternational financial Borrowings against Bulgaria’s other borrowings Liabilities to government institutions and institutions Liabilities to banksand other financial Total institutions participation ininternational financial Borrowings against Bulgaria’s other borrowings Liabilities to government institutions and institutions Liabilities to banksand other financial Quoted market prices Quoted market prices on markets active on markets active 46,446,566 46,087,885 22,353,795 28,840,698 2,822,205 2,785,663 Level 1 Level Level 1 Level ------Observable inputs other Valuation techniques (using market data) than quoted prices 29,985,479 28,160,632 28,160,632 11,800,095 14,670,285 10,993,617 13,892,496 3,515,099 3,274,519 Level 2 Level Level 2 Level 88,008 88,008 ------46,534,574 46,087,885 22,353,795 28,928,706 14,783,663 20,948,427 29,985,479 11,800,095 14,670,285 10,993,617 13,892,496 2,822,205 2,785,663 ( ( 3,515,099 3,274,519 BGN’000) BGN’000) Total Total - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 123 Total BGN’000) - 14,670,285 - 11,800,095 - 10,993,617 - 14,783,663 - 2,822,205 - 28,928,706 - 20,948,427 - 2,785,663 - 13,892,496 - 22,353,795 ( maturity Undefined Undefined Over Over 5 years - - 18,025,439 44,495,819 - - 19,209,383 44,095,496 ------2,049,218 2,293,978 - 30,680 82,040 - -- 1,903,608 2,131,506 - 32,963 82,238 - - 357,419 357,419 -- - - 3,274,519 3,274,519 231,667 231,667 -- - - 165,285- 165,285 4,237 4,237 - 14,152,921 14,152,921 - - 3,515,099 3,515,099 -- - - 156,021- 156,021 4,426 4,426 - 15,703,197 15,703,197 5 years From 1 to 1 to From ------year From 3 From months to 1 to months ------3 months From 1 to 1 to From ------18,246 33,114 15,126 5,333 28,816 244,760 253,399227,898 618,114 6,777,831 14,677,416 27,035 month Up to 1 to Up 1,712,660 4,399,265 5,688,170 1,139,949 1,682,256 1,185,358 2,436,966 6,902,621 13,940,161 4,463,600 2,766,605 2,923,074 5,303,938 2,785,663 (569,343) 660,543 1,865,353 13,940,161 4,463,600 (15,776,019) 4,584,295 6,950,120 (1,678,335) 1,502,709 14,677,416 27,035 (17,112,365) 4,366,580 14,670,285 13,225,289 907,472 650,902 13,892,496 20,327,135 621,292 16,382,945 4,399,265 5,688,170 15,813,602 5,059,808 7,553,523 13,940,161 4,463,600 2,249,420 49,080,114 16,659,101 2,923,074 5,303,938 23,609,221 1,244,739 6,806,647 14,677,416 27,035 2,097,018 48,462,076 M

The Bank’s assets and liabilities, analysed by residual term to maturity from the date of of date maturity term the to residual from by analysed liabilities, and assets Bank’s The contractual or agreement subsequent any of date the to financial position of statement the as follows: are maturity,

Borrowings against Bulgaria’s par- Bulgaria’s against Borrowings financial in international ticipation institutions liabilities Other liabilities Total Asset-liability maturity mismatch Total assets Total Liabilities circulation in Currency financial other banks and to Liabilities institutions institutions government to Liabilities borrowings other and Financial assets at fair value through through value fair assets at Financial loss or profit financial assets Available-for-sale assets Tangible assets Intangible assets Other Total liabilities Total Asset-liability maturity mismatch Assets currency in foreign deposits and Cash other and in gold, instruments Gold, metals precious Liabilities to banks and other financial other banks and to Liabilities institutions institutions government to Liabilities borrowings other and par- Bulgaria’s against Borrowings financial in international ticipation institutions liabilities Other Tangible assets Tangible assets Intangible assets Other assets Total Liabilities in circulation Currency Assets currency in foreign deposits and Cash other and in gold, instruments Gold, metals precious through value fair assets at Financial loss or profit financial assets Available-for-sale As of 31 December As of 2016 As of 31 December As of 2017 f) aturitystructure liabilities assets and of 124 Bulgarian National Bank. Annual Report • 2017 nterest Income and Expense 7. et Gains/(Losses) from Gains/(Losses) et Financial and Liabilities Assets at Fair Value 8.

at -0.40 per cent. the deposit Eurosytem’s and facility during the reporting period the interest rate was fixed During the year, the ECB Governing Council continued to set negative interest rates for are included. on the technical account of the national system component TARGET2-BNB at the ECB In addition thousand thousand) BGN 1115 (31December2016:BGN 802 interest paid correspondent banks asaresult of using negative reference interest rates. (31 December 2016:BGN 16,578 thousand) on deposits and current accounts foreign with Interest expensespaid on deposits include thousand interest paid of BGN 52,329 2016). rency amounted to BGN 109 thousand (compared to BGN 14 thousand asof 31 December ofAs 31December 2017 interest paid on deposits of other organisations inforeign cur 2016). amounted thousand to BGN 916 (compared thousand to BGN 393 as of 31 December ofAs 31December2017interest expensespaid on government deposits inforeign currency as of 31 December 2016to BGN 2117.09 asof 31December2017. due in the to a fall market price of gold denominated in euro: BGN 2148.21 troy per ounce ofAs 31December 2017the revaluation loss on gold was thousand BGN 41,356 and was ments was negative: BGN 24,704thousand. points.25 basis from The net effect revaluation of resulting securities from these move- butand quarters, overall, during the year the yield increased securities between 10and invested was volatile highly and mixed movements with sectors between issuers, maturity theDuring reporting the period market yield on the inwhich securities the BNBprimarily which led to trades at premium above their face value. thousand. The mainfactor isthe lower market yields on from securities their coupon yield at 31December2017are largely attributable to operations of insecurities BGN 328,169 Net losses from assetsand at liabilities financial fair value carried through profit or loss as thr N I Interest expense Interest income Net revaluation (losses)/gains on gold Net revaluation (losses) on foreign currency assetsand liabilities Net revaluation (losses)/gains on securities Net revaluation gains on futures Net gains from operations inforeign currency Net (losses) from operations insecurities – other – deposits – deposits – securities – other ough Profit or Profit Loss ough 265,018 318,137 (399,523) (328,169) 71,511 71,511 53,117 2017 (41,356) (24,704) (6,002) 2017 2 226 482 - (317,960) 364,439 398,031 22,278 22,278 33,590 2016 310,348 (BGN’000) (BGN’000) 2016 72,435 78,904 290 767 2 - 86 - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 125 48 781 350 (BGN’000) (BGN’000) (BGN’000) 7,870 1,601 (279) 2016 3,243 2016 2016 1,161 1,209 41,717 31,744 34,718 54,877 16,642 109,480 12 652 350 1,670 2017 3,116 2017 2017 1,173 1,195 14,857 36,759 26,288 47,799 14,609 36,562 (6,708) 102,086 Administrative expenses Administrative Depreciation expenses Other Staff expenditure Dividend income income Dividend net income, Other Income from sale of coins of sale from Income Income from associates from Income Income from subsidiaries from Income Total gross remuneration expenses* gross remuneration Total in accordance threshold established to up bonuses including BNB Governing LBNB by with the Article 3 of 23, paragraph 2015** 30 July of resolution Council’s retirement/ members’ Council Governing BNB Expenses on benefits termination Council BNB Governing the to paid gross remuneration Total members Gen O * Remunerations are before tax. before are * Remunerations ** http://www.bnb.bg/PressOffice/POPressReleases/POPRDate/PR_20150730_1_EN The number of employees of the Bank and its subsidiaries is 1148 as of 31 December 2017 31 December 2017 is 1148 as of subsidiaries its Bank and the of employees of number The staff BNB 2016: 862). December 876 (31 the of 2016: 1142), including (31 December the under charged costs insurance health and social salaries, Staff include expenditure social activities 31 December 2017, and costs, respectively as of provisions legislation local the for (31 December 2016: BGN 27,344 thousand), BNB: BGN 29,107 thousand the for (31 December BGN 4596 2016: BGN 4590 thousand BNB Corp.: the of Works Printing (31 December EAD: BGN 2865 thousand Mint 2016: Bulgarian the for and thousand), BGN 2778 thousand). - Coun BNB Governing the to paid remunerations expenses for Staff include expenditure BGN 1209 December 2016: 2017 (31 thousand), for BGN 1195 thousand of cil members as follows: presented,

