Bulgarian National Bank ANNUAL REPORT • 2012 Published by the Bulgarian National Bank 1, Knyaz Alexander I Square, 1000 Sofia Tel.: (+359 2) 9145 1351, 9145 1209, 9145 1231 Fax: (+359 2) 980 2425, 980 6493 Printed in the BNB Printing Centre Website: www.bnb.bg © Bulgarian National Bank, 2013 The BNB Annual Report for 2012 employs data published prior to 1 April 2013. Materials and information in the BNB 2012 Annual Report may be quoted or reproduced without further permission. Due acknowledgment is requested. The cover shows an engraving of the BNB building from the 1938 banknote with a nominal value of 5000 levs. ISSN 1313-1494 Honourable Chairman of the National Assembly, Honourable People’s Representatives, Under the provisions of Article 1, paragraph 2 and Article 51 of the Law on the Bulgarian National Bank, I have the honour of presenting the Bank’s 2012 Annual Report. Ivan Iskrov Governor of the Bulgarian National Bank BNB Governing Council Governing BNB Sitting from left to right: Penka Kratunova, Ivan Iskrov, Boryana Pencheva. Standing from left to right: Kalin Hristov, Statty Stattev, Rumen Simeonov, Dimitar Kostov. Governing Council Ivan Iskrov Governor Dimitar Kostov Deputy Governor Banking Department Rumen Simeonov Deputy Governor Banking Supervision Department Kalin Hristov Deputy Governor Issue Department Penka Kratunova Boryana Pencheva* Statty Stattev * As of 2 December 2012 Boryana Pencheva is a member of the BNB Governing Council. Until 1 December 2012 Oleg Nedyalkov was a member of the BNB Governing Council. Organisational Structure of the BNB GOVERNING COUNCIL General Auditor GOVERNOR Ivan Iskrov DEPUTY GOVERNOR DEPUTY GOVERNOR DEPUTY GOVERNOR STRUCTURAL UNITS Kalin Hristov Dimitar Kostov Rumen Simeonov SECRETARY GENERAL SUBORDINATED TO Issue Department Banking Fiscal Services Petko Krastev THE GOVERNOR Banking Supervision Department Department Department Legal Services Financial Stability Bank Policy Public Procurement Treasury and Administration Directorate Directorate Directorate Directorate Directorate Risk Analysis Legal Statistics Supervisory Policy Information Systems and Control Directorate Directorate Directorate Directorate Directorate International Issue and Cash General Accounting Special Supervision Administrative Relations Directorate Directorate Directorate Directorate Directorate Government and Macro-prudential Capital Investment, Human Resource Issuing Policy Government Analysis Maintenance and Management and Control Guaranteed Debts and Strategy Transport Directorate Directorate Depository Directorate Directorate Directorate Projections and Economic Research Credit Institutions Public Relations Management of State and Forecasting Supervision Directorate Budget Cash Flows Directorate Directorate Directorate Banking Security and Protection of Classi- fied Information Directorate 7 Bulgarian National Bank. Annual Report • 2012 • Report Annual Bank. National Bulgarian Contents Summary___________________________________________________________9 I. Economic_Development_in_2012_____________________________________ 13 _ 1.__ The_External_Environment________________________________________ _ 13 _ 2._ The_Bulgarian_Economy__________________________________________ _ 16 II. Gross_International_Reserves_______________________________________ 27 _ 1._ Gross_International_Reserve_Amount_and_Structure_____________________ _ 27 _ 2._ Gross_International_Reserve_Risk_and_Yield____________________________ _ 29 III. Payment_Systems________________________________________________ 35 _ 1._ Payment_Systems_and_Securities_Settlement_Systems__________________ _ 36 _ 2._ Payment_System_Oversight__ _____________________________________ _ 38 IV. Bank_Reserves_at_the_BNB_________________________________________ 40 V. Cash_in_Circulation_______________________________________________ 42 VI. Maintaining_Banking_System_Stability_and_Protecting_Depositor_Interests__ ___ 46 _ 1._ State_of_the_Banking_System__ ____________________________________ _ 46 _ 2._ Assessment_of_the_Performance_of_Financial_Institutions_Registered__ under_Article_3,_Paragraph_2_of_the_Law_on_Credit_Institutions_____________ _ 52 _ 3._ Banking_Supervision____________________________________________ _ 54 VII._ The_Central_Credit_Register________________________________________ 58 VIII._ The_Fiscal_Agent_and_State_Depository_Function________________________ 60 IX._ Participation_in_the_ESCB_and_in_EU_Institutions’_Activities_ ______________ 65 X._ International_Issues__ ____________________________________________ 70 XI._ Statistics_______________________________________________________ 72 XII._ Research_______________________________________________________ 74 XIII._ Information_Systems______________________________________________ 