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THE WORLD BANK – FinSACFINANCIAL SECTOR ADVISORY CENTER – VIENNA
ANNUAL REPORT2014
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Table of ConTenTs
I. Foreword 5II. OverallEconomicandFinancialRegulatoryContext: TheEUandtheRegion 9a. TheEU 9b. EUclientcountries 13C. EUcandidateandpotentialcandidatecountries 15d. UkraineandMoldova 16e. TheCaucasus 17
III. FinSACActivitiesin2014 19a. Staff 19b. Publicprofileandbudgetdiscipline 19C. Seminars,ConferencesandWorkingPapers 19d. Clientspecificactivities 20e. CollaborationwithintheWBGroup,theEUandandIFIs 25
IV. Lookingforwardto2015 27a. Micro-PrudentialPillar 27b. BankRecoveryandBankResolutionPillar 29C. StreamlinedFinancialStabilityandMacro-PrudentialPillar 30d. OtherFinSACActivities 31e. FinSACworkprogramfor2015 31f. DisbursementofTrustFundbyFinSAC 32
Attachment:ResultsFrameworkTable 35
ReportpreparedbyFernandoMontes-Negret,FinSACCoordinator,andKatiaD’Hulster,Sr.BankSupervisor,withcontributionsfromFinSACStaff.
WethankAuroraFerrari,F&MPracticeManagerattheWorldBank,ElisabethGruber,fromtheAustrianFederalMinistryofFinance,fortheirusefulcomments,andSusanSchroederforcompetenteditingoftheReport.
LISTOFABBREvIATIONSAML Anti-MoneyLaunderingAQR AssetQualityReviewsbCbs BaselCommitteeofBankingSupervisionBEM MoldovaBancadeEconomiiBGF Poland’sBankGuaranteeFundbnb BulgarianNationalBankBoA BankofAlbaniaBRRD BankRecoveryandResolutionDirectivebs MoldovaBancaSocialaCBCG CentralBankofMontenegroCeT CommonEquityTierCRDIv/CRR CapitalRequirementsDirectiveandRegulationCse CrisisSimulationExerciseDIF BulgarianDepositInsuranceFunddPl DevelopmentPolicyLoanD-SIBs DomesticSystemicallyImportantBankseba EuropeanBankingAuthorityEBRD EuropeanBankforReconstructionandDevelopmenteCb EuropeanCentralBankEIB EuropeanInvestmentBankESM EuropeanStabilityMechanismEU EuropeanUnionFinSAC WorldBankviennaFinancialSectorAdvisoryCenterfsaP FinancialSectorAssessmentProgramfsb FinancialStabilityBoardFPM FinancialProjectionModelfsC FinancialStabilityCouncilICAAP InternalCapitalAdequacyAssessmentProcessIFC InternationalFinanceCorporationIFI InternationalFinancialInstitutionsIFRS InternationalFinancialReportingStandardsIMF InternationalMonetaryFundJRC ECJointResearchCentreKTB BulgarianCorporateCommercialBankNBM NationalBankofMoldovanbs NationalBankofSerbianPe Non-PerformingExposureNPLs Non-PerformingLoansRRPs RecoveryandResolutionPlansSRB SingleResolutionBoardSREP SupervisoryReviewandExaminationProcessSRF SingleResolutionFundSRM SingleResolutionMechanismSSM SingleSupervisoryMechanismNBU NationalBankofUkraineTa TechnicalAssistanceWBG WorldBankGroup
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Financial Sector Advisory Center | Annual Report 2014
I.FOREWORD
Significantprogresshasbeenmadeinaddressingthe“faultlines”thatledtotheglobalfinancialcrisis.TheEU is gradually implementing anewfinancialarchitecture -aiming toachievemore integrated,competitive,and,hopefully,bettersupervisedfinancialinstitutions-whileaddressingtheresolvabilityof systemic banking institutions without recourse to fiscal support, and implementing internationalagreementsdirectedatenhancingtheresilienceofbankinginstitutionssuchasBaselIIIandtheFinancialStabilityBoard(FSB)recommendations.
DespiteprogressonthenewEUfinancialarchitecture,thereturnto“normality”stillhasnotbeencompleted.2014wasadisappointingyearintermsoffurtherpostponementofthelong-awaitedresumptionoffastercreditandeconomicgrowth,thereductionofnon-performingloans,andbetterfinancialresultsforbankinginstitutions.
Newthreatsemerged,includingthecontinuousdeleveragingofbanksandborrowers,thereductionofcross-bordercapitalflows,thethreatofrisingpublicdebtlevelsandpotentialsovereigndefaults,andthedangersposedbylowflationorevendeflationinseveralEUcountries.Therearerisinggeo-politicalrisks,enhancedmarketandforeignexchangevolatility,precipitousdeclinesincommodityprices(particularlyoilandmetals),concernsaboutthedecouplingoftheUSandUKeconomiesfromtheEUandthepossiblytemporarystrengtheningoftheUSdollar,andotherfactorswhichrisksendingfinancialintegrationintoreverse.Whilesomeofthesedevelopmentscanbeviewedpositivelyastheyrepresenthealthycorrectionsfromtheexcesseswhichledtothe“GreatRecession”,otherscouldhavenegativerepercussionsforthefinancial system and further delay the EU recovery. Deflationary pressuresmake itmore difficult forgovernments (aswell as the private sector) to service debts and resume consumption and investmentgrowth.
TheseEUissues,togetherwithcountries’ownidiosyncraticfactors,hadmajorrepercussionsinFinSACclientcountries.CountriesalreadyintheEUexperiencedslowingeconomiesortheinabilitytorecoverfromdeeprecessions,particularlyCroatia.TheeconomyofSouthEastEurope(sixBalkancountries)stagnatedin2014. Increasingbusinesscyclesynchronizationtransmittedtheslowgrowthfromitsmaintradingpartner,theEU.Amajornaturaldisasterresultedinaflood-inducedGDPcontractioninSerbia(estimatedtohavecontractedby2percent)andasharpslowdowninBosniaandHerzegovinaandMontenegro.OnlyAlbaniaandtheformerYugoslavRepublicofMacedonia,amongthecountriesintheBalkans1,showedsignsofamoresustainedrecoveryonthebackofrisingexports.
FurtherEast,geopoliticalfactorsanddeepeningbankingcrises(UkraineandMoldova)affectedtheyear’soutcome.ThecrisisinRussiahasalsoseverelyaffectedneighboringcountrieslikeArmeniaandGeorgia,whicharestrugglingtocontaintheRublefallout.
FinSACsteppedupitsactivitiesin2014.Itprovidedtargettedtechnicalassistance(TA)totacklesomeofthemostpressingbankingproblems-particularlythehighlevelsofnon-performingloans(NPLs)andtheresolutionofnon-viablebanks -whileaddressingthemedium-terminstitutionaldevelopmentneedsofincorporatingEUlegislationandbestpracticesintothenationallegalframeworksandsupervisorysystems.Activitiesfocusedonstrengtheningsupervisorypracticesfromthebottomup;decisivelyaddressingthehighlevelsofNPLs;crisissimulationexercises(CSEs)preparingpolicy-makerstoconfrontpotentialdistressintheirfinancialsectors;andprovidingcrisisassistance.
FinSAChasnowmaturedintoaregionalcenterofexcellence, increasinglyfocusedinmicro-prudentialsupervision,NPLresolutionandbankingrecoveryandresolution.Basedonitsgrowingexperienceandunderstanding of demand, FinSAC ismoving away from the previous general four-pillar approach, tobecomeincreasinglya“niche”player.Asaresults-basedadvisoryprogram,andtomakethemosteffectiveuseofresources,assistanceisbeingfocusedonmoreselectiveinterventions.Thatsaid,specificrequestsintheareaoffinancialstability,macroprudentialsupervisionorconsumerprotectionwillbeaddressedwhenresourcespermit.
1 WorldBankGroup,“CopingwithFloods,StrengtheningGrowth”,SouthEastEurope,RegularEconomicReport,January,2015.
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TheWorldBankviennaFinancialSectorAdvisoryCenter(FinSAC)wasestablishedin2011inresponsetotheglobalfinancialcrisis,toassistinidentifyingissues andproblems innational banking sectors,innewEUmemberstatesandemergingEuropeanclientcountries,and,attherequestofthenationalauthorities,recommendtailoredsolutions.AcoreFinSACteamofspecializedstaffwithkeyrelevantskillsandexpertiseisbasedinvienna,fundedbytheAustrianFederalMinistryofFinance,workingclosely with staff from the World Bank’s (WB)headquarters and other IFIs, as well as with Sr.internationalexpertsofferingtechnicalassistance,includingimplementationadvice.
EU and other international policy makerscoordinatedtheirresponsetotheglobalfinancialcrisishas resulted in the introductionofaflurryofpolicyreforms,particularlyintheareaofcrossborder crisis management, bank recovery andresolution,NPL resolution, andbank capital andliquidity. FinSAC has responded to the need forhelpinimplementingthesereformsbydeepeningitsexpertisetoofferspecializedTA,inareasotherTAprovidersdonotreachorareunabletodeliver.FinSAC provides independent, confidential andtailoredtechnicalexpertandtechnicaladviceandimplementationsupporttoeligibleclientcountries.This includes supporting the development oflegislativeandregulatoryframeworks;encouraginginstitutional strengthening; and building thecapacity of local experts through our targetedTA projects. It also helps implement the WB/IMFFinancialSectorAssessmentProgram(FSAP)recommendations and participates in theviennaInitiative. It offers global knowledge such asanalyticalreportsonimportantbankingregulatoryand supervisory issues and helps develop anddisseminate knowledge and good practices thatcan enrich regional policy debates and cross-fertilize reforms. It promotes the application ofinternationalbenchmarksandstandardswiththesupportofglobalandregionalorganizationssuchas the Basel Committee, the FSB, the FinancialStabilityInstitute,theEuropeanBankingAuthority,andtheEuropeanCentralBank(ECB).Inbuildingstrong regulatory and supervisory environments,FinSACmaintainsmomentum in client countriesat the national level through bilateralmeetings,in country engagements (often in partnershipwiththeWBcountryprogramsorotherIFIs),andprovidestechnicaladviceonspecificissuesatalllevels of government and industry to reinforcethe importance of financial stability and strong
banking sectors, as well as through regionalseminarstodisseminategoodpracticesandfosterpeerlearning.
Since its establishment, FinSAC has followed anambitious inception strategy of casting a verywide “net” of potential TAproducts to its clientcountries.Activitieshavecenteredonfourpillars2:1)financialstability,crisispreventionandmacro-prudential frameworks; 2) micro-prudentialregulatory and supervisory frameworks; 3) bankrecovery and resolution frameworks; and 4)consumer protection and financial literacy. Thisapproach allowed FinSAC to effectively identifyactual demand, providing valuable informationabouttheconcernsandrequirementsforadvisoryservices and knowledge products from its targetclientcountries. Productive FinSAC engagements have includedaddressing the enormous implementationchallenges arising from the numerous Basel andEU complex regulations and initiatives. Mostclient countries are committed to adopting EUregulations, but have only limited access to EUinstitutionsorotherEUsupervisorsforguidance.Mostoftheseregulationsarealsoprinciplesbased,and thus pose specific implementation questionsand challenges for non EU counties. FinSACoffers technical assistance in the implementationof this vast and complex regulatory agenda.Weworktohelpimplementtheseproposals,aligningthemwithgoodinternationalpracticesaswellascountry specific institutional development needsandconstraints. Centralbanksandsupervisoryagenciesareoftenreluctant to give access to sensitive confidentialinformation in the area of banking supervision,such as banks’ inspection reports, internalsupervisory decisions and practices, individualbanks’ risk assessments, to external consultingfirms.Similarly,authoritiesareoftendisinclinedtogiveaccesstotheirowncontingencyplansandcrisis arrangements and bank specific resolutionplans. They do, however, feel comfortableworkingwith FinSAC in these areas under strictconfidentiality. Moreover, the analyses andrecommendationsofferedbyFinSACaspartofthemicro-prudential pillar requiremultiplemissionsstaffedbyseasonedpractitioners,somethingoutofreachfortheFSAPmissionsandotherInternationalFinancialInstitutions(IFI)engagements.
2ThefourpillarssupportingFinSAC’sactivityweredefinedin2012.Thefirstpillarconsistsoffinancialstability,crisispreventionandmacro-prudentialframeworks.Thesecondpillarincludesmicro-prudentialregulatoryandsupervisoryframeworks.Thethirdpillarisbankrecoveryandresolutionframeworks.Thefourthpillarcoversconsumerprotectionandfinancialliteracy.
FINANCIALSECTORADvISORYCENTER(FINSAC)
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A.ThEEU ThereseemstobeincreasingheterogeneityamongEUcountries.Someofthecrisiscountriesstartedtorecoverfromalowbase(Spain,Ireland,Portugal,andGreece),whileGermanyandFrance sharplysloweddown,andItalyfellbackintorecession.
EU countries continued struggling with legacyissues from the global financial crisis. Theseincluded high unemployment; high public andprivate debt levels; sluggish output growth;“lowflation”; and very low interest rates,practically at the zero lower bound. Therewaslowbankprofitability;bankdeleveraging;andlowornegativecreditgrowth,withsignsofincreasingbankdisintermediationascompaniesstartedmoreactivelytotaptheshadowbankingsystemandtheincipient capital market. Addressing key policyissues has been made even more difficult in anenvironment of fiscal austerity and low (publicandprivate) investment, lowordecliningoutputgrowth, lowor falling inflation rates, and rathergeneralized pessimism and political uneasiness.The year endedwith awelcomeboost,with theunexpected stimulus for all EU oil importingcountriesasinternationaloilpricesfellsharply,aswell as from increased competitiveness resultingfrom the rather steep depreciation of the Euroagainst theUSDollar.Whilewelcomed in terms
of potentially higher household disposableincome and consumer spending, and betterexport competitiveness, this also brought moredeflationarypressuresandpotentialturmoilinoil/energy dependent exporters, particularly Russia,especially if low oil prices persist over 2015-17.ThesedevelopmentsinthecoreEUcountrieshaveamajorimpactinallFinSACclientcountries,bothintheEU,aswellasoutsideoftheEU.
According to theEuropeanCentralBank’s (ECB)financialstabilityreview,aconfluenceofcyclicalandstructuralfactorshasledtoalowprofitabilityor loss-making environment formany euro areabanks. Clearly, the emergence from crisis andrecession in the euro area has had a significantimpact – with one-fifth of euro area significantbankinggroupsreportinglossesinthefirsthalfof2014, albeit down considerably frommore thanhalf of the banks reporting losses in the secondhalf of 2013. Persistent weak bank profitabilitycould become a systemic concern if it limitsbanks’ ability to improve their shock-absorbingcapacity via retained earnings and provisioning.Formanybankstheirreturnonequityhasfallenbelowtheircostofequity–shareholders’expectedrateofreturn–alsopointingtoastructuralneedfor further balance sheet adjustment in parts ofthe banking system, as well as possible furtherconsolidationtoeliminateexcesscapacity.
ChartsfromtheECBFinancialStabilityReview,November2014
FortheEUcountriesandcandidatecountries,2014canbecharacterizedasa“transitionyear”,bothintermsoftheexpectedrecoveryofeconomicactivity,aswellasintermsoftheneweuroareafinancialsectorinstitutionalframeworkbeingphased-in.Fromthegeopoliticalpointofview,2014turnedouttobeawatershedyear,inviewofthedeepeningcrisisinUkraine;theimpositionofsanctionsonRussiabytheEUandtheUS;andtheGreekcrisisentereringintoanew,unchartered,phase.