Dividend income includes dividends from BNB’s participation in: BIS, Basel amounting amounting Basel in: BIS, participation BNB’s from dividends includes income Dividend AD Service Cash Company thousand, BGN 8908 of AD BORICA thousand, BGN 5758 to BGN 191 thousand. of participation its from thousand BGN 857 of payment a dividend BNB received In 2017 the financial consolidated the purpose of the for eliminated is EAD which Mint in Bulgarian statement. thousand, BGN 526 of subsidiaries from financial income includes income net other The BGN 920 of TARGET2 to in relation ECB the from reallocated remuneration from income thousand.

10. Expenses eral Administrative 9. Operating Income ther 126 Bulgarian National Bank. Annual Report • 2017 ctuarial assumptions ctuarial through loss and profit ts carried (weighted average): assumptionsThe key actuarial as at the Financial Statements date are the following ‘Employee are Benefits’ given below: retirementStaff liabilities valuation calculated basedon actuarial and pursuant to IAS19 2016: BGN 212 thousand). for the Bank’s subsidiaries asof 31December2017are BGN 177 thousand (31December The2016: BGN 877 thousand). retirement and unused paid annual leave compensation nel on retirement and for unused paid annual leave at thousand BGN 679 (31 December calculations,Based on the actuarial Bankhasaccrued compensation liabilities for person- members – BGN 4391. other Governing Governors – Deputy BGN 13,173; Governor – Council BGN 15,368; monthly remunerations paid to the Governing Council members are set as follows: In accordance the BNBGoverning with Council’s Decision of 30July 2015the A Cos by residual term Distribution liabilities of (subsidiaries BNBstaff excluded) Total Over 10years From 5 to 10years From 3to 5years From 1to 3years Up to 1year Future salary growth Future salary Discount interest rate asat 31December Total Re-measurements (gains)/losses Actuarial Interest expense cost Current service Plan benefits paidPlan benefits liabilities asof benefit 1January Defined Defined benefit liabilities asat 31December benefit Defined (gain)/loss inexpenses recognised Actuarial assumptions infinancial loss from arising Actuarial change indemographic assumptions (gain) from arising Actuarial change (gain)/loss from arising Actuarial experience adjustment Re-measurements Interest expense cost Current service

(329) 2,602 2,810 2,023 2017 2017 2017 4.5 0.6 2017 368 323 151 323 688 360 277 402 296 43 18 43 2 2 - - - 2,424 2,602 (212) 1,895 2016 2016 2016 2016 (34) (78) 4.5 1.4 346 292 156 292 (BGN’000) (BGN’000) 561 301 247 433 353 51 51 ( 3 per cent) 3 - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 127 - 3,308 34,518 (BGN’000) (BGN’000) (BGN’000) BGN’000 2,822,205 133,525 196,351 5,858,420 6,732,463 6,739,240 1,602,874 8,342,114 6,441,549 6,308,024 31 December 2016 ounces ’000 troy ’000 troy 2 111,676 5,853,791 3,660,155 9,513,946 12,590,883 4,566,830 1,492,680 6,059,510 9,515,584 12,595,366 20,948,427 14,783,663 14,888,917 14,888,915 20,948,427 14,783,663 11,321,167 1,991,946 31 December 2017 2016 31 December 31 December 2017 2016 31 December 31 December 2017 31 December 2016 2,966 33,733 16 BGN’000 2,785,663 31 December 2017 16 А-1 А-1+ 513785 1,086,158 1,662,806 513 783 1,102,124 1,682,255 ounces ’000 troy ’000 troy credit rating credit Counterparty short-term

In other currencies In other In EUR currencies In other In EUR

Euro area residents area Euro Deposits in foreign currency in foreign Deposits Cash in foreign currency in foreign Cash banks in other accounts Current Non-euro area residents area Non-euro Investment graded deposits by the the by deposits graded Investment counterparty’s rating credit Other precious metals precious Other Gold in other form in other Gold Gold bullion in standard form in standard bullion Gold form in standard deposits Gold Go C Gold in standard form includes gold held for safekeeping with a depository and deposits. deposits. and with a depository safekeeping for held gold includes form in standard Gold highest two the of with one rated are liabilities with banks whose held are in gold Deposits between bear interest and agencies recognised rating internationally two by given ratings annually. 0.54 per cent and 0.07 per cent The disclosure by credit rating does not include demand deposits with deposits external managers. demand include not does rating credit by disclosure The cash on of value book the to risk equivalent is credit to exposure maximum BNB The deposits. and accounts current

Administrative expenses include the BNB’s currency circulation expenses of BGN 19,666 BGN 19,666 of expenses circulation currency BNB’s the include expenses Administrative inter and thousand) BGN 17,666 December 2016: December 2017 (31 31 as of thousand thousand). 2016: BGN 115 December (31 BGN 115 thousand expenses of audit national

Deposits in foreign currency with correspondents with- counterparty’s rat credit with currency correspondents in foreign Deposits agencies – rating credit recognised internationally six the of two least at by graded ing follows: as disclosed JCRA –are and R&I DBRS, Moody’s, Ratings, Fitch Standard&Poor’s, Cash and deposits in foreign currency with correspondents are disclosed as follows: disclosed are with currency correspondents in foreign deposits and Cash

12. Metals Precious Other and Instruments inGold, ld, 11. Currency Deposits inForeign ash and 128 Bulgarian National Bank. Annual Report • 2017 inancial Assets atinancial Fair Assets Value and Loss Profit through 13. inancial Assets Availableinancial Assets for Sale 14.

