Банкеръ Weekly



Any liability to a bank, which has not been served (no interest or principal has been paid) for more than 120 days shall be classified as a loss. The respective credit institution shall be also obliged to deduct from its financial result the entire amount of the overdue debt. This is stipulated by one of the new provisions to Ordinance No 9 of the Bulgarian National Bank (BNB), amendments to which were promulgated in the Official Gazette, Issue 71 of 2003. Another provision stipulates that all liabilities under which payments have been delayed from 91 to 120 days should be classified as problematic receivables and devaluated by 50 per cent. Therefore, the credit institution should deduct the amount of devaluation from its financial result. Until now receivables with defaulted payments of more than 180 days were classified as a loss. The new requirements for cutting down the term, that will enter into effect as of September 30, 2003, will result in an increase of the banks' expenses for provisions. However, even the experts from BNB's Bank Supervision department do not venture to predict how much these expenses would rise. The amendments to Ordinance No 9 are part of our programme for stage-by-stage introduction of the international standards for good practice in banking supervision, Roumen Simeonov, Director of BNB's Supervision Policy and Methodology department, explained. He added that under these standards, worked out by the Basel-based Bank for International Standards, in the near future the credit institutions would have to classify as losses all their receivables which have not been serviced for more than 90 days. The present changes would hardly result in a substantial increase of the share of credits which the banks will classify as losses in end-September. In the end of March 2003 the pre-tax profit of banks totalled BGN161MN. Had the BNB introduced the above-mentioned requirement prior the end of the first quarter, the financial result of the local bank system would had decreased by almost 30% - from BGN161MN to BGN111MN. The revenues from taxes would had dropped accordingly from BGN36MN to BGN25MN. In order to avoid such steep differences, the central bank has decided to introduce the new stricter regime of devaluation and provisioning more gradually. The international standards for good practice in the bank supervision will be completely introduced in Bulgaria by the end of 2004.

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