75 XIV._ Human_Resource_Management_____________________________________ 76 XV._ Facilities_Management____________________________________________ 78 XVI._ BNB_Internal_Audit__ _____________________________________________ 79 XVII._ BNB_Budget_Implementation__ _____________________________________ 81 _ 1._ Operating_Expenditure_ _________________________________________ _ 81 _ 2._ Investment_Programme__________________________________________ _ 82 XVIII._Bulgarian_National_Bank_Consolidated_Financial_Statements__ _ for_the_Year_Ended_31_December_2012__ _____________________________ 85 Major_Resolutions_of_the_BNB_Governing_Council_in_2012_____________________119 Appendix_(CD)_ 8 Abbreviations BIS Bank for International Settlements, Basle, Switzerland BISERA System for servicing customer payments initiated for execution at a designated time BNB Bulgarian National Bank BORICA Banking Organisation for Payments Initiated by Cards CM Council of Ministers EBRD European Bank for Reconstruction and Development EC European Commission ECB European Central Bank ECOFIN Economic and Financial Affairs Council EMU Economic and Monetary Union ESCB European System of Central Banks EU European Union Bulgarian National Bank. Annual Report • 2012 • Report Annual Bank. National Bulgarian FOB Free on Board FSC Financial Supervision Commission GDP Gross Domestic Product HICP Harmonized Index of Consumer Prices IMF International Monetary Fund MF Ministry of Finance NSI National Statistical Institute OECD Organisation for Economic Cooperation and Development RINGS Real-time Interbank Gross Settlement System SDR Special Drawing Rights VAT Value Added Tax ZUNK Bulgarian abbreviation of the Law on Settlement of Non-performing Credits Negotiated prior to 31 December 1990 (LSNC) 9 Summary Summary The euro area financial crisis deepened further, impacting European and world growth. Real GDP growth in the euro area dropped 0.6 per cent on 2011. Contin- uing uncertainty in early 2012 over Greek debt and political developments, Spanish banking vulnerability, Cypriot financial problems, poor credit conditions and dete - riorating economic prospects and the uncertainty around the fiscal positions and the sovereign debt of some euro area countries contributed most to the declining economic activity. Nine euro area member states reported real GDP falls, including Italy and Spain, down 2.4 and 1.4 per cent. Real GDP growth in Germany moderated to 0.7 from 3 per cent in 2011 and in France hovered around zero from 1.7 per cent growth in 2011. Estonia and Slovakia led euro area countries in GDP growth at 3.2 and 2 per cent. The US economy continued recovering, real GDP growth rising to 2.2 from 1.8 per cent in 2011. Chinese economic growth moderated further to 7.8 from 9.5 per cent in 2011. The year saw significant price fluctuations on international financial markets as global interest rates dropped. Demand for low risk assets rose due to uncertainty over euro area debt crises and worsened prospects for the euro area and global economies. The second financial assistance package for Greece, which eased funding conditions and restructured sovereign debt, and financial assistance to recapitalise the Spanish banking sector, were among the main steps to counter widening euro area govern - ment bond spreads. Entry into force of the permanent European Stability Mechanism and the ECB’s new outright monetary transactions programme were important steps to ease EU financial market tensions. ECB moves to cut rates on main refinancing operations, reduce minimum reserve requirement, and extend non-standard monetary policy measures calmed euro area financial markets. The US Federal Reserve left the federal funds rate unchanged in the 0.00 to 0.25 per cent range and took new non- conventional monetary policy measures to bolster recovery. Economic growth in Bulgaria began to slow amid the unfavourable international situ - ation and in particular the euro area recession. Real GDP went up 0.8 per cent from 1.8 per cent in 2011. Falling demand from Bulgaria’s main trading partner, the euro area, hit goods and service exports. Exporters nevertheless diverted some business to developing countries outside the EU, managing to contain the exports fall to only 0.4 per cent in real terms. Recovering domestic demand, and especially positive fixed asset capital formation and inventory growth, partly offset falling exports. Reflecting the performance of individual GDP components, domestic demand contributed 3.5 percentage points, net exports detracting 2.7 percentage points. The balance of payments trade balance was in deficit by EUR 3622.1 million due to import growth outstripping low nominal export growth. The positive contribution of capital account flows put the cumulative balance