as follows: agencies – Standard&Poor’s, Fitch Ratings, Moody’s, DBRS, are disclosed R&Iand JCRA credit rating graded by at least two of the six internationally recognised credit rating issuedThe securities by foreign governments and other issuers or relevant issuers with transactions. 2016, asat 31December2017there were no pledged securities ascollateral on futures cent). Similarly asat 31December 2017 (31 December2016:1.32 per 31 December maximum coupon interest of the EUR-denominated cent asof was securities 0.97 per compriseSecurities of bothcoupon and discount denominated securities inEUR.The platinum commemorative coins of BGN 2414 thousand. Other precious metals include silver commemorative coins thousand of BGN 552 and Gold inother form includes commemorative gold coins of BGN 28,422thousand. to bepaid three months inwithin upon adecision of the BIS Board of Governors. BGN 24,943 thousand (ref. note but 28).The capital subscribed, not paid-in hasanoption thousand shares amounts thousand to BGN 23,225 while as of 31 December 2016 it was ment inBIS, Basel ispaid up. of As 31December2017the current value of SDR 10,000 the Bank for International Settlements (BIS), Basel, and cent 25 per of the invest equity - investmentsEquity in international institutions include financial the investment equity in who have aremunerated reserve tranche position, at an average rate of 0.52 per cent. thousand).2016: BGN 244,760 The IMF pays remuneration (interest) to those members quotagaria's inthe IMFrepresents the reserve tranche held the with IMF(31December under the 14th General Quota Review. thousand BGN 227,897 of the Republic of Bul - made by Bulgaria on 2016to implement 22February its quota increase inthe IMFagreed SDR 896,300thousand). The increase of BGN 256,100 thousand isdue to the contribution The Republic of Bulgaria’s quota inthe IMFisSDR 896,300thousand (31December2016: F F Issue/issuer credit rating Foreign notes bills, and bonds treasury atSecurities fair value through profit or loss Investments inassociates Equity investmentsEquity ininternational institutions financial Republic of Bulgaria’s quota inthe IMF Issue/issuer credit rating ААА АА+ AA- АА А+ A 1Dcme 0731December2016 31 December2017 1Dcme 0731December2016 31 December2017 1Dcme 0731December2016 31 December2017 2337528,928,706 22,353,795 0974616,520,652 20,977,496 2337528,928,706 28,928,706 22,353,795 22,353,795 2,131,506 2,081,648 341,991 818,250 216,058 19,777 30,081 - - 2,152,689 8,037,373 2,068,402 2,293,978 2,235,677 (BGN’000) (BGN’000) (BGN’000) 26,502 53,662 95,928 31,799 BNB Consolidated Financial Statements for the Year Ended 31 December 2017 129 the share of of share i.e. the Principal activityPrincipal Handling of sealed parcels of Bulgarian coins and and coins Bulgarian of parcels sealed of Handling banknotes transferred from the BNB and the banks the BNB and the from transferred banknotes 36.1120.00 payments card Interbank Share Share per cent holding, holding, Associates BORICA AD BORICA Cash Services Company AD ServicesCash Company T The fair value of land and buildings is categorised as Level-3 fair value based on the input input the based on value fair as Level-3 categorised is buildings and land of value fair The technique. assessment given the datafor and Fixtures Vehicles, Equipment, Machinery, and Plant asset classes: remaining the For sheet balance Bank’s the on value present their be to considered is value fair the Fittings, their to is close value book their and years last four in the bought were them of as most value. fair at depreciation accrued the fixedBank derecognises the assets tangible revaluating When against recalculated is value net their and assets the of value book gross the of expense the amount. revalued the Equity investments in international financial institutions do not exceed 10 per cent of the the of cent 10 per exceed not financial do institutions in international Equity investments institution. respective the of capital subscribed share in the participation BNB’s financial also include institutions in international Investments Bulgarian the EU), the joined Bulgaria of Republic the (when 2007 1 January As of ECB. the of amount As 2017 the 31 December capital. ECB at in the has a share Bank National thousand. BGN 6820 or EUR 3487 thousand is capital ECB the in share BNB paid-up - enti are NCBs ESCB only ECB, the and ESCB the of Statute the Articleto of 28 Pursuant and requirements the follows subscription Capital capital. ECB in the participate to tled ECB, the of ESCB and the of Statute the in Articleset forth 29 of key the each NCB in the ECB capital is determined in percentage and corresponds to the share of of share the to corresponds and percentage in is determined capital ECB in the NCB each proportions). (in equal GDP and population EU’s total in the State Member respective the the joins State Member new a everywhenever five is adjusted and years percentage The subscribedECB is capital the in share capital BNB’s the 2017, December 31 As of EU. thousand. EUR 92,986.8 to corresponds which 0.8590 per cent, its of percentage minimum the up pay to BNB is required the NCB, area As a non-euro ESCB the of Statute the Article to 47 of is pursuant which ECB, subscribed in the capital - BNB contri the represents and Council) General ECB the by (as set out ECB the of and to amounts percentage 2010 this 29 December As costs. of operational ECB the to bution distributable ECB’s the to entitled not BNB is the NCBs, area euro 3.75 per Unlike cent. BNB the area, euro the joining Upon ECB. the of loss any fund to required is it nor profit, the to subscription capital its 96.25 per of cent remaining the up pay will to be required EUR 89,499.8 thousand. is which ECB, the of policies financial operational the and on substantial influence Bank exercises The analysed are companies in domestic investments its and below, listed companies associated as follows:

15. Assetsangible 130 Bulgarian National Bank. Annual Report • 2017 BGN 73,958 thousand). thousand 2017was (31December 2016: BGN 73,839 assetsasof fixed 31 December balance sheet their fairly market reflects value. The fair value of amortized tangible fully fore, it isconsidered that the present book value of land and buildings on the Bank’s and buildings did from not materially differ their book value as at the same date; there and category similar to the assessedones. at 31December2017,the As fair value of land professionalrecognised and qualification experience inassessing of property location land and buildings was determined by independent anexternal, and licensed assessor of book value of tangible assets stated in the fixed Bank’s balance sheet. The fair value of cial Statements and Accounting Policy, asof December2013areview was made of the In applying IAS16Property, Plant and Equipment and BNB’s Internal Rules for Finan- so 1Dcme 0714069,5 827994823212343,745 2,142 341,759 8,233 1,871 9,984 8,374 48,237 91,053 9,829 A 184,096 ment loss Depreciation and impair 48,156 ofAs 31December2017 90,297 Transfers 183,232 Disposals Additions ofAs 1January 2017 1Dcme 07 2,7 789559123152212156,021 2,142 1,522 1,263 5,509 (6,711) 17,809 (8,721) 127,776 (42,728) 2016 31 December (73,244) Net book value asof 2017 31 December (56,320) Net book value asof ofAs 31December2017 hrefrtepro 578 277 388 19 (402) (199) (3,868) (2,737) (5,728) On disposals Charge for the period so aur 0611118,5 702970825272338,675 2,712 8,275 9,780 47,082 89,655 181,171 ofAs 1January 2016 Additions Disposals Transfers so 1Dcme 0613229,9 816989834181341,759 1,871 8,374 9,829 48,156 90,297 183,232 ofAs 31December2016 so aur 06(495 6,8)(919 817 605 (166,011) - (6,085) (8,187) (39,119) (67,685) (44,935) ofAs 1January 2016 ment loss Depreciation and impair- hrefrtepro 567 410 417 41 48 (14,823) - (468) (421) (4,137) (4,140) (5,657) Charge for the period On disposals so 1Dcme 06(052 7,8)(958 855 644 (176,474) - (6,454) (8,575) (39,568) (71,285) (50,592) ofAs 31December2016 1Dcme 0612601,1 ,8 ,5 ,2 ,7 165,285 1,871 1,920 1,254 8,588 19,012 132,640 2016 31 December Net book value asof 1Dcme 0516262,7 ,6 ,9 ,9 ,1 172,664 2,712 2,190 1,593 7,963 21,970 136,236 2015 31 December Net book value asof f1Jnay21 5,9)(125 3,6)(,7)(6,454) (8,575) (39,568) (71,285) (50,592) s of 1January 2017 - Land and build- 3,4 902858124190181165,285 1,871 1,920 1,254 8,588 19,012 132,640 ings ,7 4 ,5 24 (7,256) 45 42 4,757 940 1,472 8 4 54 4 ,9 7,830 6,798 144 40 15 244 589 6 ,1 0 2 ,0 3,708 1,009 - 120 300 1,415 864 52 368 3)(0 33 (4,746) (383) (90) (33) (3,698) (542) - 4 ,8 39 4,360 - 99 33 3,688 540 - 5 8 34(738) 4 93 (145) (58) 487 154 (706) (813) - - 7 0 3145 53 708 778 - equipment Plan t and IT equip- ment equip- Of ment fice fice ment (includ- Oth ing motor v ehicles) er equip- under con- struction Assets Assets (1,722) - (187,724) - 1,684 - (12,934) (176,474) - - (BGN’000) T otal - - - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 131 - - 77 672 (77) 1,864 1,767 (672) 4,237 4,289 4,426 4,237 283 895 703 Total 50,514 50,514 52,301 49,419 Total (1,819) (1,675) 8,791 1,238 (46,277) (47,875) (BGN’000) (BGN’000) (BGN’000) 51,387 18,743 82,040 - (46,277) -- - (45,130) ------406 247 406 247 costs 63 63 1,767 406 406 1,756 costs Development Development 344 856 (2,099) 1,284 8,791 3,880 82,238 49,297 17,786 Development Development 31 December 2017 31 December 2016 - - (1,608) - - assets Other intangible intangible Other - - - 2 assets - 672 Other intangible intangible Other 1,608 (672) 3,8294,038 2 4 49,947 161 49,011 161 (1,817) (2) (46,118) (159) (44,973) (157) Software 95 13 77 (77) 2,099 4,350 13 3,829 49,947 161 52,064 174 (1,673) (2) Software (46,118) (159) (47,714) (161) Commemorative coins for sale for coins Commemorative charges Deferred Investments of subsidiary undertakings in joint ventures and and ventures subsidiary in joint undertakings of Investments associates Inventories receivable Accounts receivables Other Cash held by subsidiaries with banks local subsidiaries by held Cash Net book value as of 31 December as of 2016 value book Net 31 December as of 2015 value book Net As of 31 December 2016 As of Charge for the period the for Charge On disposals As of 31 December 2016 As of loss impairment and Depreciation 2016 1 January As of As of 1 January 2016 1 January As of As of 1 January 2017 1 January As of As of 31 December 2017 As of Depreciation and impairment loss impairment and Depreciation 2017 1 January As of period the for Charge On disposals As of 31 December 2017 As of 31 December as of value book Net 2017 Net book value as of 31 December as of value book Net 2016 Transfers Additions Disposals Additions Disposals Transfers O I Software includes, as of 31 December 2016, licenses purchased by the BNB to the total total the BNB to the by purchased 31 December 2016, licenses as of includes, Software software and (31 December 2015: BGN 1401 BGN 372 thousand), of thousand amount thousand). (31 December 2015: BGN 1320 thousand BGN 1395 of amount the to products Software includes, as of 31 December 2017, licenses purchased by the BNB to the total total the BNB to the by purchased licenses 31 December 2017, as of includes, Software software and (31 December 2016: BGN 372 BGN 486 thousand), of thousand amount thousand). (31 December 2016: BGN 1395 thousand BGN 1170 of amount the to products

