Bulgarian Deposit Insurance System

Fifth Anniversary of the BPK
International Conference
Pristina, 11-12 November 2004

Bulgarian Deposit Insurance System

Georgi Petkov, Member of the Management Board
Bulgarian Deposit Insurance Fund

BULGARIAN DEPOSIT INSURANCE SYSTEM

System development

Implicit government guarantee till Jan 1996

First explicit limited coverage DIS - introduced Jan 1996
(Regulation of the Central Bank - BNB)

– only deposits of physical persons were insured
– level of coverage - appr. EUR 2,500

BPK Fifth Anniversary Conference Pristina, 11-12 November 2004


System development

Outbreak of the financial crisis - mid 1996
(within ten months 17 banks comprising 25% of the total
banking system assets failed)

Extraordinary legislation - Law on State Protection of
Deposits; repayment of deposits from the budget:

– 100% to physical persons
– 50% to legal entities


System development

Introduction of Currency Board - mid 1997
– curbing the crisis

Explicit DIS with limited coverage on deposits - Law on
Bank Deposit Guaranty - Apr 1998

Bulgarian Deposit Insurance Fund - Jan 1999
– independent legal entity
– accountable to the Council of Ministers, BNB
– financial activities audited by the National Audit Office


BDIF functions: Legal basis

1998 Law on Bank Deposit Guaranty (LBDG)
– determines and collects premiums from banks
– invests its assets under LBDG provisions
– repays insured amount of deposits in failed banks
1999 Amendments to Law on Banks: Art.89a (repealed by LBB)
– very limited control over trustees
2002 Law on Bank Bankruptcy (LBB)
– administers bank bankruptcy proceedings by
controlling trustees and preparing draft regulations
– control over 4 failed banks


BDIF: Criteria for membership

Mandatory membership for:
– all Bulgarian banks
– branches of foreign banks, licensed to operate on the territory of
Bulgaria, which are not covered by the DIS in the country of the
head office or the level of coverage is lower than in Bulgaria
– branches of Bulgarian banks abroad

Currently BDIF has 32 members of which 3 branches of
foreign banks



BDIF: Funding

DIS of ex-ante type funding by banks
– entry and annual premiums paid by banks

No initial fund contribution from the budget

Other sources of funding
– interest on BDIF investments
– proceeds from BDIF subrogated claims
– loans, etc.



Bank premiums

Entry premiums - 1% of registered capital

Annual premiums - 0.5% of the total amount of the
previous year’s deposit base (calculated on an average daily
basis)

BDIF is considering the introduction of a risk-adjusted
premium system.



BDIF: Investment activity

BDIF resources are invested in:
– securities issued or guaranteed by the Bulgarian
government
– short-term deposits with commercial banks – authorized
primary dealers of government securities
– deposits with the Bulgarian National Bank



Financing within shortfall of resources

By decision of BDIF Board shortfall may be covered by:
– requiring an advanced payment of premiums
– increasing the annual premium (max. 1.5%)
– drawing loans:
- from the market
- from the budget after a decision of Parliament

Loans may be secured by government guarantee or BDIF
assets, incl. future claims on banks for annual premiums


BDIF: Size of funds

In accordance with the LBDG provisions - 5% of the total
amount of insured deposits in the banking system. When
the amount of the Fund exceeds the 5% target ratio BDIF
Management Board may decide to reduce annual premiums

Currently BDIF funds amount to BGN 252 M (EUR 129
M) and the ratio BDIF funds/deposits is 2.14%



Scope of coverage

Insured are:
– deposits of physical persons and legal entities
– deposits in national and foreign currency
Exclusions:
– banks and non bank financial institutions, insurers, pension and
social security funds, investment intermediaries, privatization
funds, government and government institutions, municipalities, BDIF
– bank' senior officers and auditors, shareholders of more than 5% of
bank’s equity, and their close relatives, preferential rate deposits
– deposits associated with ‘money laundering’


Level of coverage
1998 BGN 6,900/EUR 3,528 – to BGN 2,000 - 95%
– over BGN 2,000 - 80% (max 5,000)
2002 BGN 10,000/EUR 5,113 – 100% (abolishment of coinsurance)
2003 BGN 15,000/EUR 7,670 – 100%
2005 BGN 25,000/EUR 12,782 – EU Timetable
2007 BGN 39,200/EUR 20,043 – EU Timetable

Application of coverage limits
Per depositor per bank


Repayment of insured amounts of deposits

Deposits are repaid only in national currency

Repayment of insured amounts of deposits is done via a
servicing bank determined by BDIF Management Board

Repayment begins not later than 45 days from the date of
revocation of bank’s license by BNB



BDIF functions under Law on Bank Bankruptcy

Performs control over the lawful and appropriate exercise of
trustee’s powers:
– appoints and removes a trustee
– determines trustee’s remuneration
– controls trustee’s expenses
– controls transactions made by the trustee
– issues methodological instructions to trustee relating to the
exercise of his powers



BDIF functions under Law on Bank Bankruptcy

Prepares draft regulations:
– Regulation on the reporting requirements and trustee’s
budget
– Regulation on trustee’s remuneration
– Regulation on the BDIF inspections in the banks in
bankruptcy
– Tariff on the fees collected by the BDIF relating to the
exercise of its controlling powers in the bankruptcy
proceedings

How to contact BDIF

Bulgarian Deposit Insurance Fund
2, Graf Ignatiev Str., 3rd Floor
1000 Sofia, Bulgaria
Tel.: +359 2 980 1438; Fax: +359 2 988 8207
E-mail: contact@dif.bg
Internet: http://www.dif.bg


Thank you for the attention


Bulgarian Deposit Insurance System

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