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35
30
25
20
15
10
5
02007 2009 2011 2013
35
30
25
20
15
10
5
02007 2009 2011 2013
Pre-provision return on equity Return on equity
euro area LCBGsnon-euro area European LCBG’sUS LCBG’s
Pre- and post-provision return on equity of euro area and global large and complex banking groups (LCBGs)H1 2007 – H1 2014; percentages; medians; two-period moving average
Return on equity and leverage of euro area significant banking groups
leverage (ratio; right-hand scale)return on equity (percentage; left-hand scale)return on equity, analyst forecast for 2015 (percentage; left-hand scale)
Q1 2004 – 2015; medians
2004 2006 2008 2010 2012 2014
24
20
16
12
8
4
0
21
20
19
18
17
16
15
II.OvERALLECONOMICANDFINANCIALREGULATORYCONTExT:THEEU&THEREGION
Theriskofadisorderlyandbroad-basedunwindingof global search for-yield flows as a result of afaster than expected exit from unconventionalmonetarypoliciesbytheUSFEDremainsacauseforconcern.
Thingscangetworse inviewof: (i)Supervisors’impositionoflargefinesformanipulationofLIBORratesandFxmarkets;(ii)legacyissuesincludingpotentialclaimsfromprivateagentsonthelosingsideoftheLIBOR/Fxtrades;and(iii)banksfacedwithpossibleovercapacity,highcosts,orlimiteddiversification of their income sources. There isstillsomewaytogoinaddressingtheseissues.BanksarestillheavilyexposedtosovereignrisksinmanyEUcountriesintheformofgovernmentbondsintheirinvestmentportfolios.Uncertaintiesrelatingtosovereigndebtsustainabilityarelikelytoremainoverthemediumterm,asgovernmentdebt-to-GDPratiosareprojectedtostayat levelswell above100% in several euroarea countries.This highlights the need for further adjustmentoffiscalandeconomicfundamentalsrelevantfordebtsustainability.
Bank lending flows to the non-financial privatesectorhaveremainedmuted,partlyreflectingtheongoingbalancesheetrepairinboththefinancialandnon-financialsectors.Onaverage,banklendingto euro area households has remained subdued,mirroringsluggishdynamicsofhouseholdincome,highlevelsofunemploymentandhousingmarketweaknessinsomecountries,whilelendingtothecorporatesectorhasingeneraldeclined.
2014 was a year of remarkable institutionalchanges in the EU’s financial regulatory andsupervisoryframework,withthecompletionoftheassetqualityreviews(AQRs)bytheECB,asaprioraction to the adoption of the Single SupervisoryMechanism (SSM), and as a component of theBankingUnion;theadoptionoftheBankRecoveryandResolutionDirective (BRRD); and the initialphaseofimplementationoftheSingleResolutionMechanism(SRM)andtheSingleResolutionFund(SRF).
BAnkIngUnIOnTheEuropeansovereigndebtandbankingcrisesunderlined the flaws of monetary and currencyunion with national banking supervision. TheBankingUnionbeganwith theEurozonesummitstatementofmid2012,whenEUleaderscommittedto “break the vicious circle between banks andsovereigns”.TheyplannedtodothisbycentralizingbankingsupervisionattheECBformajorbankinggroupsandusetheEuropeanStabilityMechanism
(ESM) for direct recapitalization of individualbanks,ifneeded.
BUILdIngBLOCkSOFThEBAnkIngUnIOnThe“BankingUnion”consistsoffourinterconnectedbuilding blocks: commonprudential supervision;common resolution (decision and funding);common prudential regulation (Single RuleBook);andcommondepositinsurance.Significantprogress has been achieved in all these areas,but only the SSM has been fully adopted, as ofNovember 2014. The transfer of authority fromthenational level to thesupra-nationalSSMwasprecededbyafinancialhealth-checkof systemicEurozonebankstoidentifyanylegacyissuesandrestoremarket confidence. This “ComprehensiveAssessment” included an AQR and a forwardlookingstresstest,toidentifyandaddresslegacyissues before the ECB assumed its new regionalsupervisoryrole.
TheAQRwasundertakenbytheECBandnationalcompetentauthoritiesandcoveredthe130largestEUbanks,representing82%ofbankingassetsofEurozonecountries.FindingsfromtheAQRwereincorporated with the stress test’s baseline andadversescenarios.BankswererequiredtomaintainaminimumCommonEquityTier1(CET1)ratioof8%afterAQRadjustmentsandfor thestress-testbaseline scenario,andaminimumCET1 ratioof5.5%undertheadversescenario.
The AQR revealed that banks had to revisedown their assets by €48 billion, mostly due tounderestimation of specific provisions relatedto non-retail exposures. Additionally, non-performingexposure(NPE)stockswereincreasedby€135.9billionacrossthein-scopeinstitutions,asNPEdefinitionsweremovedontoaharmonizedandcomparablebasis, includingtheexaminationof forbearance as a trigger of NPE status. Theassessmentidentified25banksashavinganoverallcapitalshortfall.Whenallofthecapitalthathasbeenraisedbetweentheassessmentdateandthereporting on the Comprehensive Assessment isoffsetagainsttheshortfalls,€9.5billionofequityremainstobefilled,distributedacross13banks. With regards to the second building block, theEU has adopted the BRRDwhich provides for aminimum harmonized set of early interventionand recovery and resolution tools and powers,including the obligatory introduction of ex-antefinancing arrangements and the nomination ofa public administrative body as the resolutionauthority.MemberStatesarerequiredtotranspose
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theBRRDby31December2014.Fortheeuroareacountries,anagreementonaSRManda(SRF)wasalsoreached.ThisshouldmaketheresolutionofinsolventinstitutionspossibleataEuropeanleveland would minimize nationalizations or publicsupport.FortheSRMcountriesacomplexwebofrulesandauthoritieshasbeensetupwiththeSingleResolutionBoard(SRB),asacentralizeddecisionmakingbody,andtheSRF,asacommonfinancingarrangement, at its heart. In reality, however,the SRM is a coordination mechanism that stillpartly preserves national interests and relieson the implementation of the SRBs decisions byautonomousnationalresolutionauthorities.Eventhough the Commission and Council have vetopowersintheadoptionofaresolutiondecisionbytheSRB,therareexecutionofthesepowerscouldendangereffectiveandtimelydecisionmaking.The uniform institutional framework (SRM)
becomes effective as of 1 January 2015 and theSRF will gradually replace national financingarrangementsasofJanuary2016,whilereachingabout€55bnincommonfundingby2024.
TheSRMisanecessarycomplementtotheSSMin order to achieve a well-functioning bankingunion and to sever the link between banks andtheir sovereigns.Thus, theSRMwillapply toallbanks supervised within the scope of the SSM.Any Member State outside the euro area whichopts to join the SSMwill automatically also fallundertheSRM.TheSRMwillbebetterplacedtotakedueaccountofcontagionandspilloverswhenmakingresolutiondecisions.Itwillalsoensureaconsistentapplicationofresolutionprinciplesandtools throughout the banking union, includingbankswithnocross-borderactivity.
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ECB:SupervisionSignificant
banks
CRB:Resolution+ all cross
border banks
NSA/NRANon EUR area excuding opt. ins
NRAs: National Banks,save use of SRF
NSA: LSI
NSA: National Supervisory Authority / NRA: National Resolution AuthoritySRB: Single Resolution Board for the Euro 18+ / LSI: Less Significant Institutions
120 significant CIs= ~85% of total
banking assets
InSTITUTIOnSUndERThESSM&SRM
Overall Economic and Financial Regulatory Context: The EU and the Region
Theadoptionof the fourthCapitalRequirementsDirectiveandRegulation (CRD Iv/CRR) in2013wasanimportantsteptowardstheimplementationof the third building block: common prudentialregulation or the SingleRule Book. For thefirsttime,asetofharmonizedprudentialruleshasbeencreated which banks and regulators throughoutthe EU must respect. CRD Iv/CRR will ensureuniformapplicationofBaselIIIacrossallMemberStates.TheCRRisadirectlyapplicableminimumharmonizationregulation;MemberStatesareonlyallowedtoapplystricterrequirementswheretheseare justified by national circumstances, neededon financial stability grounds, or because of abank’s specific risk profile. The latter require astrict reportingregime to theEuropeanSystemicRisk Board (ESRB). Until the establishment of aSingle Rule Book, EU banking legislation wasbasedonDirectiveswhichleftroomforsignificantdivergences and discretion in interpretationand national rules. This created a regulatorypatchwork,leadingtolegaluncertaintyandhighercosts,whileenablingbanks toexploit regulatoryloopholes.
The fourth building block, common depositinsurance,hasreceivedsignificantlylessatttention.The Deposit Insurance Directive harmonizes, asa prior action to the adoption of the SSM, the€100,000 threshold for the individual depositscoveredandsetsatargetofa7daypayoutperiod.ThereishowevernoagreementonintroducingacommonEuropean deposit insurance scheme forcross border banks. National deposit guaranteeschemeswillbemuchbetterfinancedtobackuptheir guarantees, notably through a significantlevelofex-antefunding:0.8%ofcovereddepositswillbecollectedfrombanksovera10-yearperiod.Iftheex-antefundsproveinsufficient,theDepositGuaranteeSchemewillcollectimmediateex-postcontributions from the banking sector, and, as alast resort, the deposit guarantee scheme willhaveaccess toalternative fundingarrangements,suchasloansfrompublicorprivatethirdparties.A voluntary mechanism of mutual borrowingbetweendepositguaranteeschemesfromdifferentEUcountriesisalsoforeseen.
IMpLEMEnTATIOnChALLEngESItseemsclearthattheimplementationchallengesof the SSM are very significant. The ECB mustundertake a wholly new supervisory role andset up a cadre of experienced supervisors tooversee the largest and most complex banks intheEU.Itmustalsoworktowardsachievingfullyharmonizedtreatmentofthevariouscomponents
ofthebanks’balancesheets,includingrisk-weigtedassets, leverage, liquidity, NPLs definitions andprovisioning,etc.ForthistosucceedtheEuropeanBanking Authority’s (EBA) role in standardizingdefinitions, as well as the full implementationof the Single Rule Book, is vital. Developing acommon “supervisory culture” will be clearly alonger-termchallenge.
SinceNovember4,2014supervisionisdirectedbytheECB,andsupportedbythenationalsupervisoryauthorities of participating Member States. Thesuccess of the SSM is predicated on close andeffectivecooperationwitharather largenumberof EU players, including the EBA, the EuropeanParliament, the Euro-group, the EuropeanCommission, and the European Systemic RiskBoard(ESRB),withintheirrespectivemandates,aswellastheinternationalstandardsettersandotherbodies,includingtheBaselCommitteeofBankingSupervision(BCBS),theFinancialStabilityBoard(FSB) and the G-20. The SSM’s “growing pains”will likely be significant, and the objective ofconsistentsupervisionacrossalltheEUcountrieswillnotbeachievedimmediately.
ThEMISSIngpIECESAdoptionoftheSSMandprogressontheBRRD/SRMareimportantsteps,buttheydonotyetadduptocompleteintegrated“BankingUnion”.TheBRRD does not offer a final solution regardingcross border burden sharing, but still relies oncooperation and coordination of autonomousnational authorities.Within the SRM the viciousfeedback loop between European countries’creditworthinessandthatofbanksheadquarteredin themstillexistsbecause: i) theSRF is limitedby the relatively small €55 billion fund; ii) realmutualizationoflossesamongMemberStateswillnotoccuruntil2024,andthenonlyuptothefund’s€55 bn. limit (plus €60 bn. ESMfinancing afterrequiring national support); and iii) the absencefor the foreseable future of a fiscal union thatcouldcrediblybackstopacrossborderresolutionand/oracommondepositinsurance.
The few discretions and options available toMemberStatesundertheBRRDcouldhaveabigeffect,forexampletheexclusionofcreditorsfrombail-inmightleadtoregulatoryarbitrageanddoesnot ensure equal treatment of creditors acrossjurisdictions. Within the SRM the disretionarypoweroftheSRBappearsespeciallyproblematic,with stronger voting rights for Member Statesrepresenting larger banks where the plenarysessionisinvokedbyindividualMemberStates.
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The absence of any plans for a common bankinsolvency framework in the EU could becomea future stumbling block in the event of a crossborder bank liquidation, as the default optionof bank resolution through liquidation remainsunder national legal frameworks. There is alsoa need to strengthen institutional frameworksandgovernanceforthenewerEUmemberstates,particularlyintheareaofdepositinsurance.
The decisions taken in the last two years havebeenimportantpositivestepstowardseliminatingtheviciouscirclebetweenbanksand sovereigns.Meaningfulprogresshasbeenmadeandhashadstabilizing effects, but implementation of a fullyfledgedBankingUnionremainssomewayoff.
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b.EUCLIEnTCOUnTRIESThestateofaffairsinFinSAC’sEUclientcountriesisdescribedinmoredetailbelow.
BULgARIABulgaria’sbankingsystemhasshownremarkableresilience to anydamage to confidence resultingfromthefailureofitsfourthlargestbank,CorporateCommercialBank(KTB),inJuneof2014.Liquiditymeasures taken by the Bulgarian National Bank(BNB) and the Government successfully avoidedfurther contagion to the rest of the system. Theinjectionof€1billion in state resources into theDeposit Insurance Fund (DIF) allowed for thepayment of insured KTB deposits, albeit with asix-month delay. KTB’s failure, however, pointsto the need to address weaknesses in Bulgaria’ssupervisoryandbankresolutionsystemstorestoreBNB’scredibility. KTB’s crisis demonstrated that Bulgaria’s legalframeworkdidnotgive theauthoritiesadequateresolution tools. A timely transposition ofthe BRRD into the national law has become a
priority to address the gaps in the resolutionand crisis management systems, as well as therecapitalizationoftheDIFtoallowforatimelierpay-out of insured deposits. A planned AQR in2015also seems important to restoreconfidenceinthebankingsystem.
High corporate debt and high and risingnon-performing loans (NPLs) and associatedencumbered collateral need to be addressedpromptly, including setting up an effectivevoluntary out-of-court debt workout system andother measures to address judicial shortcomingstotimelyandpredictableinsolvencyproceedings.
CROATIACroatia has been underperforming in terms ofeconomicgrowth,fiscalconsolidation,andbusinessenvironment. Croatia remains in a protractedrecession for the sixth year in a rowwithweakprospects of recovery in 2014-15. The recessionhasputpressuresonpublicfinances,resultinginentry into the EU’s Excessive Deficit Procedure.Although accession to the EU is expected totranslateintohigherinvestmentthroughEUfunds,
Single Rulebook – EU 28CRD/CRRBRRD/SRM
DDGS
National fiscal policy
National insolvency lawnational ownership
instruments
National depositguarantee systems
SSM SRM EDGS
EuropeanDeposit
GuaranteeMechanism
Voluntary borrowingbetween
National DGS
Single SupervisoryMechanism
(ECB + NCAs)
Euro 18+
Single Resolution Mechanism
(SRB + NRAs)
Euro 18+
EUROpEAnBAnkIngUnIOn
Overall Economic and Financial Regulatory Context: The EU and the Region
there are significant challenges in their efficientutilizationandimplementation.Atthesametime,Croatianfirmsarelesscompetitive,partlyduetounsupportive legal and regulatory environmentsforbusinesses.