17. Assetsther 16. Assetsntangible 132 Bulgarian National Bank. Annual Report • 2017 urrency inCirculation 18. iabilities to Government and Institutions Other Borrowings 20. iabilities to Banksand Other Financial Institutions 19.

established a joint venture for banknote production. François-Charles Oberthur Group which with the Printing Works of the BNBCorp. has monetary contribution inthe form of banknote production equipment to the capital of Investments of undertakings injoint subsidiary ventures and associates include anon- Works of the BNB Corp. and BGN 5234thousand of Bulgarian Mint EAD. Cash held by subsidiaries local banks comprise with BGN 44,063 thousand of the Printing reporting the performance of minimum required the reserves with BNB. guarantee mechanism is included in the reserve assets of the respective participant when operated by BORICA AD. 42,paragraph Pursuant to 3the Article participation inthe for settling participant banks’ payments inthe BORICA card payments system servicing ment Instruments transformed the Reserve Guarantee Fund into aguarantee mechanism the Terms and Procedure for the Execution of Payment Transactions and Use of Pay- ofAs 30September 2016,the of amendments BNBOrdinance No to Article 42 3on reserve assets. of banks’ funds in the TARGET2-BNB national system component as a component of ian National Bankwhich came into force asof 4January 2016.It removed the recognition new Ordinance No 21on the Minimum Required Reserves Maintained the with Bulgar On 26November 2015 the Governing Council of the Bulgarian National Bankadopted a 2016: BGN 6,293,102 thousand). which local banksare required all to maintain on accounts the with BNB(31December Demand deposits include thousand BGN 6,707,578 representing the required reserves, L L C Coins incirculation Banknotes incirculation – inforeign currency – inforeign currency – inBGN Time deposit accounts – inforeign currency – inBGN Current accounts – inBGN Demand deposits from banksand institutions other financial 1Dcme 0731December2016 31 December2017 31December2016 31 December2017 1Dcme 0731December 2016 31 December2017 3824614,670,285 13,892,496 15,703,197 15,333,225 0936711,800,095 10,993,617 5,551,416 ,4,8 10,154,008 8,341,080 3,458,597 5,325,000 2,086,817 369,972 123,203 14,152,921 13,838,892 4,516,277 4,658,026 5,512,000 1,251,609 378,460 314,029 ( ( ( BGN’000) BGN’000) BGN’000) - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 133 3,844 1,392 (BGN’000) 181,876 357,419 170,307 5,688 1,402 4,211 220,366 231,667 31 December 2017 2016 31 December Deferred income Deferred liabilities Other Salaries and social securitySalaries and payable Funds of EU institutions and bodies and EU institutions of Funds inancial Institutions inancial C O Bo F The capital of the Bank is determined by the Law on the BNB and amounts to BGN 20,000 BGN 20,000 to amounts BNB and the on Law the by Bank is determined the of capital The thousand. property, of value in fair change net the comprise reserves revaluation asset Non-monetary assets. non-monetary other and equity investments gains/losses unrealised Bank, National Bulgarian the on Law the Article to of 36 Pursuant or currencies in foreign denominated liabilities assets and of revaluation the arising from reserves. special form and account a special reserve to transferred are gold of excess annual 25 per the of reserves of to transfers cent the include reserves Other the of a decision upon reserves, special to allocation afterthe expenditure over revenue Council. BNB Governing distribution profit with the in accordance distribution 31 December 2017 profit As of 5 (h) is as follows: note in disclosed policy Funds of EU institutions and bodies include European Commission’s funds and European European and funds Commission’s European include bodies and EU institutions of Funds 2000 of 1150 No Regulation Council Article to 9 of Pursuant funds. Bank’s Investment accounts opened Bank the budget, EU the of funding the in participation Bulgaria’s and were accounts these on funds As December 2017 the 31 at Commission. European the of BGN 4211 thousand. The borrowings against Bulgaria’s participation in the IMF as of 31 December 2017 31 December 2017 as of IMF in the participation Bulgaria’s against borrowings The 2016: December 31 of (as thousand 795,933 SDR or thousand, BGN 1,848,546 to amount 795,933 thousand). SDR or BGN 1,985,327 thousand, Bulgaria’s to related Borrowings in SDRs. denominated IMF are the from Borrowings includes Thisnote bearing maturity. with stated no non-interest IMF are in the quota (as thousand BGN 5524 to amounting IMF in levs the 2 of No account 1 and No account 2016: BGN 5495 thousand). 31 December of amount SDRs of special allocation and general the IMF of the from borrowings Bank’s The will on Repayment place take 136,289,102, respectively. SDR and 474,586,534 SDR to - exist the on interest Article Bank receives XX the IMF Statute, Under of IMF’s demand. the at special allocation and general the from borrowings its on a fee pays and SDRs ing rate. interest same The government’s deposits and current accounts with the Bank comprise funds held on on held funds comprise Bank with the accounts current and deposits government’s The 2016 January 4 As of organisations. government other and budget state the behalf of the of Conditions and Terms General with the in line rates interest Bank shallthe apply budget servicing accounts, and bank cash deposits accepting on Bank National Bulgarian Council BNB Governing the of decision a by adopted customers other and organisations 2015. 26 November of

23. Reserves and apital 22. Liabilities ther 21. International in Participation rrowings against Bulgaria’s 134 Bulgarian National Bank. Annual Report • 2017 nternational Monetary Fund Monetary nternational Governmentulgarian Transactions Party elated 26. Liabilities andonetary Gross International Reserves 25. on-controlling Interest 24.

