BGN/EUR EXCHANGE RATE WON'T CHANGE
The introduction of EU directives' requirements into Bulgarian legislation concerning banks will be the main task on which BNB's experts and managers will work. That became clear from the presentation which the central bank Vice Governor Tsvetan Manchev made in Sofia on January 30. According to him, the consolidation processes which began in 2005 will continue this year as well and will result in a decrease of the number of credit institutions, operating on the Bulgarian market. Currently, 34 banks and branches of foreign credit institutions are registered in this country. Mr. Manchev refused to express an opinion as to how many banks would remain on the market but said that competition between the credit institutions and the quality of their services will be increasing. Without going into details the Vice Governor underlines that the bank system has been developing very quickly, marking a considerable growth of both extended credits and of citizens' and firms' deposits.
The main characteristics of the Bulgarian financial market are that banks are drawing more and more loans from abroad. Corporate long-term credits increase more quickly than short-term ones. Moreover, the bulk of loans borrowed by companies are used for the purchase of machines, equipment, technologies and inputs for their production activities.
At the same time, although assets in the bank sector go up quickly, it remains well-capitalized and liquid. The quality of assets has not worsened. Until now, independent of the credit expansion and the strict bank regulations, credit institutions have remained stable and their efficiency is improving, Mr. Manchev specified.
According to the BNB Vice Governor, the most important amendments to the legislation concerning banks in 2006 will be those in the new law on credit institutions and the law on consumer credits which are to be passed, and the amendments to BNB's regulations, connected with these acts. The new legislative documents will introduce on the Bulgarian bank market all EU requirements, as well as the new parameters for the formation of capital adequacy, known as Basel II, Mr. Manchev is adamant.
BNB's Vice Governor is certain that the currency board arrangement will continue to be in effect in Bulgaria and the present exchange rate at which the Bulgarian lev is pegged to the euro - BGN1.95583 per EURO1 - will be maintained until the single European currency is introduced in this country as the only means of exchange. This statement from Mr. Manchev's mouth was absolutely necessary due to the attempts on the part of some mass media and economists to begin one more time the pointless discussion if the Bulgarian lev should be devalued against the euro. A week ago such a debate began in the 168 Hours weekly, citing a secret report of the IMF, allegedly saying that the lev was very much overvalued against the euro. That made IMF's Resident Representative in Bulgaria James Roaf react instantly. He said there was nothing like such a secret report.
The idea about the lev's devaluation is being launched by economists like Ivan Angelov, who was an adviser to Zhan Videnov's government when the country's economy collapsed. That kind of experts claim that a devaluation of the lev against the euro would promote exports. However, they conceal the fact that such a measure would melt away the citizens' savings and would place the country's financial stability at a risk.
As it became clear from Mr. Manchev's statement during the economic forum, BNB's managers are firm that after Bulgaria joins the EU it should apply for introducing the euro at the current rate of exchange against the Bulgarian lev. We'll recall that the mechanism for the introduction of the euro requires from the government to declare the rate of exchange between the national currency and the euro it will be maintaining within two years and to observe certain requirements about the inflation rate, the interest rates on securities, the ratio between the foreign debt and the GDP and about the budget deficit. These are the so-called Maastricht criteria. According to Mr. Manchev, Bulgaria even now meets most of these parameters. Only inflation should be reduced to lower levels. BNB's Vice Governor is convinced that Bulgaria will become a member of the EU in 2007 and will immediately join the above-mentioned mechanism. And as of the beginning of 2010 the euro will be introduced as the single means of payment in this country.