Banks,especiallythesmallerones,arechallengedbyashrinkingsectorsizeandlowerprofitability,althoughaveragecapitaladequacyishigh.Inthisrecessionarycontext,thebankingsectorhasbeenshrinking in recent years. Although the bankingsector is dominated by large, foreign-ownedbanks, it also includes numerous smaller banks.Sectorprofitabilityhasbeendecreasing,drivenbyincreasingprovisions,decliningloanquality(highand risingNPLs), and slow lending growth. Thesector is liquid andwell capitalized on average,but these averages may mask differences at theindividualbank-level.The“overcrowded”marketand declining profitability point to pressures forbankconsolidationand/orexits.
NPLs have been rising and their resolution hasbeen slow and ineffective. The quality of theaggregate bank loan portfolio has continued todeteriorateandthistrendisexpectedtocontinue.The resolution of NPLs has been slow to date,partly due to an illiquid real estate market andweaknessesinthelegalandjudicialframework.Anout-of-courtpre-bankruptcysettlementprocesshasrecentlybeenintroduced,buthashadlittlesuccessin restructuringfirms. FinSACand theEuropeanBankforReconstructionandDevelopment(EBRD)have prepared a NPLs resolution strategy andactionplantobeimplementedin2015. pOLAndSoundmacroeconomicpolicieshavehelpedPolandsustain economic growth throughout the globaldownturn.Duringthetworecentperiodsofweakeuroareagrowth,in2008-10andin2013,Polandadopted counter-cyclical fiscal and monetarypoliciestohelpcushiontheimpactonthedomesticeconomy.Despiteadeclineindomesticdemand,particularly investment, Poland is the only EUcountrythathasgrowncontinuouslyoverthelastsixyears.In2014,economicgrowthstrengthenedinPolandandtheauthoritiesresumedtheirfiscalconsolidationeffortsinanefforttostartrebuildingprudentialfiscalbuffers,reducingthefiscaldeficittoaround3.2percentofGDP.
To sustain the recovery the authorities haveprioritized reforms to strengthen public financesand financial sector oversight, while structuralreforms aim to bolster the economy’s long termcompetitiveness. Challenges remain to achievesustainablegrowth:futuregrowthislesslikelyto
relyonrelativelycheaplabor,withalargeshareof exports to Germany as part of their export-led supply chains. The new macroeconomicframework is therefore designed to help Polandcopewithfutureshocks,whilestrengtheninglabormarkets (in terms of both flexibility and raisingparticipation rates), the business environmentandpromoting innovation.Continuing tobolsterfinancial sector oversight (including macroprudential supervision)will also support amoresustainable recovery in credit and investmentandfurtherreducerisksfromsuchfactorsasthedivergentmonetary policy in the EU and US orfromregionalgeopoliticalinstability.
Inthefinancialsectortheauthoritiesarecommittedto enacting the Law on Macro-PrudentialOversight, adopting amendments to the BankingLaw to incorporate the EU Capital RequirementDirective (Iv), passing a new Bankruptcy Lawand amending the 1997 Law on Covered BondsandMortgageBanks.Duetodifficultlegalissues,particularly possible constitutional impediments,the BRR Law included in a new Law for theBankGuaranteeFund(BGF),draftedwithWorldBank (WB) assistance, is still under discussionandislikelytobedelayedforanotheryeartobeconsidered by the new Parliament following theOctober2015elections.
ROMAnIAPriortothe2008globalfinancialcrisis,RomaniaachievedhighratesofrealGDPgrowthaveragingmore than6percentper year.Romania sufferedadeep,v-shaped,GDPcontractionin2009,witha slow recovery in the following years. Underthe 2009 IMF Stand-ByArrangement, Romania’seconomystabilized,externalandstructuralfiscalimbalancesweresubstantiallyreduced,andinitialsigns of growth emerged. Structural reformsare starting to bear fruit, although they remainincomplete. In 2013 the economy recoveredreachingarealrateofgrowthof3.5percent.Byregionalstandards,Romaniahashadaremarkablerecovery, although it still has one of the lowestlevels of per capita income in the region and anotablyslowpaceofconvergencetotheEUmeancomparedtoitspeers.In2014domesticdemandisexpectedtograduallyovertakenetexportsasthemaindriverofgrowth.Investmentisprojectedtoregainmomentum,supportedbybetterabsorptionofEUfunds,asmajorinfrastructureprojectsmoveahead, although the consensus forecast is thatGDPgrowthwillbeunder2percentfor2014asawhole.
The financial sector of Romania ismostly bank-basedand foreignowned,and thereforeexposed
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todeleveragingpressures.Bankshavelostexternalfunding equivalent to 11 percent of GDP sincethe first quarter of 2009, which has not beenfully compensated by greater mobilization ofdomesticfunding.Althoughthefundingstructureof banks has continued to improve, deposits arepredominantly short-term, posing challenges intermsofmaturitymismatcheswithlending.
Bank credit growth continued its negative trendin 2014, reflecting persistent bank deleveragingas well as demand factors. On the supply side,parent banks adjusted their balance sheets dueto new capital requirements, while subsidiariestightenedtheircreditunderwritingstandards,andcutlendingduetothelackofmediumandlonger-termLeufunding.Demandfactors includedslowoutputgrowth,increasedweightingofdebtserviceof households and balance sheet weaknesses ofindividual borrowers and SMEs. The prevailingpoliticalandpolicyuncertaintyhasnothelped.
NPLsinRomaniahavereachedahistoricalhigh,but banks are gradually selling at a significantloss theirportfoliosofbad loans.TheNPLsratioin February 2014 reached 22.52 percent. BankshavetakenstepstosellsignificantportionsoftheirNPLs,aftertheauthoritiesallowedthemtowriteofffullyprovisionednon-performingloans.
C.EUCAndIdATEAndpOTEnTIALCAndIdATECOUnTRIESThe South East European economies havestagnated in 2014 on the back of increasingbusiness cycle synchronization with the EU,and flood-induced contraction in Serbia andsharp slowdowns in Bosnia and Herzegovinaand Montenegro. This weak regional economicperformancemasksnotabledifferencesamongtheSouthernEuropeancountries.In2014,theSerbianeconomyisestimatedtohavecontractedby2percent– fora third time since theglobalfinancialcrisis–andBosniaandHerzegovinaisstagnating.EconomicgrowthratesinKosovo3andMontenegroare estimated to havemoderated in 2014. OnlyAlbaniaandtheFYRMacedoniashowedsignsofamoresustainedrecoveryonthebackofincreasingexports,particularlyinthesecondhalfoftheyear.ThefloodsinMay2014werethemainimmediateculpritbehindtheweakdomesticdemandandtheoverallsluggisheconomicperformance.
ThefinancialsectorsoftheWesternBalkancountriesremain fragile. Many countries are confrontedwithlevelsofNPLsthathavebeenrisingoverthepastyearsandarenowveryhighbyinternationalstandards. Even though on paper bank capital
levelsaregenerallysoundandmostbankshavesetasidesignificantprovisions,thepotentiallossesontheseloanscouldreducebankcapitalandprofits.Additionally,banksremaincautioustolend,whichhampers economic growth in the region. SomecountriesattributetheslowdowninsubsidiariesofEU banks granting credit domestically to tighterpolicies from the parent bank. There is scopein a number of countries to further strengthenthe legal frameworks, crisis management toolsand procedures, and institutional governance toincrease the authorities’ capacity to effectivelymanage a banking crisis, particularly if it weresystemic.TheweakeconomicrecoveryinWesternEurope and the economic conditions in otherregionswouldcomplicateanddelaythepotentialtakeover or orderly exit of weaker banks in theregion.
The share of Greek banks in total bank assetsremains elevated in Albania (17 percent),FYR Macedonia (22 percent) and Serbia (15percent),althoughthe localsubsidiariesarewellcapitalized.TheongoingproblemsinGreecehavespurredbankingsupervisorsinthesecountriestoimplement increased supervisory monitoring, aswellasregularstresstests,assessingthepotentialnegativeimpact.TheaboveaverageNPLsofGreeksubsidiaries and the risk of contagion canbe anadditionalsourceofvulnerability.
High levels of NPLs pose significant challengesfortheauthorities.Whilethecausesareuniquetoeach country, the following common factors canbeidentified:
•Enforcementofcollateraltendstobea long,uncertainandcostlyprocessand reliesheavilyonratherunpredictableand slowcourtdecisions.Thislegalprocess isslowdueto,forexample,theneedto organizeauctionswithbidding,difficulties inidentifyingtheownershipofthe collateral;
•Lackoffairframeworksforvoluntary outofcourtrestructuringsforviable exposures,suchasmediationservicesand disputeresolution;
•Prudentialsupervisorstendnottobe proactiveandintrusiveenough, particularlywhentheexposuresare fullyprovidedfor.Theyshouldbemore hands-on,requiringbankstosetminimum targetratiosforNPLresolution, discouragingthecommonlyadopted“wait andsee”attitudeofsomebanks;
3 Thisdesignationiswithoutprejudicetopositionsonstatus,andisinlinewithUNSCR1244andtheICJOpinionontheKosovoDeclarationofIndependence.
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Overall Economic and Financial Regulatory Context: The EU and the Region
•Underdevelopedmarketsfordistressed assetsintheregiontendtofurtherlimit thescopeforNPLsresolution;and
•Lackoffinancialcapacityinthebank toabsorbthelosses,particularlywhen
banksarebuilding-upcapitalbuffers tocomplywithstricterBaselIII requirements,canrequireclose cooperationwiththerelevantauthorities orotherdonorstoresolvethebank.
16
June 2013 June 2014 Peak since 2008 Pre crisis level (end of 2007)
ALB BIH KOS MKD MNE SRB
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Thereisanurgentneedtorestorecreditgrowthandcleanupbalancesheets.IntheNPLsarea,FinSACworkscloselytogetherwithotherEUinstitutionsand IFIs (the IMF, the European InvestmentBank (EIB)and theEBRD)aspartof theviennaInitiative,whichaimstoimprovebankingsystemsand coordination among banking supervisors inthe EU and non EU countries. During the 2014WB/IMF Annual Meetings in Washington DC, itwasagreedthattherewillbeclosercoordinationamongtheIFIsintheareaofNPLresolutionatthecountry level toavoidduplicationandprovidingconflictingadvice.ThefirsttestcasewasthejointmissiontoCroatia(seeSectionIv,cofthisreport)andSerbia.
FinSAC has been particularly active in Albaniain NPL resolution, where it has engaged twoconsultingfirmstocoordinate, trainandpreparefinancial restructuring plans with the Bank ofAlbania(BoA)andthecommercialbanksleadingtotheactualresolution/restructuringofthethirtylargest corporations/conglomerates with a highconcentration of NPLs (over one-fourth of totalNPLs)-Seebelow.
Inviewofthestrongfinanciallinksbetweenbanks
and the sovereign in general, and in the Balkanregion in particular, the financing of resolutiontools will be a key element for their successfulapplication.Thesettingupofseparatefundingand/ortheextentandconditionsoftheuseofdepositinsurance under resolution requires a tailoredapproach. Also the potential reimbursement ofcreditors invoking the “No Creditor Worse Off”thanunderliquidationprincipleistobecarefullyconsidered, in those caseswhere no separate exantefinancingofresolutionfundsisoptedfor,asinSerbia’scase.
d.UkRAInEAndMOLdOVA
UkRAInEUkrainefacesenormousgeopoliticalandeconomicchallenges, including a systemic banking crisis.Devaluationandpoliticaluncertaintyhavecausedsignificant deposit outflows and deterioration ofthebankcreditportfolioin2014.33banksweresent to resolution, including somemedium sizedandbigbanks,andgiventheacceleratednegativedevelopments in the market other banks maybecomeinsolventin2015.TheDepositGuarantee
WESTERnBALkAnS:nOn-pERFORMIngLOAnS,pERCEnTOFTOTALLOAnS
Financial Sector Advisory Center | Annual Report 2014
Fundisfacingsignificantoperationalandfundingproblemsinthepresentcrisisenvironmentwhichthegovernmenthasbeenaddressing.Oneof themajorweaknesses in the banking sector resultedfrompoorcorporategovernanceandshortcomingsinthesupervisoryregimewhichledtoaveryhighlevelofrelated-partylendingandincreasedotherrisksinthesystem.TheworkoftheWBandtheIMFhasconcentratedonstabilizingthesituation,dealingwithclearlyinsolventandunviablebanks,whileputtinginplaceanewfinancialstabilityandregulatory framework. This should address themajordeficienciesobservedinthepast,includingpoorcoordinationamongthegovernmentagenciesNationalBankofUkraine(NBU)andtheMinistryof Finance, which will now formally coordinatepolicies and cooperate in the Financial StabilityCommittee),aswellastacklingthecriticalissuesofrelatedparties’lending,increasedresponsibilityofbankownersandmanagers,andspecialregulatoryframework for systemically important banks. Toensurethefinancialstabilityofthebankingsystemthe NBU plans to run another round of bankdiagnosticsandrelatedparties’mappingexercisein large banks, to assess recent deterioration ofbanks’portfoliosandcomeupwithreliablebankrestructuringandrecapitalizationplans. AnotherstreamofworkdealswiththeresolutionoftheveryhighlevelofNPLs,adoptinglegalandregulatory reforms and a set of more effectivemechanisms to dealwith corporate bankruptcies(adoptionofthe“IstanbulApproach”incooperationwiththeEBRD).FinSAChasadedicated,Russian-speaking, staffworking on Ukraine, preparing aseriesofDevelopmentPolicyLoans(DPLs),aswellascoordinatingourTAefforts.
MOLdOVAAfinancialpyramidschemecarriedoutbythreeMoldovan banks is coming to a conclusion thatmay cost the government’s budget as much as15%ofGDPormore.Thethreebanksinvolved,BancadeEconomii(BEM),BancaSociala(BS),andUnibank(UB),arebelievedtobecontrolledbyaMoldovanbusinesstycoonandhisassociates,withseniorpoliticalpatronage. Moldovanauthoritiesareseekingtountangleacomplexweboffinancialrelationshipsamongthethreebanks,theiroffshorecorrespondent banks, shell companies domiciledabroad (including theUK), and their borrowers.BEMisconsideredbysometobeasystemicbankbecause of its large role in the payment system(e.g. it is a key channel for Government socialpaymentsandpensionsandthesoleclearingbankfor theMoldovavisaandMasterCardpayments)andasofSeptember30,2014,held14.4%ofthesystem’s deposits (with about 1 million active
retail deposit accounts4), and the largest branchnetwork.Atthesamedate,BSheld7.1%andUB3.2%ofthesystem’sdeposits.NeitherSBnorUBisconsideredtobesystemic,butthesethreebanksjointlyrepresentaboutonequarterof totalbankdeposits,posingamajorstabilityrisk.
TheNationalBankofMoldova(NBM)hasimposeda Special Administration regime on the threebanks, and it has receivedTA from theWB andFinSAC to conduct a crisis simulation exercise(CSE), undertake a financial diagnostic of thesebanks,andlayoutabankresolutionstrategy.TheNBM has also requested bids from internationalauditingfirmsforaforensicauditofthreebanksinordertoidentifytheculprits,exposedomesticandcross-borderirregulartransactions,andeventuallyfilecriminalchargesagainsttheresponsiblebankcontrollingshareholderandseniorbankmanagers.