company’s capital. cent of the company’s capital and the government holds the remaining 4.4 per cent of the the BNBand the State represented of by Finance. the Ministry The BNBholds 95.6 per The Printing Works of the BNBCorp. isajoint-stock company two with shareholders: by the Bank and the government (ref. note 21). The Republic of Bulgaria’s quota in the IMFissecured by promissory notes jointly signed agreements. ofAs 31December 2017, the Republic of Bulgaria has not received funds under IMF ofeuro fixing the London Bullion Market closing price. Monetary gold and other instruments in gold are revalued on basis based aon daily the liabilities. Interest receivable and interest payable to the are relevant carried assetsand financial I R M N B Result after allocation to special reserve including: to reserve Result special allocation after Monetary gold and other instruments ingold Cash and foreign currency denominated deposits Gross international reserves upu fgositrainlrsre vrmntr iblte 5,685,562 Surplus of international gross reserves over monetary liabilities Other liabilities Liabilities to government institutions Liabilities to banksand institutions other financial Currency incirculation Monetary liabilities investmentsEquity and quota inthe IMF investmentsSecurity Allocation to specialreserve under 36ofAllocation Article the Law on the BNB: forProfit/(loss) the period Planned contribution to the state budget contribution thestate to Planned Allocation (from)/to special-purpose fund under Article 8 of theLBNB 8of Article (from)/to under Allocation special-purposefund Result non-controlling from and consolidation interest Allocation (from)/to Reserve Fund under Article 8 of theLBNB (from)/to 8of Allocation Fund Reserve Article under Other unrealised (gain) Unrealised loss/(gain) from foreign currency valuation value through profit or loss Unrealised loss/(gain) from revaluation of assetsat fair financial Unrealised loss/(gain) from gold revaluation 1Dcme 0731December2016 31 December2017 0984714,783,663 20,948,427 3818814,444,466 14,152,921 46,741,509 13,891,858 15,703,197 28,928,706 46,279,083 22,353,795 0535140,793,608 40,593,521 2,748,964 ,9,5 10,699,824 1,600,916 9,397,550 227,897 (215,454) (86,450) (81,174) 526 (18,927) (5,276) 2017 182(78,904) 81,872 136(310,348) 41,356 (226) 6,002 - - 2,784,380 5,947,901 1,496,397 384,924 244,760 (4,704) (BGN’000) (BGN’000) 2016 10,667 (290) 3,556 (86) - BNB Consolidated Financial Statements for the Year Ended 31 December 2017 135 - (per cent) (per 100 95.6 100 95 6 31 December 2017 2016 31 December ta and borrowings tal commitments er commitments and liabilities Bulgarian Mint EAD Mint Bulgarian 24) note (ref. BNB Corp. the of Works Printing Ownership interest Subsidiaries C (v) Oth (iv) Oth (ii) IMF quo (iii) Capi (i) P F Go Legal proceedings have been instituted against BNB as regards claims for delayed payment payment delayed claims for been instituted BNB as regards against have Legal proceedings made bank transfers challenge to or amount deposit insured the exceeding deposits of amount a total to Bank AD (in bankruptcy) Commercial Corporate of customers the by similar case-law on settled is no there in Bulgaria BGN 54 Currently, million. around of rules procedural the and law applicable the as to points open of a number including issues have them of because most an early stage at are Court proceedings examination. their for courts and Bulgarian from issued those ruling on preliminary the pending been stayed ment of the Republic of Bulgaria amounting to BGN 1,952,683 thousand. to amounting Bulgaria of Republic the of ment purchase to BGN 2222 to thousand Bank has committed 31 December 2017 the As of 2016: BGN 320 thousand). assets (31 December non-current purchase to commitments or credit of letters guarantees, outstanding other no are There currency. foreign or metals precious other gold, sell either or The IMF quota is secured by promissory notes jointly signed by the Bank and the Govern the and Bank the by signed jointly notes promissory by secured is quota IMF The The Bank holds 8000 shares of the capital of BIS, Basel, each amounting to SDR 5000. 5000. SDR to amounting each Basel, BIS, of capital the of 8000 shares Bank holds The capital sub- The up. is paid Basel in BIS, equity the investment of per cent Twenty-five a following in within months three be paid to in is withoption an paid not scribed but December 2017 31 as of amount contingent The Governors. of BIS Board the of decision BGN 74,830 thousand). (31 December 2016: is BGN 69,675 thousand The net income from subsidiaries for the period comprises net profit of BGN 480 thousand thousand BGN 480 of profit net period comprises the for subsidiaries from income net The BGN 1807 and 2016: BGN 857 EAD (31 December Mint thousand) Bulgarian the from (31 December 2016: BGN 4019 BNB Corp. the of Works Printing the from thousand thousand). In accordance with the Law on the BNB and under the terms agreed upon with the Minis- with the terms agreedupon the under BNB and the on Law with the In accordance debts. government-guaranteed or in government BNB acts agent an as the Finance, of ter services depository central related and agent BNB performs the role, this to regard With Ministry the by securities issued government of management and administration the to services. these government These providing for commission Bank receives The Finance. of consolidated its in recognised not are and BNB the of liabilities or assets not securitiesare to risk relating credit any exposed to Bank is not The financial position. of statement par 2017, the 31 December As of them. guarantee not does securities as it government (31 December BGN 6725 million was custody in securities held government the of value million). 2016: BGN 6725 Government budget organisations have current accounts and time deposits with the Bank Bank with deposits the time and accounts current have organisations budget Government 20). note (ref.

liabilities er contingent

articipation International Settlements inthe Bankfor 28. Contingencies and ommitments 27. iduciary activities vernment accounts bank 136 Bulgarian National Bank. Annual Report • 2017 vents Occurred after thevents Date after Reporting Occurred 29.

ments to the Bank’s Financial Statements. There are no events after the reporting date that require additional disclosure or adjust- should bemade. of the legal proceedings and consequently no provisions for these contingent liabilities Bank’sboth cases management considers that it is not possible to assess the likely outcome the of Court the European Union. Therefore, and basedon the available information on E Resolutions Adopted by the BNB Governing Council in 2017 137 - was approved on first on reading. approved was * lished in Darjaven Vestnik, issue 11 of 2 February 2018). 11 of issue Vestnik, in Darjaven lished The Ordinance was adopted by Resolution No 8 of 10 January 2018 of the BNB Governing Council (pub Council BNB Governing the 2018 of 10 January 8 of No Resolution by adopted was Ordinance The

