BANK DEPOSITS UP TO BGN40,000 TO BE GUARANTEED
In just an hour at the very end of its extraordinary plenary session on July 25 the National Assembly managed to approve on first and second reading amendments and supplements to the Bank Deposits Insurance Act.
The parliamentary procedure was maximally shortened and the draft was not discussed by the Budget and Finance Commission between the two readings. On the proposal of the commission's Chairman Peter Dimitrov, MP from the Coalition for Bulgaria parliamentary group, the deputies proceeded with voting the bill on second reading without debating the draft, moved in by the Council of Ministers. The floor was only given to the authors of the alternative draft bill on guaranteeing bank deposits - the MPs Mincho Hristov and Stella Bankova who failed to defend their proposal in front of the budget commission. Mr. Hristov argued that in case of a bank bankruptcy, foreign currency savings should be restored in the same currency as deposited, to the amount stipulated by law. However, that was not approved by the MPs and Mr. Hristovs's and Ms. Bankova's draft was finally rejected by the majority. Deputy Finance Minister Georgi Kadiev pointed out from the parliamentary floor that there was no danger of devaluation of the Bulgarian currency as the steep increase of exports in recent years had become a durable trend.
The amendments to the law stipulate an increase of the insured amount of bank deposits from BGN25,000 to BGN40,000, in compliance with Bulgaria's commitment to the European Union under the Freedom To Provide Services Chapter.
The analyses of distribution of deposits in Bulgaria at present shows that the percentage of that coverage under the currently guaranteed BGN25,000 is 54.29% of the aggregate amount of insured deposits, and will become 55.59% when the level goes up to BGN40,000. PM Sergey Stanishev explains in the motives to the draft bill that the proposed change would not lead to a decrease of the Bank Deposit Insurance Fund's possibilities to protect the citizens' and juristic persons' guaranteed money. The new law completes as well the legislative regulations for achieving full compliance with Directive 94/19/ЕС of the European Parliament and the Council of Europe.
The schemes for deposits insurance will be already applicable as well to the branches of banks, based in EU countries. This means that if no deposits insurance system is available in the country where the parent bank operates, Bulgarian rules should be applied for its branch in our country. And if the country uses guarantee protections of a lower level than in Bulgaria the so-called topping up will be applied and the bank branch may participate in the Bulgarian guarantee system by instalment which will cover the difference.
The amended act offers other supplements too, reflecting legislative changes in the financial sector which have been enforced meanwhile. New institutions were set up on the market as a result of such amendments, e.g. the Fund for Compensating Investors in Securities (in compliance with article 77a of the Public Offering of Securities Act), the Guarantee Fund (functioning in accordance with article 287 of the Insurance Code), the closed-type companies, special investment purposes firms, and collective investment schemes which are the latest hit in this country.
According to well-informed sources, the schemes and banks' instalments to the Bank Deposit Insurance Fund won't be changed for the time being. The status qua for a one-time initial instalment of each bank, amounting to 1% of its registered capital (payable by the institution within 30 days of its entry into the commercial register). Annual premium instalments will still be 0.5% of the total amount of the deposits' basis for the previous year, calculated on an average daily basis and payable till end-March of the same year. Banks' instalments are in Bulgarian levs. Therefore, the guarantee fund cannot pay the deposits in foreign currencies, experts comment.
By March 31, 2006 the Bank Deposit Insurance Fund's members had remitted all due annual instalments, amounting to BGN84.83MN. Thus, the money accrued in it, earmarked for payment of citizens' and firms' deposits in cases of bank failure has already reached BGN387.67MN. According to insiders, the amounts of the deposits in banks, declared insolvent so far, have been almost paid up. 94% of the deposits in Credit Bank, which went bankrupt in 1999 have been already paid, and for Balkan Universal Bank this percentage is 63. The share of paid up deposits in International Trade and Development Bank reached 94.64% as of March 31, 2006.
Participation in the Bank Deposit Insurance Fund is obligatory for all banks which have been granted BNB's permission to accept deposits. Only the branch of the Greek Alpha Bank remains outside the system because deposits in it are guaranteed by the analogous Greek Fund for Deposits Insurance.
Bank Deposit Insurance Fund's experts told the BANKER weekly they were still working hard on the project for the so-called risk-weighted instalments in the deposits guarantee system. Their aim is to achieve a fairer methodology for determining each bank's liabilities to the system. The fund has already purchased and adapted to Bulgarian conditions a specialized software product for evaluation of credit institutions' risk in connection with guaranteeing citizens and firms' savings and deposits.
The bank community also approved of the experiment with the new more progressive method for specifying instalments to the fund. The present principle of equal footing does not reflect the real picture of the bank market. In order to change the currently effective scheme, however, the recently amended Bank Deposits Insurance Act should be again moved in for the consecutive change. That would be in complete accordance with the international BASEL II standards and will probably happen immediately after Bulgaria joins the EU, pundits acquainted with European practices claim.