E.ThECAUCASUS
ARMEnIAArmenia’s economic environment became moredifficult in 2014, particularly due to adverseexternal developments affecting exports andremittances. GDP growth is expected to slowto 2.6 percent. Head winds include geopoliticaldevelopments in the region (Russia, Ukraine,Nagorno-Karabakh), the continuation of thestandstillwithTurkey,andstagnationintheEU.Currency pressures reemerged in November, inthe context of sharp depreciation of theRussianruble, and lower remittances and exports toRussia,leadingagaintoCBAintervention,aswellasdepreciationoftheDram.
The IMF reports that the Armenian banks haveexcessliquidityandtheyremainwellcapitalized,although a recent increase in NPLs warrantsmonitoring.Thebankingsectorremainsprofitable,butperformancehasweakened.Slowereconomicgrowthhas been accompaniedby an increase inNPLs, which reached 6.5 percent in September,a reduction of profitability, slower credit anddeposits growth, and a small reduction in thecapital adequacy ratio. In addition, competitionamong banks for clients in a weaker economicenvironment has reduced lending-depositspreads,puttingadditionaldownwardpressureonprofitability.
gEORgIAGeorgia’seconomyhasbeenhitbyacombinationofsevereexternalshocks:theRussia-Ukrainecrisis,the deepening recession in Russia and currency
4BEMhasafurther1millioninactiveretailaccounts.TheseaccountsconsistofSovieteradeposits,generallyintinynominalamountsperaccount,thetruevalueofwhichisdeterminedbyanannualGovernmentdecisiononanindex.Thisschemeeffectivelymakestheselegacy“deposits”nothingmorethananotherGovernmentbudgetarytransfer,whichcouldbedonewithpaymentsthroughthePostOfficeorotherbanks.
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Overall Economic and Financial Regulatory Context: The EU and the Region
devaluationsintradingpartnercountries.Becauseoftheseshocks,Georgia’sexportsare30percentlower than one year ago, and remittances fromGeorgianworkersabroadaredown25percent.
Theeconomyisslowingasaresult.GDPgrowthin 2015 could reach 2 percent, however, theeconomies of many of Georgia’s main tradingpartners are slowing by even more, and thedepreciation of their exchange rates is hurtingGeorgia’s competitiveness. Lower exports,remittances,andtourismreceipts,haveincreasedthe current account deficit in 2014 to around9.5 percent of GDP. As a result, the Lari hasdepreciatedbymorethan20percentagainstthe
USdollarsinceJanuary2014,increasing thecostforthosewhohaveborrowedinforeigncurrency,slowingdowneconomicgrowthfurther.
Georgian banks are well capitalized and liquid.The system is quite concentrated with a fewlocally-ownedbanks,particularlyBankofGeorgia,controllingalargeshareoftotalbankassets.
GeorgiahadaFSAPUpdate in2014, inwhichanumberofrecommendationsweremade.FinSACiswillingtoassisttheNBGinimplementingthem,as well as collaborating in setting up a DepositInsuranceFund,asagreedbetweentheGeorgianGovernmentandtheEU.
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A.STAFF
In December 2014, the core FinSAC teamconsistedofsevenstaffbasedinvienna,includingthe Coordinator. FinSAC had some turnover in2014. FinSAC’s coordinator retired in June andone staff resigned. The Coordinator was swiftlyreplacedandthesearchwasanewSr.Supervisorwas started. Three additional staff were hired,one focusing on NPL resolution, anothermainlydealing with the response to crisis countries,particularlyUkraine,andalawyerwithexpertiseinBRRwashired.FinSACstaffskillsandexpertiseincludeeconomics,finance, law,supervisionandregulation, accountancy, and risk management.ThestaffaresupportedbyWBheadquarterseniorstaff as well as Sr. international consultants, asneeded.ThehiringofoneseniorbanksupervisorisforeseenforQ1/2015.
b.pUBLICpROFILEAndBUdgETdISCIpLInETo increase its visibility and public profile,FinSAC has developed and populated a websitewww.worldbank.org/finsac and developeda range of dissemination (printed) and businesslinebrochuresforitsclients.Thewebsitecontainsa summary of services offered, as well as thepresentationsofseminarsandworkingpapers.
Two marketing brochures were developed andpostedonFinSAC’swebsite.Thefirst,whichisalsoavailableinprintedform,isageneralintroductionto FinSAC, outlining its mission, product range,geographicreachandclientfeedback.ThesecondfocusesonFinSAC’sbestknownproduct,theCSE,explaining the process, outcomes, results andexpectations.IthasbeenusedinanactualCSEtogiveparticipantsanunderstandingof theoverallpurposeoftheexerciseandinformthemabouttheprocesstobefollowed.
Two other product specific brochures, on microprudential supervision and addressing recoveryandresolution,arebeingdeveloped.
Increased standardization and project disciplineis being applied to all FinSAC’s activities. Asoperations expanded, a simplified internaloperational procedure has been developed and
adopted. This standardizes project preparation,appraisalandqualitycontrolprocesses,providingatemplateforprojectConceptnotes,facilitatingthe preparation of the Results Framework. Thisapproach is mandatory for all FinSAC activitiesandwillhelpmaintainprojectfocusanddiscipline,enhance the quality of tasks at entry/inception,and maintain accountability regarding within-budgetdeliveries.
FinSAC continues to work closely with relevantinternational organizations and agencies. Forexample, following a visit to the Joint ResearchCentre (JRC) of the EU Commission in ISPRApotentialareasforcooperation,likestresstestingandfinancialmodelling,arebeingdiscussed.
C. SEMInARS,COnFEREnCESAndWORkIngpApERS1)FinSACInternationalConferenceonFinancilConsumerprotectionandFinancialLiteracy–June,Sofia,Bulgaria
From 11 to 14 June, 2014, FinSAC organizeda conference in Sofia, Bulgaria, on ConsumerProtection and Financial Literacy for regionalsenior supervisors and regulators. It sought toenhance their knowledge and encourage debatewith academics, practitioners and policymakerson the effectiveness of various initiatives beingimplemented in their respective countries. Sixbroadtopicswereaddressed:
-ComplianceandSupervision;
-ResponsibleLendingandDebtCounseling:AEuropeanPerspective;
-FinancialInnovationandTechnology;
-ApproachestoAlternativeDisputeResolutioninDevelopedandDevelopingEUEconomies;
-DepositInsuranceandFinancialConsumerProtection,and
-StrengtheningthePopulation’sFinancialCapability.
Participants acknowledged that recovery ofconsumer confidence in the financial sector iscrucial for the viability of new bank funding
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III.FINSACACTIvITIESIN2014
modelswhichwillbelessreliantoncross-borderand wholesale financing and more dependentona localretaildepositbase.There isaneedtocollectively redefineconsumerrelationshipswiththe financial system in Europe to address thechallengesoftherecentcrisis,andbetterprepareforthenext. The conference promoted international co-operationtosupportthestrengtheningoffinancialconsumer protection in line with, and buildingupon, the G20 approved principles. There wassupportforincreasedlegalrecognitionoffinancialconsumer protection by oversight bodies, andachieving fair treatment of financial serviceusers,properdisclosure,preventionof fraudandabuse,adequatecomplaintshandlingandredressmechanisms and, more broadly, the adoptionof policies by financial service providers ofresponsiblebusinessconduct.
Moreinformationisavailableat:www.worldbank.org/finsac
2) Working paper on Loan Classificationandprovisioning:Currentpractices in26EuropeanandCentralAsianCountries
FinSACissueditsfirstworkingpaper,explainingtheregulationsandpracticesintheareaofidentifyingandprovisioningforloanslossesin26countriesinEUcountriesandEmergingEurope.Theanalysisis based on theWB Survey 2011-2012. Bankingsupervision responses were validated through adeskreviewofpubliclyavailableregulations. This working paper had three objectives. First,analyzingsomeimportantconsiderationsthatmakethecomparisonofNPLsratiosandprovisionsacrossjurisdictions so challenging. Second, explainingtheinteractionsbetweenprovisioningframeworksbased on prudential regulations and accountingstandards. Finally, concluding by sharing somegood practices for NPLs definitions useful forprudential supervisors who are consideringaligningtheirprudentialframeworksmorecloselywith InternationalFinancialReportingStandards(IFRS) and proposing steps for further regionalwork,knowledgesharingandharmonization.
3)FinSACConferenceonCreditRiskManagementandRegulatoryprovisioninginanInternationalFinancialReportingStandards(IFRS)Environment,October,Vienna,Austria
Following publication of the working paper,FinSAChosted a successful conference onCreditRisk Management and Regulatory Provisioning
inanIFRSEnvironmentonOctober21-22,2014at the Austrian Federal Ministry of Finance invienna. More than forty-five senior participantsfromcentralbanksandregulatoryagencies fromten countries in the ECA region, internationalfinancial institutions (IFIs) and the AustrianMinistryofFinanceattendedthisevent.
The seminar gave an overview of currentregulatorypracticesfordefiningandprovisioningNPLs in theEuropeandCentralAsia regionandconsidered commercial banks’ current IFRSprovisioning practices. There was discussion ofthepre-requisitesandstrategiesforbetteraligningregulatory and IFRS provisioning incentives andpracticesandforthestrategiesbeingfollowedtoaccommodate traditional regulatory provisioningsystems and IFRS provisioning in view of thenewIFRS9standard. Theimportanceofhavingcommondefinitions and the early recognitionofcreditlosseswasrecognizedusingtheexperienceandsupervisorylessonsfromsomecrisiscountrieswithassetqualityreviewprograms, inparticularSpainandIreland,andtheirloanlossprovisioningpractices. Other topics included home-hostcooperation and consolidation of financialand regulatory reports; the implementationconsiderations of the new IFRS 9 standard; themodellingofcreditlossesfromtheperspectiveofcommercial banks, regulators and IFIs; themainpolicyalternativesandstrategiesforimplementingreforms in accounting, disclosure, prudentialsupervisionandreporting.
Regulators, international financial institutions(International Monetary Fund and the WB),the EBA, central and commercial bankers,consultancy firms and rating agencies, providedtheir perspectives on IFRS provisioning, NPLsidentificationandregulatoryprovisioning.
d.CLIEnTSpECIFICACTIVITIESpILLAR1:FInAnCIALSTABILITY;CRISISpREVEnTIOnAndMACRO-pRUdEnTIALFRAMEWORkS OneofFinSAC’smostpopularproductsunderthisPillaristhefinancialCSE.Theseexercisesprovidethe opportunity for client country authorities totest their crisis preparedness, to identify gaps intheir early crisis response and bank resolutionframeworks, and to assess how well differentauthorities can cooperate in a stressed or crisissituation. FinSAC conducted three CSEs, inMoldova, FYR Macedonia and Armenia, during
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2014.Theyofferagoodillustrationofhowvaluablethisproductcanbeforourclients,especiallyiftheyarefacinganimpendingcrisissituation.Withthebenefitofhindsight,onecansaythatthetimingofallthreeCSEsin2014provedtobeexceptionallyfortunate.
ARMEnIAArmenia’s financial system has shown no signsofseriousstabilityproblemsinthepastcoupleofyears.Giventheverystrongtradeandremittancelinks with Russia however, where a sinking oilprice,WesternsanctionsandotherfactorsresultedinasharpfalloftheRussianRubleinadditiontoother economic problems, itmade sense for theauthoritiestopracticehowtocopewithasuddenescalationof theseadverse trends.TheCSE tookplaceinlateOctoberattheCBA’sResearchCentreinDilijan,withtheparticipationofabout40stafffromtheCBA,theArmenianMinistryofFinanceandtheDepositGuaranteeFund.ThisexperiencewastoproveusefulwhentheRussianRubletumbledin December with contagion reaching Armenia,requiringtheCentralBankandotherauthoritiestoimplementasetofextraordinarymeasuresinordertomanagethecrisis.Thede-briefingtwodayslaterallowed a valuable exchange on the preliminaryobservationsandpotentialgapsidentifiedduringtheCSE.The fullReportwillbesharedwith theCBAfortheirreviewandcomments.
BOSnIA-hERzEgOVInAA credit risk model to strengthen the stresstestingframeworkattheCentralBankofBosnia-Herzegovina (CBBH)was delivered to the clientin early 2014. Staff at the CBBH was trainedhow tomake regular use of themodel andhowto interpret its results for decision-making. Thedelivery of this TAmodulewas a joint effort ofFinSACandtheJointviennaInstitute(JvI)withoneJvI staffparticipating in themodelbuildingprocess.FinSACalsobuiltanddeliveredanearlywarningmodelfortheBosnianfinancialsystem.
Also, in 2014 an update of the credit growthforecastingmodelsuitetookplace,makinguseofnewdataavailableattheFinancialStabilityUnit.The results of the update were delivered to theclientandwereinstructedonhowtoincorporatethenewmodelsintheireverydaypractice.
FYRMACEdOnIAFYR Macedonia is one of the countries in theWestern Balkans where Greek banks have astrongpresence.TheMacedonianauthoritieshavebeen intensively updating the country’s crisispreparedness framework for the past two years,
withhelp fromtheWB,andfelt it timelyto testtheir new arrangements, asking for a CSE withFinSAC’sassistanceinSeptember.Theexperienceandthelessonslearnedarehelpingthemtodealwith the new wave of possible contagion fromGreecethatre-emergedattheendof2014andatthebeginningof2015.
TheCSEtookplaceinSeptember2014inSkopje,with theparticipationofabout40stafffromtheNBRM, theMinistry of Finance and the DepositGuarantee Fund. The exercise included a veryproductive de-briefing to discuss preliminaryobservationsandpotentialgapsintermsofpolicytools and reaction times for the different bankcases examined during the exercise. A full CSEReportwassharedwiththeNBRMfortheirreview.ThereportbenefitedfromcommentsbytheWB’sinternal peer reviewers, theNBRM, theMinistryofFinanceoftheRepublicofMacedoniaandtheDepositInsuranceFund.
MOLdOVAFollowingFSAPfindingsandattheurgentrequestof the NBM a financial CSE was carried out inChisinau inApril 2014with the participation ofaround30stafffromtheauthoritiesincludingtheNBM Governor, Deputy Governor, the Ministerof Finance and the Director of the DepositGuarantee Fund. Subsequently, the informationflowand the actions takenduring theCSEwerecarefully analyzed and a comprehensive CSEReport, outlining the main lessons and policyrecommendations,wassenttotheauthoritiesfortheirreviewandcomments.
UkRAInEFinSAC participated in jointWB – IMFmissionstoUkraineaspartofthecrisisresponseprogram.FinSACprovidedTAonNPLresolution,enhancingbank capital requirements, a special regulatoryregimefordomesticsystemicallyimportantbanks(D-SIBs),aswellasarecoveryplanningframeworkforD-SIBs.
The country authorities requested FinSAC’sassistance to help the NBU in their efforts toestablish a high level Financial Stability Council(FSC) as a platform for regular discussions offinancial stability issues, with the participationoftheMinistryofFinance,theDepositGuaranteeFund, and two other financial regulators. Theauthorities were specifically interested in themandate and functions of the Committee andhowbest to institutionalize theworkof theFSCSecretariatwhichistobeestablishedintheNBU.FinSAC provided extensive comments on a draftPresidentialDecreesettinguptheFSC.AdditionalTA topics have been discussed with the NBU,
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bothunderFinSAC’smacroandmicro-prudentialactivities.
pILLAR2:MICRO-pRUdEnTIALREgULATORYAndSUpERVISORYFRAMEWORkS
ALBAnIAFinSAC has been collaborating with the Bankof Albania (BoA) since 2013 to identify andimplement measures that will facilitate thereduction of the NPLs stock in the Albanianbanking sector, and encourage the resumptionof lending to viable companies and households.The priority has been the effective enforcementof creditors’ rights, while promoting the returnof operationally viable borrowers to sustainabledebt servicing capabilities, and hence to newsustainableborrowing.