* RESOLUTION No 32 of 9 March 32 of No RESOLUTION Management Reserve International the of note took Council BNB Governing The in 2016. Report Gross International Reserves International Gross 26 January 5 of No RESOLUTION asset strategic for benchmark selected the of note took Council BNB Governing The first the in 2017. quarterallocation of The BNB Report for January–June 2017 was approved. was 2017 January–June for BNB Report The 30 November 173 of No RESOLUTION approved. was 2018 for BNB Budget The RESOLUTION No 148 of 31 October 148 of No RESOLUTION first on reading. approved was 2018 for BNB Budget The 30 November 169 of No RESOLUTION RESOLUTION No 144 of 5 October 144 of No RESOLUTION the of Sheets Balance Separate of Contents and Format the 1 on No Draft Ordinance - Posi Financial of Statement Consolidated the of and Departments Banking and Issue Bank National Bulgarian the of tion RESOLUTION No 54 of 13 April 54 of No RESOLUTION approved. 2016 was for BNB Annual Report The 26 September 134 of No RESOLUTION approved. 2017 was June 30 as of Implementation BNB Budget on Report The The BNB Annual Report for 2016 was approved on first on reading. approved 2016 was for BNB Annual Report The 30 March 47 of No RESOLUTION approved. was December 2016 31 as of Implementation Budget BNB on Report The Reporting and Budget Reporting and 30 March 46 of No RESOLUTION Information under Article LBNB Concerning the under 17, Paragraph 5 of Information in 2017 Council Governing BNB the by Adopted Resolutions Bulgarian National Bank. Annual Report • 2017 138 RESOLUTION No 138of 26September allocation in the third of quarter 2017. The BNB Governing Council took note of the selected benchmark for dynamic asset RESOLUTION No 97of 13July ment Report for of quarter 2017. the first The BNBGoverning Council took note of the BNBInternational Reserve Manage- RESOLUTION No 76of 30May allocation in the second of quarter 2017. The BNBGoverning Council took note of the selected benchmark for strategic asset RESOLUTION No 60of 13April was adopted. cedure for the Execution of Payment Transactions and Use of Payment Instruments Ordinance on Amendment of Ordinance No 3of 16July 2009 on the Terms and Pro - RESOLUTION No 48of 30March lawA draft on and payment payment services systems was approved reading. on first RESOLUTION No 36of 16March of the Council. the National Council on Payment Systems was repealed and to the notified members Resolution No 25of the BNBGoverning Council of 17March 2005on establishing RESOLUTION No 20of and Paymentstructure Oversight in2016. The BNBGoverning Council took note Report of on the Payment BNBActivity Infra- RESOLUTION No 19of 9February Committee. The BNBGoverning Council took note of the Report 2016Annual of the Conciliation RESOLUTION No 15of 9February Payment Systems and Payment Oversight ment Report inthe third of quarter 2017. The BNBGoverning Council took note of the BNBInternational Reserve Manage- RESOLUTION No 175of 30November allocation in the of fourth quarter 2017. The BNB Governing Council took note of the selected benchmark for dynamic asset RESOLUTION No 157of 31October ment Report inthe second of quarter 2017. The BNBGoverning Council took note of the BNBInternational Reserve Manage-

