BULGARIAN NATIONAL BANK BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 by Tsvetan Manchev Deputy Governor Bulgarian National Bank Bulgarian Banking Towards EU

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE SUMMARY Sustainable economic development - key factor for the sound banking system; The Bulgarian Banking Sector on the eve of the EU membership – the role of structural reforms; Major challenges for Bulgarian Banking System on its way to membership in the Eurozone;

BULGARIAN NATIONAL BANK BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 CURRENT ECONOMIC DEVELOPMENT

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE GDP REAL GROWTH Source: NSI, IMF

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE CPI (annual average) Source: NSI, IMF 25.1

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE INTEREST RATES CONVERGENCE (annual average values) Source: BNB, Eurostat

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE UEMPLOYMENT RATE Source: National Employment Agency, BNB

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Source: MoF, IMF GENERAL GOVERNMENT BUDGET BALANCE (% GDP) (+) surplus (-) deficit

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Source: MoF, IMF GOVERNMENT DEBT (% GDP) GOVERNMENT DEBT (% GDP)

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE MAASTRICHT CRITERIA FOR NOMINAL CONVERGENCE

BULGARIAN NATIONAL BANK BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 BANKING SECTOR REFORM

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE PREDOMINANT FOREIGN CONTROL ON BANK ASSETS AND CAPITAL (as of 30 September 2005) Source: BNB

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Source: BNB, FSC, BSE BANKS DOMINATE FINANCIAL MARKETS *Preliminary data

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE INCREASING COMPETITION (THE SHARE OF THE FIRST FOUR BANKS IN TOTAL BANK ASSETS AS OF THE END OF THE YEAR) Source: BNB

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE HIGH GROWTH AND SOUND QUALITY Bank assets are growing very rapidly Strongly capitalized High liquidity is maintained Asset quality remains very good

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE EFFICIENCY AND HIGH PROFITABILITY

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE INCREASING ROLE OF THE BANKING FOR THE REAL SECTOR FINANCING Bank credit growth is returning to sustainable level Banks are predominantly externally funded Business sector credit demand is investment driven Long term loans to business sector grow faster than short term Business sector has a good access to lending from abroad Residential loans to households are growing very rapidly

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE CHALLENGES FOR BANKING SECTOR Smooth adoption of the EU directives Basle II implementation Sustainability of the credit growth Interest rates convergence Mergers and acquisitions Better corporate governance and transparency

BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE CHALLENGES FOR BNB Short-term challenges Fine-tuning of the process of bank lending Enforcement of the new legislation related to the EU membership –Law on Credit Institutions transposing Re-casting Directive 2000/12/EC relating to the taking up and pursuit of the business of credit institutions, Directive 2001/24/EC on credit institution reorganisation and Directive 2000/46/EC on the taking up, pursuit of and prudential supervision of the business of electronic money institutions; – Consumer Credit Law – Full transposition of Directive 2002/47/EC on financial collateral and Directive 2002/87/EC on financial conglomerates; Medium-term challenges are linked with the full-fledged EMU membership

BULGARIAN NATIONAL BANK BULGARIAN NATIONAL BANK THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 THIRD ANNUAL INTERNATIONAL FINANCE CONFERENCE FINANCE AND BANKING MODERNISATION IN CENTRAL AND SOUTH EAST EUROPE Hilton Hotel, Sofia, Bulgaria January 2006 Thank you for your attention!