With these aims in mind, the BoA and FinSAChave promoted the appropriate restructuring oflarge,economicallyviablecorporatedebtors.ThisrequiredtheBoAtoadoptamoreintrusiveroleintacklingcoordination failuresbetween themajorcreditors,whilealsohelpingbanksdevelop theirskills and expertise in operational and financialrestructuring. This was achieved through aframeworkforthevoluntary,out-of-court(vOOC)restructuring of large, complex, multi-creditordefaults, in line with the INSOL principles onmulti-creditorworkout,aswellastheLondonandIstanbulexperience,adaptedtothespecificitiesoftheAlbaniancontext.
This work was complemented by an innovativepilot program to evaluate the restructuringpotential of the largest,most complex corporatedefaults.Thisprogram,whichbringstogetherthelargestAlbanianbanks,ishostedandmanagedbythe BoA,with support from FinSAC through theengagement of two restructuring specialist firmswith extensive experience both in Western andCentral&SouthEasternEurope.Undertheprogram,bankswithsharedexposurescooperateincreditorcommittees, exchange information and analysis,and jointly negotiate with the debtor to ensuretransparency and fairness in recovery. Defaultedcompaniesinthepilotsampleareevaluatedbasedon their current financial statements and futurebusinessprospectstodeterminetheircommercialviability, as well as the level of debt that canreasonablybesupportedbyfutureearnings.Thisisthenusedtodecidewhethertheenterprisevalueof the company is greater than its liquidationvalue,inwhichcasearestructuringispursued.
Bytheendof2014,afirstsampleof13defaultedcorporate obligors, representing approximately15%oftotalNPLsinthesystem,hadbeenreviewedthrough the pilot program. Approximately onethird coming out with restructuring plans weredeemed to have a high chance of success, onethird were deemed “worth restructuring” buttherewassomeuncertaintyabouttheirprospects,and approximately one thirdwere deemed unfitforrestructuringandsenttoliquidation.Afurthersampleof25corporateswillbe reviewedby theBoA,FinSACandtheexternalconsultantsinMarch–April2015,representinganother10percentofthe stock of NPLs. After this the participatingbanks are expected to continue managing theprocess without external support to reach acoverageofabout50companiesorconglomerates,overonequarterof theNPLs inAlbania.Factorsexogenous to the project led to some delays in2014, but the project, overall, has demonstratedthe importance of overcoming collective actionandlackofinformationproblems.
FinSACpresentedontheNPLsReductionProgramat the Bank of Albania-IMF Country Forum inMarch2014. BULgARIAAttherequestofBNBaFinSACmissionvisitedtheBanking Supervision department of the BNB onJune15, 2014 to advise on: (i)migratingBNB’sloan classification and provisioning standardsto IFRS provisioning; and (ii) transferring theWB’s Financial ProjectionModel (FPM) - by theauthorofthemodel-toassistsupervisorsanalyzeand simulate banks’ performance for regulatoryanalysisandstress-testingpurposes.
ThedevelopmentobjectiveofthisdualTAactivitywas: (i) to strengthen the practices followed bythe BNB in supervising loan quality, once theregulatory loan-loss provisions was abolishedand additional capital buffers were introduced,whilethesystemtransitionstoIFRSprovisioninginwhichgreatdiscretion isgiven tocommercialbanks to set their loan-loss provisions; and (ii)to transfer theFPM,akey tool for assessing theconditionandviabilityofBulgarianbanks.
The recent intervention and nationalization ofKTB,thefourthlargestcommercialbank,coincidedwiththemission’svisittoSofia,butwasnotpartof itsassistance. It is likely theBNBwill requestfurthersupportfromFinSAC.
CROATIAA jointWB - FinSAC andEBRDNPLs diagnosticmission visited Zagreb from 1 to 5 December,
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2014 to conduct a diagnostic of impediments toNPLs resolution in Croatia and identify priorityareas for intervention, which will eventually beusedtodefinetechnicalassistance(TA)andothersupport that can be provided by the WB andother IFIs.Thediagnosticvisitwasconducted incollaborationwiththeEBRDandtheInternationalFinance Corporation (IFC), in the context of theviennaInitiative.Theteamconductedinterviewswith awide range of stakeholders including theCroatian National Bank, government ministries,state institutions; the judiciary, leading banks(representingca.2/3ofallCroatianbankassets),lawfirms,accountingandauditfirms,andprivateinvestmentfirms.
FinSACandtheEBRDhavebeenaskedtosupportthe insolvency law amendment process, with afollow-upvisitscheduledforJanuary2015.
gEORgIA TheNationalBankofGeorgia(NBG)requestedTAwith the prudential implications of transition toIFRS.FinSACreviewedthegapanalysispreparedby the NBG and provided recommendations onthe pace and timing of transition to IFRS in thebanking system, taking into account the stateof preparedness of the smaller banks. FinSACalso proposed an action plan for IFRS transitionincluding the definition and implementation ofprudentialadjustments,filtersandreclassificationstotheIFRSfinancialstatementsofGeorgianbanks,basedonthepositionofotherprudentialstandard-settersandregulatorybodies,suchastheEUandtheBaselCommitteeonBankingSupervision.
MOnTEnEgROFinSACassisted theCentralBankofMontenegro(CBCG) to organize an international conferencelaunching the “Podgorica Approach” - aframework for voluntary NPLs resolution. Theconference was attended by 122 participants,including representatives of the CBCG, theMinistryofFinanceandvariousotherMontenegringovernmentbodies,theWBandtheEBRD,aswellas commercial banks, international restructuringexpertsandinvestors. SERBIAFinSAC provided significant TA to the NationalBankofSerbia(NBS)toimprovetheefficiencyandeffectivenessofonsiteprudentialandAntiMoneyLaundering (AML) supervision practices. Theteam interviewed bank supervision staff, on-siteexaminers, risk experts and other stakeholders.Current policies, procedures and supervisionmanuals for on-site examination and their
implementationwerediscussedandreviewed.Theassistancecoveredtheproceduresfordeterminingthe scope and frequency of inspections, theplanning of inspections, the preparation andcontent of Inspection Reports, and the reviewof loan portfolios by sampling during on-siteinspections. Recommendations for improvedoversightofexternalauditorsandtheuseofotherexpertswerealsomade.
The confidential FinSAC report was discussedin a closingmeetingwith theGovernor and theSeniorManagementoftheNBS,withparticipationfromtheFinSACteamandCoordinator.TheNBSconfirmeditscommitmenttoimplementproposedchanges to onsite examination procedures. AsupplementaryreportcoveringspecificAMLissueswillbeprepared,astheAMLsupervisoryprocesshasmanysimilaritieswithprudentialsupervision.
FinSACprovidedTAtotheNBSinreviewingtheInternal Capital Adequacy Assessment Process(ICAAP) and improving the efficiency of theSupervisory Review and Examination Process(SREP) dialogue – Pillar 2. The work coveredsixareas: (i)using ICAAP/SREPasasupervisorytool, (ii) risks to be considered, (iii) calculationof capital requirements, (iii) stress testing, (iv)available capital, (v) capital adequacy, and (vi)otherissues.SpecificproposalsoneachtopicweremadeforNBSconsideration. It shouldbenoted that theNBSgave full accessto confidential information to FinSAC’s team ofexperts,making itpossible togo in-depth in thereview of the operations, organization, outputsand effectiveness of the Supervision Departmentindischargingitsresponsibilities.AteverysteptheTeamandFinSAC’sCoordinatorinteracteddirectlyandextensivelywiththeNBSGovernortoreportonthefindingsandrecommendations,aswellastoget“buy-in”forthereformsproposedatthehighestlevel of the central bank. FinSAC encouragedthe Governor to undertake some of the reformsproposed and, under her leadership, workinggroups are being set at theNBS to focus on theimplementationofsomeoftherecommendationsduring2015.Wemadeclearthatfurthersupportinthisareawouldfocusonachievingpositiveresultsin the form of implementation of the proposedreforms.Newareasofassistanceemergedduringthe discussions, including a bank governancereview,andinformationhasbeensenttotheNBSastowhatthisreviewentails.
Inmanyrespects,giventherightsetofconditions- particularly unrestricted access to confidentialinformationandsupervisionStaffandtrustinthecollaborationandsoundnessoftheadviceoffered
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byFinSAC-theapproachfollowedinSerbiaisavery good model and prototype for the “niche”in which FinSAC can contribute most, reachingbeyondtheregulatoryframework,whilefocusingontheeffectivenessofhowsupervisionisactuallybeingdischarged,anareawheretheFSAPscannotreach,butitisabsolutelycritical.
UkRAInEFinSAC gave a presentation to the NBU onapproaches to the voluntary restructuring inthe context of multi-creditor NPL work-outs.The presentation targeted the regulation andsupervisionteam,withtheaimofstartingaNBU-led coordination effort amongstUkrainianbanksto resolve their portfolio of NPLs. A follow upactivityhasbeenfinancedbytheEBRDtoexplainthe content and possible advantages of the socalled“Istanbulapproach”.
NBUrequestedfurtherTAtohelpstreamlinebankcapital requirements, to build the foundation tomove towards new liquidity requirements andto help in designing a special regulatory regimeforD-SIBs.ThisrequestwasmadeinresponsetoFinSAC’sreportonthetopicpreparedin2013on“RegulatoryconsistencyassessmentbetweenNBUprudential requirements regulation and the EU’sCRD Iv/CRR framework”. FinSAC has providedextensive comments on changes to the specialregulatory regime for D-SIBs and discussed nextstepsforstreamliningthecapitalrequirements.
pILLAR3:BAnkRECOVERYAndRESOLUTIOn
ALBAnIAFinSAC supported the implementation of BankRecoveryPlans featuredaspriorDPLactionanddevelopedaFramework for thedraftingof theseplans.FinSACalsosupportedtheauthoritiesinthedevelopmentof apolicy for the identificationofDomestic Systemically Important Banks and thedevelopmentofadiagnostictool. FinSAC staff initiated the development of astrategy for the consolidation and resolution of“Savings and Credit Associations” aligned withinternationalbestpractices.Althoughaverysmallsubsector they merit attention due to the socialcost and potential contagion effect of eventualfailuresamongthesavingsassociations.
MOLdOVAAnumberofWB–IMFmissionsvisitedMoldova
in the last quarter of 2014 due to exacerbatingproblemsinthreeMoldovanBanks–BEMandBancaSocialawere put under “SpecialAdministration”attheendofNovemberandanothercommercialbank,“Unibank”inDecember.Thisputabout30%ofitsbankingsectorbyassetsundercentralbankadministration.
The missions concluded by recommending anumber of detailed immediate next steps to betaken by the authorities. Further immediate TA(i.e. on operational aspects of bank resolution)was requestedby theNBMand thegovernment.In themedium term, an overhaul reform of thebanking sector will be required with a specialfocus on its governance structure, and revisingandstrengtheningapplicationofsupervisoryandresolution tools. The authorities are conductinginvestigationsinvolvingpotentialviolationoflawsandregulationsby themanagersandcontrollingshareholdersofthethreebanksindistress.
SERBIAFinSAC collaboratedwith the IMF on regulatoryreform in the area of banking resolution anddeposit insurance. The final legislation wasadoptedbytheSerbianParliamentbytheendofJanuary,2015.Futureworkprovidingassistanceinensuringproperimplementation,includingthedraftingofby-laws,hasalreadybeendefinedwiththeNBS.
UkRAInETheNBUrequestedassistancewiththedesignofaRecoveryandResolutionPlanningframework.Inthefirststage,FinSACwillassistwiththedesignofamethodologyforthepreparationofRecoveryPlansforsystemicallyimportantbanks.
pILLAR4:FInAnCIALCOnSUMERpROTECTIOn
kOSOVOFinSACfinalizedcomplaintshandlingprocedures,regulationandcomplaintforms,anddevelopedafinancialconsumerdisclosureframework.FinSACalsodraftedafinancialliteracyarticleoneffectiveinterestratesandtheresponsibilitiesofguarantorsforthisframework.Aconsumerguidetomortgageswasalsodeveloped.FinSACprovidedcommentstotheCentralBankofKosovo’smortgageregulationand default interest rate regulation and assistedthe authorities with the introduction of marketconductsupervisionintroducedintotheinsuranceon-sitesupervisoryprocess.
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E.COLLABORATIOnWIThInThEWBgROUp,ThEEUAndAndIFIS
FinSACworkscloselywithWBseniorstafflocatedinWashingtonD.C.andvienna.WBHeadquarters-basedstaffjoinFinSACstaffonmissionsregularly,particularly for the CSEs where IT expertise isrequired.AjointmissiontoGeorgiawiththeWBCenter for Financial Reporting Reform (CFRR),based invienna,also tookplace.TheCFRRwasalso an active participant and speaker duringFinSAC’sConferenceonCreditRiskManagementand Regulatory Provisioning in an InternationalFinancialReportingStandards(IFRS)EnvironmentinOctoberinvienna. FinSACalsohadmeetingswiththeEUCommissionand has regular communications with theEuropean Banking Authority (EBA). As part oftheviennaInitiative,FinSACandEBRDmetwiththeEBAtoadvocateanurgentassessmentoftheconfidentiality provisions of the Banking Lawsour client countries. Once these provisions areassessedasequivalenttotheEUbyEBA,itisverylikelythatFinSACclientcountrieswillbeinvitedto participate in supervisory colleges. Results ofthe assessment are expected early 2015. Whererelevant, EBA representatives also participate asspeakersinFinSAC’sconferences,workshopsandseminars.FinSACwillstrivetofurtherexpanditscooperation with EU institutions and other IFIs,particularlytheJointResearchCenter(ISPRA),theJointvienna InstituteandtheFinancialStabilityInstitute. FinSAC has been collaborating closely with theInternational Finance Corporation (IFC) andother IFIs in the area of NPL resolution. Whenworking on NPL resolution, the WB seeks topropose a holistic package, bringing together arange of products and expertise from across theorganization. Interventions were FinSAC closelycooperatedwithotherIFIsinclude:
• TA to the central bank or supervisoryagencytoconvenebankcreditorstoovercomethecollectiveactionproblem,throughacombinationof FinSAC and the IFC interventions (e.g.Montenegro, Albania and more recently, SerbiaandCroatia)
•Financialsupporttothepublicsector,forexamplethroughaDPLwithspecificNPL-relatedprior actions endorsed by FinSAC (e.g. Albania,Ukraine,etc.)
•SupporttothefinancialsectorthroughIFCinvestmentsinbanks(e.g.Serbia) • Acquisition of non-performing loansthroughtheIFC’sDebt&AssetRecoveryprogram(e.g.Romania).