9

February Resolutions Adopted by the BNB Governing Council in 2017 139 - The BNB Governing Council took note of the revocation of the license of Small World Small World of license the of revocation the of note took Council Governing BNB The EOOD Bulgaria Transfer Money Choice (formerly Services EOOD Financial Bulgaria transactions. remittance money for EOOD) Bulgaria Envios Master and RESOLUTION No 156 of 31 October 156 of No RESOLUTION RESOLUTION No 136 of 26 September 136 of No RESOLUTION BNB the oversight, payment in performing that suggests Council Governing The criteria the on on first the Guidelines 2018 half of of end the until starts implementing insur indemnity professional the of amount monetary minimum the stipulate to how RESOLUTION No 96 of 13 July 96 of No RESOLUTION activities conducting for Prima EOOD to Latius licence a issue to refused BNB The institution. as a payment 29 August 124 of No RESOLUTION – Centre Change of revocation license the of note took Council BNB Governing The EOOD. Bulgaria (EU) 2015/2366 Directive Article 5(4) of under guarantee comparable other or ance Authority. Banking European the by issued 2017) 12 September of (ЕBA/GL/2017/08 A draft law on payment services and payment systems was approved together with with together approved was systems services payment payment and on A draft law Legal Acts. on Law the under documents supporting for Finance of Minister the to be sent to had documents supporting and draftThe law Ministers. of Council the to submission - Pay of Licensing on 2009 16 July 16 of No Ordinance of Amendment on Ordinance was Operators System Payment and Institutions Money Electronic Institutions, ment adopted. 20 June 90 of No RESOLUTION RESOLUTION No 67 of 10 May 10 May 67 of No RESOLUTION activities as a conducting for OOD Best Pay to a license issue to refused BNB The institution. payment 8 June 84 of No RESOLUTION RESOLUTION No 56 of 13 April 56 of No RESOLUTION an electronic issuing on procedure the terminated Council BNB Governing The EAD). Credit Cash Services Fintex EAD (formerly to license money RESOLUTION No 55 of 13 April 55 of No RESOLUTION for OOD Bulgaria Smart Pay to a license issue to refused Council BNB Governing The activities institution. payment as a conducting Bulgarian National Bank. Annual Report • 2017 140 (EBA/GL/2017/09 of 8November 2017)issued by the European Banking Authority. account information providers service under 5(5)of Article Directive 2015/2366 sation of payment institutions and e-money institutions and for the registration of of half 2018Guidelinesthe first on the information to beprovided for the authori- The Governing Council implementing suggests that the BNBstarts until the end of RESOLUTION No 183of 14December institution. The BNBGoverning Council issued alicense to BORICA ADto operate asapayment RESOLUTION No 181of 14December adopted. ment Institutions, Electronic Money Institutions and Payment System Operators. was Ordinance on Amendment of Ordinance No 16of 16July 2009 on Licensing of Pay- RESOLUTION No 159of 31October end of the previous and quarter over aone-year period. culation and analysesof the trends observed during the relevant period vis-à-vis the incorporatingOperations Review The BNBGoverning Council launched aperiodical publication Cash and BNBIssue RESOLUTION No 61of 13April issue 2017,and determined its specifications. memorative Monastery’ coin ‘ of the Bulgarian Churches and Monasteries series, The BNBGoverning Council chose the design of Stefan Ivanov for the silver com- RESOLUTION No 34of 9March commemorative coin ‘Annunciation’ anominal with value of BGN 100. The BNBGoverning Council decided to put into circulation on 20March 2017agold RESOLUTION No 25of 9February The list of selling prices of Bulgarian banknotes, issues approved. 1950–2006, was The list of selling prices of Bulgarian coins, issues approved. 1951–2016, was RESOLUTION No 4of 26January BNB Strategic Stock of Banknotes for 2016. The BNBGoverning Council took note of the availability and developments inthe RESOLUTION No 3of 26January Currency inCirculation 2017) issued by the European Banking Authority. ments of the Second Payment Directive (EBA/GL/2017/13 ofServices 5December of half 2018Guidelinesthe first on procedures for complaints of alleged infringe- The Governing Council implementing suggests that the BNBstarts until the end of RESOLUTION No 184of 14December quarterly data on data quarterly developments incurrency incir - Resolutions Adopted by the BNB Governing Council in 2017 141 - RESOLUTION No 145 of 23 October 145 of No RESOLUTION - com silver a partially gold-plated circulation into BNB put the 2018 2 January As of value 2018’ with a nominal EU Council the of Presidency ‘Bulgarian coin memorative BGN 10. of RESOLUTION No 131 of 12 September 131 of No RESOLUTION coin commemorative a silver circulation into BNB put 2017 the 27 November As of with a Byala’ near Bridge Ficheto Kolyo the of Construction the since Years ‘150 BGN 10. of value nominal The BNB Governing Council chose the design of Mint EAD for the partially the EAD for gold- Mint of design the chose Council BNB Governing The Presidency the Bulgarian to dedicated 2018, issue , coin commemorative silver plated specifications. also coin determined the Council It EU 2018. in of BGN 2 circulating the for EAD Mint of chose design the Council BNB Governing The the Council. EU of Presidency the Bulgarian of the occasion on 2018 in issued coin specifications. also coin determined It RESOLUTION No 119 of 26 July 119 of No RESOLUTION coin commemorative a silver circulation into BNB put 2017 the 25 September As of with series a nominal Monasteries and Churches Bulgarian the of ‘Rila Monastery’ BGN 10. of value 29 August 125 of No RESOLUTION RESOLUTION No 99 of 13 July 99 of No RESOLUTION - Pro Banknote and Coin Commemorative the adopted Council BNB Governing The 2018. for Programme duction Coin Preliminary Commemorative the of note took Council Governing BNB The annual preparing basis for a 2019–2020 as for Programme Production Banknote and programmes. RESOLUTION No 89 of 20 June 89 of No RESOLUTION - improve or new of incorporation approved BNB the security, banknote enhance To of with removal along banknotes Bulgarian security in existing of ments features them. of some approved. were banknotes Bulgarian of series a new Designs of nal value of BGN 10. of nal value 30 May 77 of No RESOLUTION ‘140 coin commemorative copper a circulation into put BNB the 2017 July 3 Asof Artists Bulgarian value the withseries of nominal a Pelin’ Elin Birthof the since Years 2 BGN. of RESOLUTION No 70 of 10 May 10 May 70 of No RESOLUTION - com silver a partially gold-plated circulation into BNB put 2017 the 26 June As of with series a nomi Rulers Bulgarian Medieval the of ‘Khan Tervel’ coin memorative Bulgarian National Bank. Annual Report • 2017 142 design by Elena Todorova and Todor Todorov. It alsodetermined coin specifications. the silver commemorative coin ‘140Years since Bulgaria's Liberation’ and chose the The BNB Governing Council ranking in the setthe anonymous final competition for RESOLUTION No 166of 16November (excludingBGN 2.72 VAT) or (inclusive BGN 3.26 of VAT). the setcontaining coin, acirculating issue 2018,acapsule and BGN 2 a brochure at Under 25,paragraph 6of Article the Law on the BNB, the the price BNBfixed of RESOLUTION No 165of 16November value of BGN 2. The BNB put into circulation on 2 January 2018 a circulating coin a nominal with RESOLUTION No 146of 23October System of (fourth quarter 2016). The BNBGoverning Council took note of the Report on the State of the Banking RESOLUTION No 49of 30March Republic of Bulgaria was cent setat 0 per for the second of quarter 2017. The countercyclical buffer capital rate applicable to credit exposures inthe risk RESOLUTION No 39of 16March The BNBapproved Process the Manual. BankSupervisory RESOLUTION No 17of 9February ation Commission on for Financial Services 2016. The BNBGoverning Council took note of the Report Annual of the Sectoral Concili- RESOLUTION No 16of 9February Depositor Interests Maintaining Banking System and Protecting Stability determined coin specifications. ian Rulers series and chose the design by Elena Todorova and Todor Todorov. It also the gold-plated silver commemorative coin ‘Tsar Ivan II’ of Asen the Medieval Bulgar The BNB Governing Council ranking in the setthe anonymous final competition for RESOLUTION No 177of 30November series and chose the design by Plamen Chernev. It also determined coin specifications. the gold commemorative coin of Stefan ‘St. the Protomartyr’ Bulgarian Iconography The BNB Governing Council ranking in the setthe anonymous final competition for RESOLUTION No 176of 30November Plamen Chernev. It alsodetermined coin specifications. for the silver commemorative coin ‘The Old ElminSliven’ and chose the design by The BNBGoverning Council ranking inthe setthe anonymous final competition RESOLUTION No 167of 16November - Resolutions Adopted by the BNB Governing Council in 2017 143 - RESOLUTION No 140 of 26 September 140 of No RESOLUTION Banking the of State the on Report the of note took Council BNB Governing The 2017). Quarter of (Second System RESOLUTION No 139 of 26 September 139 of No RESOLUTION risk in the exposures credit to applicable rate capital buffer countercyclical The 2017. quarter fourth of the for 0 per set at cent was Bulgaria of Republic RESOLUTION No 109 of 20 July 109 of No RESOLUTION quarterly. Banks in Bulgaria of issuance approved Council BNB Governing The 20 July 110 of No RESOLUTION Supervi- about Information on Report the of note took Council BNB Governing The 2017. Quarter First of the sory Activities for RESOLUTION No 108 of 20 July 108 of No RESOLUTION - param organisation, on information the of note took Council BNB Governing The Credit on Law the Article of 80b under simulation stress-test of limits time and eters in 2017. Institutions missions Granted by the Bulgarian National Bank according to the Law on Credit Credit on Law the to Bank according National Bulgarian the by Granted missions adopted. was Institutions 20 July 105 of No RESOLUTION adopted. was Buffers Banks’ Capital 8 on No Ordinance of Amendment on Ordinance - enforce the of first the assessment impact of note took Council BNB Governing The Instruments. IFRS 9 Financial of ment 20 July 104 of No RESOLUTION Per and Approvals Licenses, the 2 on No Ordinance of Amendment on Ordinance RESOLUTION No 92 of 20 June 92 of No RESOLUTION Banking the of State the on Report the of note took Council BNB Governing The 2017). Quarter (First of System 20 June 93 of No RESOLUTION RESOLUTION No 91 of 20 June 91 of No RESOLUTION risk in the exposures credit to applicable rate capital buffer countercyclical The 2017. quarter of third the for 0 per set at cent was Bulgaria of Republic RESOLUTION No 73 of 10 May May 10 73 of No RESOLUTION the Statutory Auditors, on Oversight Public for with Commission the In consultation to bank auditors of selection coordinating for criteria procedures and BNB adopted Audit. Financial Independent the on Law the under financial audits joint perform RESOLUTION No 50 of 30 March 30 March 50 of No RESOLUTION Supervisory on Activities Information the of note took Council Governing BNB The 2016. Quarter Fourth of the for Bulgarian National Bank. Annual Report • 2017 144 Authority and competent and designated authorities of relevant Member States. European Commission, the European Systemic Board, Risk the European Banking tions on anindividual and consolidated basiswhich are to becommunicated to the The BNB Governing Council set buffer rates for- importantother systemically institu Banking Authority. ing The BNBGoverning Council setother important systematically institutions accord- RESOLUTION No 149of 31October (Second of Activities sory Quarter 2017). The BNBGoverning Council took note of the Report on Information about- Supervi RESOLUTION No 141of 26September (April–June 2017). The BNBGoverning Council took note of the publication of BanksinBulgaria September 2017). The BNBGoverning Council took note of the publication of Banks inBulgaria (July– System of (Third Quarter 2017). The BNBGoverning Council took note of the Report on the State of the Banking RESOLUTION No 187of 14December Republic of Bulgaria was cent setat 0 per for of quarter 2018. the first The countercyclical buffer capital rate applicable to credit exposures inthe risk RESOLUTION No 186of 14December enforcement of Financial IFRS 9 Instruments. The BNBGoverning Council took note of the second impact assessment of the RESOLUTION No 185of 14December 80bofArticle the Law on Credit Institutions. The BNB Governing Council took note of the Report on Stress-Test Simulation under RESOLUTION No 174of 30November of quarter 2018 the first The Governing Council implementing suggests that the BNBstarts until the end of RESOLUTION No 163of 16November in Bulgaria. The systemic buffer rate risk was set at 3 per cent of exposures incurred risk by banks RESOLUTION No 150of 31October pean Bankingpean Authority. accounting and tices for credit expected (EBA/GL/2017/06) losses issued by the Euro-

to their overall rating pan-European inline with guidelines of the European Guidelines oncredit institutions’ credit prac riskmanagement - Resolutions Adopted by the BNB Governing Council in 2017 145 as proposed as proposed the Single Resolution Mechanism. Resolution Single the

by uidelines concerning the interrelationship between the sequence of between the of sequence the interrelationship concerning uidelines uidelines on the rate of conversion of debt to equity to in bail-in; debt of conversion of rate the on uidelines conversion write-down or or in bail-in shareholders of treatment on uidelines G G instruments; capital of G write-down and conversion under Directive 2014/59/EU and the Capital the Capital and 2014/59/EU Directive under conversion and write-down Directive. Requirements Regulation/Capital Requirements

– – – RESOLUTION No 115 of 26 July 115 of No RESOLUTION - require the fulfilment of prove which documents and information the on Ordinance approved. was bank a of special administrators or temporary to ments RESOLUTION No 106 of 20 July 106 of No RESOLUTION the fulfilment of prove which documents and information the on Draft ordinance first on adopted a bank was of special administrators or temporary to requirements reading. The BNB Governing Council approved the resolution plan of Raiffeisen Group along along Raiffeisen Group of plan resolution the approved Council BNB Governing The proposed changes with the 13 July 98 of No RESOLUTION guidelines following the practice resolution in its BNB shallThe apply observe and official website: Authority’s Banking European on published and issued RESOLUTION No 58 of 13 April 58 of No RESOLUTION of a branch and banks of contributions annual individual of amount BNB set the The 2017. for Fund Bank Resolution the country bank to a third 13 April 59 of No RESOLUTION The Governing Council of the BNB set the annual banking system contribution to the the to contribution system banking annual BNB set the the of Council Governing The BGN 111,274,208. 2017 at for Fund Bank Resolution 13 April 57 of No RESOLUTION country banks and third by contributions annual individual setting A methodology adopted. was Fund Resolution Bank the to branches RESOLUTION No 11 of 26 January 26 January 11 of No RESOLUTION Group OTP of plan resolution the approved Council Governing BNB The 16 March 40 of No RESOLUTION RESOLUTION No 10 of 26 January 26 January 10 of No RESOLUTION Société UniCredit, of plans resolution the approved Council BNB Governing The the by proposed as Piraeus and Ergasias Raiffeisen, Eurobank NBG, KBC, Générale, authority. resolution level as a group Mechanism Resolution Single authority. resolution level Magyar as a group Bank the Nemzeti by BNB Activities on Resolution of Credit Institutions Credit of BNB Activities Resolution on Bulgarian National Bank. Annual Report • 2017 146 Department. tions under aprocedure determined by the Governor Deputy heading the Banking interbankdaily market various transactions with currencies maturities, and condi Banks and branches of banksinBulgaria continue shall reporting to the BNBtheir The BNBadopted amendments to the Methodology for Setting the BaseInterest Rate. tion of the LEONIA reference rate. Market, from effective 1July 2017,and discontinued, asfrom that date, the calcula- of Concluded Overnight Deposit Transactions in Bulgarian levs on the Interbank The BNBadopted aMethodology for Calculation of the LEONIA Plus Reference Rate RESOLUTION No 37of 16March SOFIBID and SOFIBOR reference rates. The BNBdiscontinued, asfrom 1July related 2018,the activities to calculation of the RESOLUTION No 18of 9February Statistics colleges and preparation of group resolution plans for 2017. The BNBGoverning Council took note of the information summarised on resolution RESOLUTION No 164of 16November on Processing Government Transactions. Securities The BNB Governing Council adopted the Tariff of Fees and Commissions Charged RESOLUTION No 8of 26January The Agent Fiscal Function and Depository State of BankAccounts and Safe Deposit Boxes was adopted. Ordinance on Amendment of Ordinance No 12 of 29 September 2016 on the Register RESOLUTION No 85of 8June Register was adopted. Ordinance on Amendment of Ordinance No 22of 16July 2009on the Credit Central RESOLUTION No 27of 22February of BankAccounts and Safe Deposit Boxes was adopted. Ordinance on Amendment of Ordinance No 12 of 29 September 2016 on the Register RESOLUTION No 9of 26January and Boxes Safe Deposit and of theThe Credit Register Register Central BankAccounts legislation into line Regulation with (EU) 2016/1011 on indices usedasbenchmarks. The BNBGoverning Council approved legal draft provisions to bring the Bulgarian RESOLUTION No 123of 29August - Resolutions Adopted by the BNB Governing Council in 2017 147 tar Stanchev in St. Kliment Ohridski University of Sofia, Law. of University St. in Ohridski Kliment tar Stanchev ndrian Yambolov in Rheinische Friedrich-Wilhelms-Universitat Bonn, Bonn, Friedrich-Wilhelms-Universitat Rheinische in ndrian Yambolov A Economics; Dimi

– – RESOLUTION No 79 of 30 May 79 of No RESOLUTION Bulletin in Monthly the of further issue discontinued Council BNB Governing The English. and Bulgarian RESOLUTION No 78 of 30 May 78 of No RESOLUTION Commission 2016 Activity the the of Report approved Council BNB Governing The Holders. with BNB Scholarship Work and of Selection on with BNB Scholarship Work and of Selection for Rules Internal the to Amendments adopted. were Holders RESOLUTION No 71 of 10 May 10 May 71 of No RESOLUTION in major developments of assessments the of note took Council BNB Governing The be published 2017 to quarters of third and second in the indicators macroeconomic 2017). 1 of quarterly (issue Review Economic in the The BNB Governing Council took note of the Report on Implementation of the the of Implementation on Report the of note took Council BNB Governing The Plan (2015–2016). Research 16 March 43 of No RESOLUTION 2017–2018. Plan for Research the of note took Council BNB Governing The RESOLUTION No 42 of 16 March 42 of No RESOLUTION RESOLUTION No 23 of 9 February 23 of No RESOLUTION 2017. in scholarships degree doctor's no BNB awarded The to: scholarships degree master's two BNB awarded The RESOLUTION No 22 of 9 February 22 of No RESOLUTION in major developments of assessments the of note took Council BNB Governing The with BNB 2017 along quarters of first in the second and indicators macroeconomic in the published be 2016–2018 to for indicators macroeconomic major of forecasts 2016). 4 of quarterly (issue Review Economic Research RESOLUTION No 44 of 21 March 44 of No RESOLUTION Terms the BNB on the MF and the of No 5 Ordinance of Amendment on Ordinance in Government Trade and Redemption Registration, Acquisition, for Procedure and on BNB and MF the of 15 No Ordinance of Amendment on Ordinance Securitiesand adopted. Securities were Government in Transactions over Control the Bulgarian National Bank. Annual Report • 2017 148 activities (28). activities RESOLUTION No 158of 31October The BNBReport for January–June 2017 was approved reading. on first RESOLUTION No 147of 31October Review of (issue 2 quarterly 2017). of major macroeconomic indicators for be published 2017–2019 to in the Economic macroeconomic indicators inthe third and of fourth quarters 2017and BNBforecasts The BNBGoverning Council took note of the assessments of developments inmajor RESOLUTION No 111of 20July Market bulletin inBulgarian quarterly and English. The BNBGoverning Council discontinued issue further of the Government Securities ** tion (11), public procurements and contracts representation injoint meetings of companies inwhich the BNBholds- participa In 2017 the BNBGoverning Council adopted resolutions on internal (16), bankrules period until 2020. of2018 and the on the updated BNBInternal the Audit strategy activity unit for the The BNBGoverning Council adopted the Planof Annual the BNBInternal Audit for RESOLUTION No 168of 16November The BNBGoverning Council approved the Chief Auditor Report for 2016. RESOLUTION No 87of 8June Amendments to the Plan of Annual the BNBInternal Audit for 2017were approved. RESOLUTION No 66of 13April ciency of the Internal Regulatory Framework of Review. BankSupervision: Overall The BNBGoverning Council took note of the Audit Report on- Adequacy and Effi RESOLUTION No 13of 26January AuditBNB Internal be published inthe Economic Review of (issue 3 quarterly 2017). macroeconomic indicators in the of of fourth quarter 2018 to quarter 2017and first The BNBGoverning Council took note of the assessments of developments inmajor

Procurement: http://www.bnb.bg/AboutUs/index.htm Detailed information on procurement procedures isavailable on the BNBwebsite, About BNB, Public ** (26) and organisation of bank specific ISSN 2367–492X Elements of the 2 lev banknote, issues 1999 and 2005, are used in cover design.