TherecentreorganizationoftheWBGroupundertheGlobalPractices(GPs)hasgreatlyencouragedthat process, by bringing together, under theFinance & Markets GP, NPL-related experts andproducts from across the WB Group on areassuch as secured transactions, credit informationand insolvency systems. The close collaborationbetween FinSAC and the Finance & MarketsGP (e.g. Croatia, Serbia, Ukraine) ensures thatFinSAC’s client countries benefit from the bestknowledgesolutionsavailableintheWBGroup. OutsideoftheWB,FinSAChaspromotedgreatercooperationbetweenIFIsactiveintheareaofNPLresolution. The vienna Initiative, where FinSACparticipates,hasprovidedaforumtoinitiatethesediscussions,which arenowbeing replicated andexpandedatthecountrylevel. •InCroatia,FinSACinvitedtheEBRDtojoinadiagnosticmissiontoidentifyimpedimentstoNPL resolution,whichhasalready resulted injoint recommendationson thedraftamendmentstothe insolvency lawthatwerepresentedtotheCroat authorities in February 2015. Thiswill befollowedbyajointreportonNPLissuesinCroatia,leadingtocloselycoordinatedinitiativesfromtheEBRDandWBG. • In Serbia, FINSAC played an activerole,incollaborationwiththeIMFandEBRD,indevisingamatrixofprioritiesforNPLresolution,which will be used as a framework to bringtogetherkeystakeholdersworkingonNPL(publicsectorentities,suchastheNationalBankofSerbia,MinistriesofFinance,EconomyandJustice; leadIFIssuchastheIMF,WBGandEBRD;andprivatesectoractors). • InUkraine,theWorldBankandEBRDare closely collaborating in helping the centralbankpromotea framework forvoluntaryout-of-courtrestructuringofdistressedassets.
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1.ECOnOMICOUTLOOk
The ECA region is still struggling to return torobustgrowthfollowingashortlivedreboundafterthe global economic crisis of 2009.A slowdownin the pace of structural reforms, accompaniedby tepid growth in the global economy anduncertainty arising from the conflict inUkraine,continuetocloudtheoutlook.Theweakexternalenvironment, especially slow growth inWesternEurope,hasdampenedgrowthprospectsin2014and it might persist in 2015. Western Europecontinuestofacesluggishdemandandstructuralchallenges,whicharecontributingtobelowtargetinflation.Thequantitativemonetaryeasingpolicyin the Eurozone and the resultingweakening oftheEuromayhelpliftdemandintheshortterm,including in several client countries for whichtheeuroareaisanimportantexportdestination.However,theexternalenvironmentfortheregionisnotexpectedtobecomeparticularlyfavorableinthecomingyears.
Remainingdebtoverhangandlostcompetitivenessin several new EU member states and Balkancountries are other factors that will continue toconstraintherecovery.Highlevelsofexternaldebtandneedsforlarge-scaleexternalfinancingmakesomecountriesparticularlyvulnerabletochangingconditions in international financial markets, inparticularanexpectedriseinUSinterestrates.Thehigh levels ofNPLs in the region, togetherwiththe ongoing restructuring of the banking sector,arelikelytocontinuetoconstraininvestmentandconsumerdemandin2015. At the same time, fiscal positions are slowlyimproving andmany countries in the region aregradually regaining competiveness after wageadjustments.Projectedstabilityinoilprices,downfromthehighlevelsinpreviousyears,shouldalsomitigate uncertainty among energy importers intheregion.Thatallmakesitlikelythattherecoveryin thewesternpartof theECAregioncontinues,albeitnotatafastpace.ThegeopoliticaltensionsUkraine-Russia are likely to persist, making theeconomicrecoverymoredifficult.
FinSAC’s efforts to assist client countries inaddressingthedragofhighNPLswillcontinuetoacriticalfocalpointin2015,aswellasdealingwiththedeepbankingcrisisinUkraineandMoldova.
2.FInAnCIALREgULATORY&SUpERVISORYOUTLOOk
The implementation of the ambitious EU reformagenda will continue to offer opportunities forFinSAC to assist both EU and non-EU membercountries in adopting the new Directives intonationallegislation,draftingsecondarylegislationandregulations.Moreover,FinSAC’sworkat themicro-prudentiallevelhasbeenverywellreceivedby national central banks and, aswe gainmoreexperience,itwillbeextendedtoothercountries,focusingon the effectivenessof supervision.Theadoption of reforms and the resulting efficiencygainsinthisareaarereallyimportantasrecognizedbyrecipientcountries.
3.FInSAC’SSTRATEgICpOSITIOnInggOIngFORWARd:nARROWERSCOpE,MOREdEpTh
FinSAC will consolidate its position as a nicheplayer and “Center of Excellence in BankingSupervisionandResolution”withamorefocusedmandate to maximize impact within FinSAC’slimitedscale.The“niche”isinitselfabroadareaandonewhereFinSACcanexpanditsrangeofTAproductsoffered.
TomosteffectivelyleverageFinSACexpertiseinresponsetothegrowingdemandforitsproducts,but given finite resources, the focus will be onprovidingtargeted,specializedconsultingservices.FinSAC is in process of hiring at least onemoreseniorsupervisorabletosupportclientcountriesin the implementation of legal, regulatory andsupervisorysolutions.
While FinSAC will continue to offermacroprudential and financial stability productsatthespecificrequestofaclientcountry,itsfourpillarstrategywillgraduallytransformtoalargelythreepillar-centricstrategyfocusedon:
A.MICRO-pRUdEnTIALpILLARWork under this pillar is divided into twosubthemes:
Iv.LOOKINGFORWARDTO2015
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1.MICROpRUdEnTIALSUpERVISIOnAndREgULATIOn:Amenu of different modules in the supervisoryandregulatoryareaisoffered.
The first supervisory module addresses thepolicies and procedures for determining thescopeandfrequencyof inspections, theplanningof inspections, the preparation and contentof inspection reports, and the review of loanportfoliosbysamplingduringon-siteinspections.ThismodulewassuccessfullyundertakeninSerbia(see section Iv, c) assessing the efficiency andefficacyofonsitesupervisionpractices. Other available modules include a review ofthe architecture and control framework withinbankingsupervisiondepartments,forexample: •enhancingonsite/offsitecooperationor exploringtheimplementationchallenges, benefitsanddrawbacksofintegrationof onsiteandoffsite;
•assessingsupervisoryapproval processes,qualityassuranceandthe governanceofsupervision;
•developing,orassessing,supervisory guidanceandtoolsforpreparingrisk assessmentsofindividualbanks;
•developingsupervisoryplans;including thetailoringofsupervisoryprocedures andexpertteamstotheindividual institution;
•assistancewiththeassessmentofbank’s businessmodels;
•assistingwiththeimplementationof forwardlookingriskbasedsupervision;
•assistingwiththedevelopmentofa remedialactionandenforcement framework;
•assistanceindevelopingquantitative toolsforthecrisismanagementand resolutionprocess:andmodelsforquick checksofviabilityandcostassessmentof differentresolutionoptions
Ontheregulatoryside, tailoredassistance in theareaofimplementationofBaselIII/CRDIv/CRRisoffered. Insomecountries,FinSAC’sTAprogramfocusseson:
•compliancewithCRDIv/CRR requirementsbyperformingorreviewing gapanalysesoftheexistingregulations comparedtotheCRDIv/CRR;
•assistingwithquantitativeimpact assessmentsandprovidingproactive adviceonactionandimplementation plans;
•developingcountryspecifictailored criteriaforidentifyingdomestic systemicallyimportantbanks,asrequired byCRDIvandBaselIII;
•assistingcountrieswiththedevelopment andcalibrationofthevariousbuffers includedinCRDIvandBaselIII;and
•selectivelytargetingsomeoftheBasel CorePrinciplestoenhanceboththe regulatoryandsupervisoryaspects,in particularbankgovernance,consolidation, relatedpartiesandlargeexposures.
Foreachof thesemodules, clientsmustgive theFinSACteamfullaccesstoconfidentialinspectionreports,inspectionplanning,riskassessmentsandoutcomes.Thisaccesscanbeanonymous,aslongas the nature of the individual bank is shared(state ownedbank, systemically importantbank,smallbank,…). ArelationshipoftrustwiththeclientisessentialandFinSACtreatallinformationasstrictlyconfidential. •Crossborderbankingsupervision–homehostissuesAlmost all of FinSAC’s client countries havebanking systems that are dominated by foreignbanks,mostlyEurozonebanks.Whileglobalbankscomewith benefits for host countries, they alsoposespecificrisksandchallengestohostcountrysupervisors.
FinSACcanworkwithclientcountriesintheareaofcrossborderbankingsupervisionincluding;riskassessmentsandsupervisorystrategiesforspecificriskposedbyforeignbanks;andaddressinghomehost issues and building safeguards to preventcontagionrisk.
2.nOn-pERFORMIngLOAnS FinSAC has several ongoing programs designedto address the high NPLs and NPLs resolution.Theseprogramsoverlapwithmicroprudentialandrecoveryandresolutionwork.Theyhavealong-termhorizonandacomplexconfigurationduetothe multidimensional nature of NPLs resolution.
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Indeed,highNPLscanoftenbeexplainedbytheinterplayofmanyfactors,includinglegalobstaclesin collateral realization, specific requirements intaxlegislationandaccounting,aswellasconsumerprotection issues and difficulties with the Courtsystem. Even though every project and countryis different, the overall approach to dealingwith NPLs resolution projects generally involvestwo stages: a diagnostic and an implementationstage. Inthediagnosticstage,adetailedanalysisof theoverallportfolioby slicinganddicing theexposures is performed. Generally speaking, thisstagealsoincludesalegalanalysisoftheuseandhurdles to voluntary out of court restructuringand the efficiency of bankruptcy and courtsystems and an assessment of the consistency ofthe NPLs definitions and provisioning. Duringtheimplementationstage,theprogramcanassistcountries with voluntary guidelines for out ofcourtrestructuringandthereviewoflegislation.
Comparability of NPLs definitions, reportingstandardsandprovisionsacrosscountrieshasbeenalongstandingconcern,particularlythescopeofthedefinitionsofrestructuringorforbearancewithdifferent classifications in many countries. TheEBAhasrecentlydevelopedtechnicalstandardsonsupervisoryreportingonforbearanceandNPEtoperformharmonizedoveralldatacollectiononassetqualityandlowercostsforinternationalbanksbygraduallydecreasingdivergentdefinitions.FinSACcanprovideassistancewith:
•benchmarkingtheexistingNPLs identificationandclassificationpractices againstinternationalgoodpracticewhile takingintoaccountspecificcountry circumstancesandproducts;
•assessingandaddressingtheprudential interactionsofIFRSimplementationfor bankswhentransitioningtoIFRS.This includespolicyadviceontimingand safeguardswhenmovingfrom deterministicregulatoryprovisioning modelstoexpectedlossmethodologies andanassessmentofthepreconditionsfor increasedrelianceonIFRS5.
B.BAnkRECOVERYAndBAnkRESOLUTIOnpILLAR
OVERVIEWThe region’s banking supervision and resolutionsystem is, in some respects, based on modernprinciples and recent reforms have strengthenedlegal frameworks (for example, through the
introduction of single resolution tools such as abridgebank).Still,inmostcountriestheresolutionof distressed banks is largely based on “earlyintervention”viasimpleconservatorship,withoutthe power to override shareholder rights, and aliquidationsystemunder“traditional”insolvencylaws. In some countries shareholders’ rights canbecomeamajorimpedimentforpromptdecisionmakingintheeventofacrisisinfailingsystemicinstitutionswithoutendangeringfinancialstabilityandcriticalfunctionsinterruption(e.g.,Albania).Comprehensive reform of current resolutionframeworks should therefore be considered formostcountries in theregion. So faronlySerbiahasoverhauled,withIMFandFinSACassistance,its bank resolution system in January 2015,introducing a bank resolution system aligned totheBRRD.
Authoritiesintheregionhavestartedpreliminarywork on recovery and resolution plans (RRPs).So far only a few have developed bindingrequirementsforsystemicallyimportantbanksandestablishedinternalbestpracticesandtoolsfortheassessmentofrecoveryplans.Thereis,however,agenerallackofpowerstoexecuteresolutionplansandtools.Afirstkeystepwillbe tosupport thedevelopment of mandatory guidelines requiring(systemic) banks to adopt and submit recoveryplans.Thereafterthepreparationofbank-specificresolutionplansandinternalguidelines forearlyinterventionandresolutionaretobeestablished.
Theeffectiveexecutionofaresolutionregimeandthe powers to apply resolution tools require notonlycoherentlegalframeworks,butalsoastableinstitutional architecture and strong governance.TheimmediateandfullapplicationofthecomplexBRRDmightnotbethebesttailoredsolutionformanyoftheBalkancountriesatthisstage
Often, the optimal solution of establishing anindependent administrative resolution authoritymaynotbeadvisableon resourceandefficiencygrounds.Manysmallercountries,evenintheEU,havethereforedecidedtosetupa“resolutionunit”within the supervisory authority or the centralbank. In those cases ensuring organizationaland functional separation, while at same timeestablishinginformationsharingandcoordinationmechanisms will be a difficult balancing act. Inthisrespect,itisgoodpracticefortheresolutionunit to receive periodic information and to beempoweredtotriggerresolutionindependentlyofthesupervisor.
Similarly, the application of the bail-in toolmay require special consideration in transitioncountries.Itwillbechallengingtoensurethatthose
5FinSAChascooperatedwiththeCentreforFinancialReportingReforminthisarea.
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whoprofitfromriskyinvestmentsalsopotentiallytakethelossincaseoffailure(bail-in).Thelackofadevelopedbondmarketcomeswith theriskthat unsecured creditors such as depositors willbesubjecttobail-inwhichcanincreasecontagionrisks.
The application of the “No Creditor Worse Offprinciple” can also become problematic in anenvironment where fair values are difficult toassess.
Therecoveryandresolutionpillarcomprisesthreesubthemes:
•BankRecoveryandresolutionregulationinEUcountries: FinSAC assists authorities in the region tostrengthen their bank resolution frameworks topreserve financial stability, protect depositors,andsave tax-payer resources.TheEUBRRDwasadoptedtoavoiddisorderlybankruptcyandcostlybailouts.Itintroducedanumberofbankresolutioninstruments,suchassaleofbusiness,bridgebank,assetseparation,andbail-ins,thatEUauthoritiesmust comply with as a minimum. FinSAC iscommitted to support resolution authorities indeveloping strong tools and strategies to fulfilltheir role as part of the financial sector safety-netinapplicationoftheBRRDincludingcoveringcriticalhome/hostissues.
FinSACalsoprovidesassistanceinthedevelopmentofcoordinationandinformationsharingsystems,especially where the resolution authority is setup as a separate but still integral part of thesupervisory authority. FinSAC can help definerespective responsibilities to achieve smoothand efficient decision making and successfulcooperation while maintaining operational andfunctionalindependence. •ResolutionframeworkfornonEUcountriesWhile advising authorities on the developmentof appropriate resolution frameworks, FinSAC ismindfulofthelessonslearntelsewhereandalignsitsTAwithinternationalgoodpractice(e.g.,KeyattributesandIADIPrinciplesforEffectiveDepositInsurance)andlocalmarketcircumstances. Theoverallaimforsystemicbanksistomaketheresolutionfeasiblewithouttaxpayers’supportandwithoutsystemicinterruption,whileensuringthecritical functions of an institution remain intact.Attention is also given to ensuring an efficientleast cost resolution for non-systemic banks anddevelopingrelatedsafetynets,takingintoaccount
specificlocalmarketcircumstances.
•ResolutionofspecificinstitutionsHome supervisors and resolution authorities areresponsible for thedevelopmentof recoveryandresolutionplans,andthishasraisednewchallengestocrossbordersupervisionandresolution.FinSACcan help client countries address these homehost issuesbyprovidingadviceonpreparing forand implementing the resolution of individualinstitutions,therebyensuringindependentsupportandadviceinlinewithinternationaldevelopmentsfordealingwithfinancialsectordistress.
Someauthoritiesintheregionhavestartedworkonrecoveryplansbutfewhavedevelopedbindingrequirementsfortheadoptionofresolutionplansfor systemically important banks.As highlightedbyinternationalstandardsadoptedinthewakeofthefinancialcrisis,RRPsareessentialinstrumentsforeffectivecrisispreparednessandmanagement.A recovery plan contains information on how abankwouldtrytorecover fromseverelyadverseconditions that could cause its failure by settingout inadvance its“menuofoptions” fordealingwitharangeofstressevents.Resolutionplansaredrawnupbytheauthoritiesandsetoutoptionsforresolvingthebankandensuringthecontinuityofcriticalfunctions.
Recoveryplansarelikelytoincreasetheresilienceofthebankingsystemandshouldallowbetteruseandtargetingofsupervisoryresourcesandpowers.FinSACcanprovideTAindrawingupanddefininglegalrequirementsofRRPs,andinthedevelopmentof supervisory guidance for the assessment ofrecovery plans (for example, as regards theadequacyofqualitativeandquantitativerecoveryindicators).
C.STREAMLInEdFInAnCIALSTABILITYAndMACRO-pRUdEnTIALpILLAR
•CrisispreventionandpreparednessIn theareaofcrisispreparedness,FinSACassistscountriesincontingencyplanningandtestscrisismanagement plans using CSEs. The objective isthreefold:first,toidentifygapsandweaknessesinregulatoryandlegalframeworks;second,toassessthe decisionmaking and information sharing bytheauthoritiestothe“crisisevent”and;finally,totraintheauthoritiessotheycanorganizeregularCSEs on their own. A CSE tests informationanalysis and sharing, decision making, home-host cooperation, and communications withintheCentralBankandbetweentheothernational
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Financial Sector Advisory Center | Annual Report 2014
financial sector authorities. The exercises areconducted in a virtual environment and can betailoredtotheneedsoftheauthoritiesasthescopecanbesetupasintra-agency,inter-agencyoracombination. CSEs have now been conducted inmanycountries. With initial CSEs (funded by FinSAC or fromanother source) now completed in many of itsclientcountriessomeareaskingFinSACtorepeattheexercise.Adecisionneedstobemadeaboutwhether and how this should be undertaken.Optionsrange fromproviding ITonlysupport tothe delivery of the CSE (with expenses coveredby the client country), to a full repeat CSEdependingonspecificcountrycircumstances(e.g.,recentamendmentsof the resolution framework,considerable and imminent vulnerabilities of thecountryfinancial sector). There is scope to takethis product line further, focusing on the cross-border aspect of crisis management, organizingmulti-jurisdictionCSEs,orwiththeparticipationofmultiplehome-andhostauthoritiesandpossiblyinternationalobservers(suchastheECBandEBA).
Inthemacroprudentialarea,FinSACwillcontinuetoselectivelyagreetorequestsfromclientstoassistin building quantitative tools for systemic riskassessmentandindesigningtheinstitutionalset-upfornationalfinancialstabilityarrangements.
d.OThERFInSACACTIVITIES
FinSACwill continuewith aflexible programofknowledge creation and dissemination activities,suchasworkingpapersandseminars,inresponseto the diverse and changing needs of its clientcountries. In 2015, a working paper assessingkey lessons learnt from CSEswill be developed.A working paper analyzing the supervisory andregulatory issues encountered by prudentialsupervisorsofhostcountriesthathaveasystemicpresenceof foreignbankswill alsobeproduced.Aconferenceoncybersecurityandanexpert-to-expertworkshoponrecoveryandresolutionplansareplanned.Adepositinsuranceconferencewiththe BFG from Poland is also scheduled. FinSACexpecttoreengagewiththeGeorgianauthoritiesonIFRSforthebankingsystemandassistinsettingupaDepositInsuranceScheme,asagreedbetweenGeorgiaandtheEUandincludedintheon-goingDevelopmentPolicyLoanwiththeWB.
E.FInSACWORkpROgRAMFOR2015
During2015FinSAC’sTAworkwillfocuson:
(I) CSE: completing the CSE in two additionalcountries (KosovoandAlbania), tofinalize theseexercisesinallourclientcountries; (II) BRRd:FinSAC’sworkwillexpandsignificantly in addressing the complex issues ofbank recovery and resolution and the adoptionintonationallegislationoftheBRRD.ARegionalWorkshop on recovery and resolution planswilltakeplaceinApril;
(III) Micro-prudentialSupervision:FinSACwill continue its innovative work in micro-prudential supervision,completing theambitiousworkbeingdoneinSerbiaandextendingthispilottoothercountriesintheregion;
(IV) npLResolution:FinSACwillcompletein2015 its work in Albania addressing therestructuring of up to 30 companies with largeNPLsandassisting theBankofAlbaniawith theoff-sitereviewandresolutionof20-25additionalcompanies,dealingwithuptoonequarterofthecountry’sNPLs.ItwillexpandtheNPLresolutionwork to Serbia and Croatia in partnership withotherIFIs.Finally,theworkinthiscriticalareinUkrainewillcontinuein2015-16; (V) CrisisCountries:FinSACwillcontinueitsassistancetocountriesfacedwithsystemicbankingcrises (Ukraine and Moldova) in cooperationwith the World Bank and IMF teams preparingassistancepackages; (VI)SeminarsandWorkingpapers:FinSACwill deliver two additional regional seminars ondepositinsurancefundsinvestmentregime(jointlywith theDeposit Insurance Fundof Poland) anda seminaroncyberpreparedness forwhicha15country survey was conducted and a workingpaperisbeingdrafted;
(VII)depositInsurance:FinSACwillprovideassistance in Bosnia Herzegovina and Georgiain their reform efforts to adopt modern depositinsurancesystemcompatiblewithEUlegislation;
(VIII)Broadeningpartnerships:FinSACwill strive to expand its cooperation with EUinstitutions,particularlytheJointResearchCenter(ISPRA)andotherIFIs; (Ix)BroadeningFinSAC’sdonorbase: FinSAC is exploring its transformation into amulti-donortrustfund,invitingotherEUcountriesto support the efforts from the Austrian FederalMinistry of Finance, to expand its resource baseto address longer-term serious problems in thebanking sector, particularly in Ukraine, where
31
Looking forward to 2015
F.dISBURSEMEnTOFTRUSTFUndBYFInSACTotalbudgetdisbursed:6,964,182/US$(asofMarch31,2015).CurrentFundavailablebalance:1,317,865/US$(asofMarch31,2015).
dISBURSEMEnTBYCATEgORIES:A.FORTHEPERIODOF1JUNE2011–31DECEMBER2014
FinSAChasapproachtheNationalBankofPolandtoconsiderbecomingaFinSACdonor.Asindicatedin this Annual Report, FinSAC will follow the
demand for its services, responding flexibly, torequestfromourclientcountries.
6Incl.FinSACCoordinator,fiveTTLsandoneprogramassistant7Incl.consultantfirmsandconsultants8Incl.officemaintenance,utilities,cleaningservices,officesupplies,depreciationetc.9Incl.travelexpensesofbothstaffandconsultants/visitors
Disbursements2013 Disbursements2014 Disbursements2015
$664,492$449,979$459,140$887,714
$2,461,325
Q1(Jan/Feb/March)
Q2(April/May/June)
Q3(July/Aug/Sept)
Q4(Oct/nov/dec)
Total
$404,734$630,224$392,733$622,844
$2,050,535
$654,170
US$%
4,471,196.82-27,259.35992,090.0780,353.94935,754.63112,478.97
6,564,615.08
sTaff CosTs6
AIRFAREREBATE
CONSULTANTFEES7
ASSOCIATEDOvERHEADCOSTS8
TRAvELExPENSES9
PUBLICATIONS&WORKSHOPS
TOTAL
68.11-0.4215.111.22
14.251.71
100.00
Disbursements 2013 Disbursements 2014 Disbursements 2015
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0Q1 Q2 Q3 Q4
(Jan/Feb/March) (April/May/June) (July/Aug/Sept) (Oct/Nov/Dec)
32
Financial Sector Advisory Center | Annual Report 2014
B.FORTHEPERIODOF1JANUARY2014–31DECEMBER2014
dISBURSEMEnTBYACTIVITIES:C.FORTHEPERIODOF1JUNE2011–31DECEMBER2014
F.FORTHEPERIODOF1JANUARY2014–31DECEMBER2014
10 BetweenJune2001andFebruary2013,theTrustFundhadnoseparatewindows.Thewindowlabelled“TF010025-generalforallactivities”wasusedforalltypesofcategoriesandactivitiesallowedundertheTF.StartingfromFebruary2013,thefollowingwindowswerecreated:Administrative&Monitoring,NPL,BRR,CPFL,Micro&Macroprudential.
11 Incl. costofall typesofcategoriesnot related to theparticular topicalactivitiesnamely:management,webdesigner,programassistantcost,translationsservices,utilities,officemaintenance,officesupplies,depreciation,publicationsandrepresentationcost.
US$%
1,593,970.81194,326.5529,183.06255,220.7646,508.32
2,050,535.40
sTaff CosTs
CONSULTANTFEES
ASSOCIATEDOvERHEADCOSTS
TRAvELExPENSES
PUBLICATIONS&WORKSHOPS
TOTAL
75.219.171.38
12.042.27
100.00
US$%
2,710,151.77741,724.701,076,534.18475,402.79231,470.78649,465.17423,287.12256,578.57
6,564,615.08
TF010025-generalforallactivities (June2011-Febr2013)10
ADMINISTRATIvECOST11
nPl
CPfl
BANKRECOvERY&RESOLUTION
CRISISSIMULATION
MICROPRUDENTIALFRAMEWORK
MACROPRUDENTIALFRAMEWORK
TOTAL
41.2811.3016.407.243.539.896.453.91
100.00
US$%
550,997.84358,514.08212,686.77235,079.11364,577.69289,555.6939,124.22
2,050,535.40
ADMINISTRATIvECOST
nPl
CPfl
BANKRECOvERY&RESOLUTION
CRISISSIMULATION
MICROPRUDENTIALFRAMEWORK
MACROPRUDENTIALFRAMEWORK
TOTAL
26.8717.4810.3711.4617.7814.121.91
100.00
33
Looking forward to 2015
Financial Sector Advisory Center | Annual Report 2014
35
ATTAChMEnT:RESULTSFRAMEWORkTABLE
Results Framework Table
MICRO-pRUdEnTIALFRAMEWORk
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
SERBIA:ASSESSMEnT
OFOn-SITE
ExAMInATIOn
pRACTICES
SERBIA:
STRUCTURIngThE
pILLAR2dIALOgUE
Reviewandbenchmarking
ofonsiteexamination
practices:scopeof
inspections,planningof
inspections,inspection
reports,samplingof
theloanportfolio,
examinationpreparation
andtoolstodecreasethe
workloadoftheonsite
inspectiondivision,
coordinationon&offsite.
Reviewandbenchmarking
ofSREP/Pillar2practices:
ICAAP/SREPasa
supervisorytool,risksto
beincludedintheICAAP,
calculationofcapital
requirements,stresstests,
availablecapital,capital
adequacyandother
issues.
Proposalstoimprove
theefficiencyand
effectivenessofonsite
examinationpractices
(reporttotheNBS
Sr.managementand
Governor)
Proposalstoimprove
theefficiencyofthe
supervisoryreviewand
examinationprocess
(SREPdialogue–Pillar2)
Proposalsdiscussedand
endorsedbytheGovernor
&SeniorManagement
oftheNBS.Working
Groupsestablishedto
fosterimplementationof
recommendations.
Clientsatisfiedwith
proposedsolutionsand
decisionmatrix.
Proposalsdiscussedand
endorsedbyGovernor&
SeniorManagementofthe
nbs
.
Clientsatisfiedwith
proposedsolutions
andcommittedto
implementation.
Performingmore
effective,riskbasedand
efficientonsitebank
examinations.
Betteruseofscarce
supervisoryresources.
Moreriskbased
supervision.
Improvedgovernance,
accountabilityandrisk
managementinfinancial
institutions.
Bettersupervisedand
moreresilientbanking
system.
Improvedskillsandbetter
understandingofICAAP
andSREP.
Betteruseofscarce
supervisoryresources.
Moreriskbased
supervision.
Improvedgovernance,
accountabilityandrisk
managementinfinancial
institutions.
Bettersupervisedand
moreresilientbanking
system.
Improvedlevelof
compliancewith
BaselCorePrinciples
forEffectiveBanking
Supervision”assessedby
IMF-WorldBankFSAP
teams.
Morepreciseand
comprehensiveassessment
ofrisksacrossthebanking
system.
Alowerincidenceof
failureofsupervised
institutionsduetoearlier
andmoreeffective
intervention.
Improvedlevelof
compliancewith
BaselCorePrinciples
forEffectiveBanking
Supervision”assessedby
IMF-WorldBankFSAP
teams.
Morepreciseand
comprehensiveassessment
ofrisksacrossthebanking
system.
Alowerincidenceof
failureofsupervised
institutionsduetoearlier
andmoreeffective
intervention.
36
Financial Sector Advisory Center | Annual Report 2014
MICRO-pRUdEnTIALFRAMEWORk
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
SERBIA:ASSESSMEnT
OFOnSITE
ExAMInATIOn
pRACTICESFOR
AML/CFT
gEORgIA:
pRUdEnTIAL
InTERACTIOnS
OFIFRS
IMpLEMEnTATIOn
UkRAInE:
COMpLIAnCEWITh
CRdIV/CRR
Reviewandbenchmarking
oftheonsiteexamination
Practices:scopeof
inspections,inspection
planning,inspection
reports,onsite
examinationprocedures,
focusedonAMLactivities.
Makeassessmentof
impactofIFRStransition
ontheprudential
regulationandsupervision
ofthebankingsystem.
Prepareagapanalysis
comparingthecurrent
capitalandliquidity
regulationswiththe
requirementsofCRDIv/
CRR.
Supplementaryreporton
AML/CFTsupervision.
Proposalstoimprovethe
efficiencyofonsiteAML
examinationpractices.
Reportmaking
recommendationson
waystoaddressthe
implications,thepaceand
timingofIFRStransition
forthebankingsystem.
Reportidentifying
majorgaps,making
recommendationsfor
addressingthem.
Proposalsdiscussedand
endorsedbytheGovernor
&SeniorManagementof
theNBS.
Clientsatisfiedwith
proposedsolutions
andcommittedto
implementation.
Proposalsdiscussedand
endorsedbytheSenior
ManagementoftheNBG.
Clientsatisfiedwith
proposedsolutions.
Proposalsdiscussedand
endorsedbytheSenior
ManagementoftheNBU.
Clientsatisfiedwith
proposedsolutions
andcommittedto
implementation.
Performingmore
effective,riskbasedand
efficientonsiteAML
examinations.
Betteruseofscarce
supervisoryresources
Moreriskbased
supervision
Improvedgovernance,
accountabilityandrisk
managementinfinancial
institutions.
Bettersupervisedand
moreresilientbanking
system.
Moreresilientandstable
bankingsystem.
Prudentsolutionsto
addresstheimpactofIFRS
onbankregulatorycapital
andsupervision.
Compliancewith
internationallyagreed
capitalandliquidityrules.
Bettercapitalizedand
moreliquidbanking
system.
Improvedlevelof
compliancewith
BaselCorePrinciples
forEffectiveBanking
Supervision”andFATF
Principlesassessedby
IMF-WorldBankFSAP
teams.
Improvedcompliance
withinternationalAML/
CFTgoodpractice,
reflectedinbetter
scoresininternational
assessments.
Improvedlevelof
compliancewith
BaselCorePrinciples
forEffectiveBanking
Supervision”assessedby
IMF-WorldBankFSAP
teams.
Improvementinthe
preconditionsforeffective
bankingsupervision.
Improvedlevelof
compliancewith
BaselCorePrinciples
forEffectiveBanking
Supervision”assessedby
IMF-WorldBankFSAP
teams.
37
Results Framework Table
nOn-pERFORMIngLOAnRESOLUTIOn
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
gEnERAL
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
MOnTEnEgROnpL
CROATIAnpL
ALBAnIAnpL
Supportedthedrafting
ofthe“Frameworkfor
resolvingnon-performing
loansonavoluntaryba-
sis”(PodgoricaApproach)
Organizedtwo-day
workshopintroducingthe
Podgoricaapproach.
Providedinputand
recommendationstothe
MinistryofJusticeonthe
draftamendmentstothe
insolvencylaw.
Conducteddiagnostic
mission,alongwiththe
EBRD,onkeyimpedi-
mentstoNPLresolution
inCroatia(reporttobe
sharedwiththeCroat
authoritiesin2015).
SupportedtheBank
ofAlbania(BOA)in
developingstandardsfor
voluntaryout-of-court
restructurings.
Organizedhandson
expertworkshopswith
BOAandprivatesector
bankstopromotemulti-
creditorworkouts.
Provideexpertinputand
third-partyconsultant
supportforoperational
andfinancialrestructuring
oflarge,complex
defaultedCorporates.
Providetechnical
assistanceforthe
resolutionofnon-
performingloans.
Conductdiagnosticon
NPLsituationincountries
acrosstheBalkans.
Identifykeyimpediments
(legal,regulatory,
structural,economic,etc.)
totheresolutionofNPLs
andprepareandprioritize
keyrecommendations
forpolicyandregulatory
changes.
Assesslocalinsolvency
legislationandregulatory
frameworkagainst
EUdirectivesand
internationalbestpractice
Workwithpublicand
privatesectorpartners
toimprovecooperation
andcollaborationinthe
areaofNPLresolution,in
particularforlarge,multi-
creditordefaultsituations.
Developanddeliverhands
onexpertworkshopsfor
bankingsectorsupervisors
andprivatesector
insolvencypractitioners
toimproveskillsand
expertiseinrestructuring
NPLs.
Numberofdeliverables
produced.
Averageclientsatisfaction
asmeasuredbyclient
satisfactionsurveys.
Averageclientsatisfaction
asmeasuredbyclient
satisfactionsurveys.
Averageclientsatisfaction
asmeasuredbyclient
satisfactionsurveys.
Improvementin
recognitionand
provisioningofnon-
performingloans.
Increaseinwrite-offsof
“stale”NPLswithlow
prospectsofrecovery.
Increaseinthenumberof
viableCorporateobligors
successfullyrestructured.
Adoptedamendments
totheinsolvencylegal
regime.
Increaseinthenumberof
viableCorporateobligors
successfullyrestructured.
Improvedlegal
environmentforNPL
resolutionandmore
broadlyfor“doing
business”.
Reductionintheoverall
sizeofNPLs.
Increaseinnewlending
totheCorporatesector.
Reductionintheoverall
sizeofNPLs.
38
Financial Sector Advisory Center | Annual Report 2014
nOn-pERFORMIngLOAnRESOLUTIOn
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
SERBIAnpL
UkRAInEnpL
Incollaborationwith
otherIFIs,developed
inter-agencymatrix
ofprioritiesforNPL
resolution,andagreedon
areaofresponsibilities
betweenIFIsandrelevant
publicsectorauthorities.
Providedinputtothe
NationalBankofUkraine
onimprovingcooperation
betweenbanksinNPL
resolution;project
continuingin2015,
expectedtoresultindraft
LawonFinancialDebt
Restructuring.
Draftlawonprivate
bailiffs.
Collaboratewithother
IFIsandprivatesector
stakeholderswithinthe
contextofthevienna
initiativetodevelopa
regionalapproachfor
tacklinghighlevelsof
NPLsacrossCentraland
SouthCentralEurope.
Organizeandhost
workshopstoimprove
cooperation,raise
awarenessandshare
knowledgeamongstkey
stakeholders.
Averageclientsatisfaction
asmeasuredbyclient
satisfactionsurveys.
Averageclientsatisfaction
asmeasuredbyclient
satisfactionsurveys.
Increaseinthenumberof
viableCorporateobligors
successfullyrestructured
Reductionintheoverall
sizeofNPLs.
39
Results Framework Table
MACRO-pRUdEnTIALFRAMEWORk
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
BOSnIA-
hERzEgOVInA
MACRO-pRUdEnTIAL
CApACITYBUILdIng:
CREdITRISk
MOdELIng
BOSnIA-
hERzEgOVInA
MACRO-pRUdEnTIAL
CApACITYBUILdIng:
EARLYWARnIng
SYSTEM
BOSnIA-
hERzEgOVInA
MACRO-pRUdEnTIAL
CApACITYBUILdIng:
CREdITgROWTh
FORECASTIng
UpdATE
WorktogetherwithCBBH
stafftobuildacreditrisk
modelfortheirstress-
testingframework(witha
consultantfromtheJvI).
Worktogetherwith
CBBHstafftobuilda
simple,quantitativeEarly
WarningSystemforthe
Bosnianbankingsector.
Updatethecreditgrowth-
forecastingmodelofthe
CBBH(withaconsultant
fromtheUniversityof
Amsterdam).
BackgroundNoteon
ModelingCreditRiskfor
StressTestinginBosnia-
Herzegovina.
ExcelandEviewsfiles.
TrainingforCBBHstaffon
operatingthemodel.
BackgroundNoteon
BankingSectorEWSfor
Bosnia-Herzegovina.
ExcelandEviewsfiles.
TrainingforCBBHstaffon
operatingthemodel.
Shortnoteonthemodel
update.
ExcelandEviewsfiles.
Consultations(overthe
phone)withCBBHstaff
ontheupdate.
Successfuladaptationof
analyticaltoolstothe
client’senvironmentand
needs;reflectedinclient
satisfaction.
Successfuladaptationof
analyticaltoolstothe
client’senvironmentand
needs;reflectedinclient
satisfaction
Successfuladaptationof
analyticaltoolstothe
client’senvironmentand
needs;reflectedinclient
satisfaction.
Enhancedanalytical
capacityofthemacro-
prudentialauthority,
vianewregularinternal
reportsonsystemicrisk
launchedwithinthe
centralbank,basedon
theoutputofnewlybuilt
analyticalmodels.
Enhancedanalytical
capacityofthemacro-
prudentialauthority,
vianewregularinternal
reportsonsystemicrisk
launchedwithinthe
centralbank,basedon
theoutputofnewlybuilt
analyticalmodels.
Enhancedanalytical
capacityofthemacro-
prudentialauthority,
vianewregularinternal
reportsonsystemicrisk
launchedwithinthe
centralbank,basedon
theoutputofnewlybuilt
analyticalmodels.
Usageofnewanalytical
toolsininternalreports
andinFSR.
Usageofnewanalytical
toolsininternalreports
andinFSR.
Usageofnewanalytical
toolsininternalreports
andinFSR.
40
Financial Sector Advisory Center | Annual Report 2014
CRISISSIMULATIOn
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
MOLdOVACSE
MACEdOnIACSE
ARMEnIACSE
ConductCSEwithsenior
policymakers
ConductCSEwithsenior
policymakers
ConductCSEwithsenior
policymakers
CSEReport
CSEReport
CSEReport
Turnout:30+
participants,including
CBGovernor,Ministerof
Finance,HeadofDeposit
Insurance.
EndorsementofCSE
Reportbymainclient
(CB)
Turnout:30+
participants,including
CBGovernor,MoFSenior
Advisor,HeadofDeposit
Insurance.
EndorsementofCSE
Reportbymainclient
(CB)
Turnout:30+
participants,includingCB
DeputyGovernor,MoF
SeniorOfficial(former
Minister),HeadofDeposit
Insurance.
EndorsementofCSE
Reportbymainclient
(CB).
Strengthenedcrisis
preparedness,better
coordinationamong
stakeholderauthorities
Strengthenedcrisis
preparedness,better
coordinationamong
stakeholderauthorities
Strengthenedcrisis
preparedness,better
coordinationamong
stakeholderauthorities.
Bettercooperation
betweenauthoritiesinthe
processofusingpublic
fundsforbankresolution
Clientbetterprepared
tomanagerenewed
contagionfromGreece
Clientbetterableto
handlecontagionfrom
RussianRoublecrisisat
end-2014.
41
Results Framework Table
BAnkRECOVERY&RESOLUTIOn
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
ALBAnIA
SERBIA
Assessmentoflocal
lawforresolvingbanks
againstinternational
bestpractice(esp.Key
AttributesandtheBRRD.
Analysisofexisting
triggersandpowersfor
early,timelyandfirm
interventioninfailing
institutionswithout
requiringpublicsupport;.
Identificationof
systemicallyimportant
banks.
Assessmentoflocallaw
onresolvingbanksagainst
internationalbestpractice
(esp.KeyAttributesand
theBRRD)includingthe
roleofDepositInsurance
Agencys.
Supportindraftinglegal
requirementsforrevised
BankingRecoveryand
ResolutionLawincluding
effectsondeposit
insurance,companylaw
etc.
Guidelinesforrecovery
plans
Listofsystemically
importantbanks
Missionincooperation
withIMF(sept.2014).
Supportthepreparation
ofagreementtoand
implementationofMoUs
betweentheprincipal
authorities-Guidance
noteonthestructuraland
organizationalseparation
betweenresolutionand
supervisorytaskswithin
oneinstitution(NBS).
AnalysisonSavingsand
CooperationAssociation
consolidationandtransfer
toDepositInsurance
Agency.
AssessmentonR&R
reforminSerbia(focuson
useofDepositInsurance
Agency).
Guidancenoteon
separationofpowers
betweenresolutionand
supervisionUnitinSerbia
(NBS).
Adoptionofmandatory
recoveryplanguidance.
Submissionofrecovery
plansby7banks.
NewlawonSavingsand
CooperativeAssociation?.
NewMemorandumof
Understanding(MoU)
withECBunderSSM.
Adoptionofoverhaulnew
legislativeframework
bynationalparliament
inJanuary2015(R&R
plusDepositInsurance
Agency).
Consolidationand
inclusionoftheSavings
andCooperation
Associationsectorunder
DepositInsuranceAgency.
Enhancedrecoveryand
possiblefutureresolution
planning.
Increasedco-ordination
withcross-borderparent
bankshomesupervisor,
avoidinginsularnational
responses.
Partcompliancewith
theFinancialStability
Board’s“KeyAttributes
ofEffectiveResolution
RegimesforFinancial
Institutions”.
Bankfailuresaremanaged
inanorderly,avoiding
systemiccrisis;
EnhancedDeposit
InsuranceAgencyregime
(funding,pay-out,etc..
inlinewithnewEU
Directive).
Domesticbankscovered
byrecovery&resolution
plan.
Increasedco-ordination
withcross-borderparent
bankshomesupervisor
avoidinginsularnational
responses.;
Compliancewiththe
FinancialStabilityBoard’s
“KeyAttributesofEffec-
tiveResolutionRegimes
forFinancialInstitutions”.
AlignmentwiththeBRRD.
42
Financial Sector Advisory Center | Annual Report 2014
BAnkRECOVERY&RESOLUTIOn
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
MOLdOVA
Assessmentoflocallaw
onresolvingbanksagainst
internationalbestpractice
(esp.KAandtheBRRD)
includingtheroleofDIA.
Assistanceinthe
preparationoftheclosing
of3banksinMoldova.
Tailoredcountryspecific
“decisiontree”on
resolutionstagesand
powers.
Gapanalysisoflocallaws
(ongoing).
MissioninDecember
2014
.
NoteonBankingSector
Developments.
Decisiontree.
3bankswereputunder
specialadministrationby
theCentralBankinQ4
2014
.
Inearlystageofinternal
planninginoverallreform
oftherecoveryand
resolutionregime.
Minimizingeffectsof
bankingcrisis(fraudulent
scheme)onfinancial
stabilityandtaxpayers’
support.
43
Results Framework Table
BAnkRECOVERY&RESOLUTIOn
FinSACACTIVITIES/
InpUTS
FinSACOUTpUTS
FInSACOUTpUT
IndICATORS
ExpECTEdCLIEnT
OUTCOMES
pOTEnTIALCLIEnT
OUTCOMEIndICATORS
CpFLTA
IMpLEMEnTATIOn
pROgRAMkOSOVO
Toassesstheexisting
financialconsumer
protectionframework
byreviewinglaws,
regulationsandpractices
inKosovocompared
tointernationalgood
practices.
Toprovide
recommendationsonways
tostrengthenthelevel
offinancialconsumer
protectioninKosovo.
Theobjectiveofthis
phaseistoensurethat
financialconsumersare
abletoreapbenefitsfrom
anexpeditedexecutionof
theproposedmeasures.
TAtosupport
amendmentstothe
legalandregulatory
frameworkaswellas
institutionalstrengthening
ofthefinancialconsumer
protectionregimein
Kosovo,including
•Conductinga
diagnosticreviewfor
consumerprotectionand
Financialliteracy
•Preparationof
strategyforCPFLin
Kosovo
•PreparationofAc-
tionPlanforImplementa-
tionofCPFLStrategy
•Preparationof
TechnicalNoteon
measurestostrengthen
thelegalandregulatory
frameworkforfinancial
consumerprotection
•DraftingofMOU
betweenMinistryofTrade
andIndustryandCBK
•Provisionoftech-
nicaladviseonMarket
ConductReportingForm
•Draftingof
provisionsofConsumer
protectionfortheDraft
MortgageRegulation,
DraftLawonMicro
Finance,DraftRegulation
onDefaultInterestrates.
CBKsatisfiedwiththeTA
supportprovided.CBKto
approveandimplement
theframework
-MOUsignedbetween
MinistryofTradeand
IndustryandCBK
-EnactmentofCBK
RegulationonDisclosure
Requirements
-Enactmentof
ComplaintsRegulation
-EnactmentofCBK
InternalProcedureon
ComplaintsHandling
Numberofnewlyenacted
financialconsumer
protectionlaws,
regulations,guidelines
andprocedures:3
Coordinationmechanisms
establishedwithpublic
sectorauthorities/private
sector/civilsociety:MOU
signedbetweenMinistry
ofTradeandIndustryand
CBKoncoordinationand
cooperation
Strengtheningof
regulatoryunitsfor
consumerprotection
supervision,
organizational
reformstoenhance
capacityforfinancial
consumerprotection:
Strengthenedregulatory
andsupervisoryrole
andcapacityofCBK
infinancialconsumer
protectioninparticular
relatedtodisclosure
requirementsand
complaintshandling.
1818 H Street, NWWashington, DC 20433
FINANCIAL SECTORADVISORY CENTER(FinSAC)Praterstrasse 31-19th Floor1020 Vienna, Austria
www.worldbank.org/finsac