site.btaEU Urges Independent Asset-Quality Review of Bulgarian Banking Sector by December

EU Urges Independent Asset-Quality Review of Bulgarian Banking Sector by December

Brussels, July 14 (BTA correspondent Nikolay Jelizakov) - The Council of the European Union on Tuesday adopted recommendations on Bulgaria's 2015 national reform programme, urging the country to complete an independent asset-quality review of its banking sector by December 2015.

The document says that banking sector turmoil in the summer of 2014 revealed institutional and supervisory weaknesses. The supervisory bodyТs failure to detect significant problems in the fourth largest bank in Bulgaria, Corporate Commercial Bank (KTB), points to shortcomings in financial sector supervisory practices and oversight of concentration risk. This has undermined the credibility of banking supervision, in turn also raising doubts as to the health of other parts of the financial sector. The guaranteed deposits, amounting to 4,4 per cent GDP, were paid out only after a significant delay.

The Council has recommended a system-wide independent asset-quality review and a bottom-up stress test of the banking sector by December 2015, in close cooperation with European bodies, a portfolio screening for the pension funds and insurance sectors, a review and fortification of banking and non-banking financial sector supervision, including by strengthening the bank-resolution and deposit-guarantee frameworks and improving corporate governance in financial intermediaries, including by tackling concentration risk and related-party exposures

Also, Bulgaria should avoid a structural deterioration in public finances in 2015 and achieve an adjustment of 0,5 per cent of GDP in 2016 and take decisive measures to improve tax collection and address the shadow economy, based on a comprehensive risk analysis and evaluation of past measures.

The Council has urged Bulgaria to adopt the reform of the School Education Act, and increase the participation in education of disadvantaged children, in particular Roma, by improving access to good-quality early schooling.

The CommissionТs analysis has found that Bulgaria is experiencing macroeconomic imbalances and in particular, the financial sector turbulence in 2014 has raised concerns about banking practices in the domestically owned part, which may have significant implications for the financial sector and overall macroeconomic stability.

The analysis has taken stock that the Government sets out to gradually reduce the deficit so as to reach a level of 1,3 per cent of GDP in 2018. The government debt-to-GDP ratio is expected to increase over the programme period, reaching almost 31 per cent in 2018. The macroeconomic scenario underpinning these budgetary projections is plausible. However, measures to support the planned deficit targets from 2016 onwards have not been sufficiently specified. Based on the Commission's 2015 spring forecast, net expenditure growth is forecast to respect the benchmark in 2015. However, taking into account the deterioration of the structural balance (1,7 per cent of GDP in 2014), there is a risk of some deviation from the requirement over the period 2014-2015. In 2016, there is a risk of a significant deviation, as net expenditure growth exceeds the benchmark by 0,9 per cent of GDP. The Council is of the opinion that there is a risk that Bulgaria will not comply with the provisions of the Stability and Growth Pact.

Tax compliance continues to be a major challenge in Bulgaria. There is a need for a comprehensive tax compliance strategy based on a thorough analysis of risks, systematic impact assessment of measures already taken and close coordination between the various tax collection agencies.

The Bulgarian healthcare system faces several major challenges, including poor health outcomes, low funding and serious inefficiencies in the use of resources. Life expectancy is considerably below the EU average and life expectancy at birth is among the lowest in the Union. The healthcare fund is contractually obliged to reimburse hospitals for treatments at predefined prices, which is incentivising hospitals to provide inadequately targeted medical care. A National Health Strategy was adopted in 2014 but it lacks a clear implementation plan.

Of labour market policies, the analysis says that the fragmentation of agencies represents a major challenge in delivering benefits and services to the unemployed and the inactive. Also, Bulgaria has one of the highest rates of material deprivation in the Union.

The low quality of the education and training systems and their limited relevance to the labour market hamper the supply of a suitably skilled labour force to the economy.

In 2013,1,2 million pensioners were found to be receiving pensions below the national poverty line. The key drivers behind low pension entitlements are early retirement and short contribution periods.

A key building block for an investor-friendly business environment is an independent, high-quality and efficient judicial system and effective mechanisms to fight corruption.
Strategies for the reform of the public administration and the introduction of e-government were adopted in 2014 but Their implementation will need a strong policy steer and coordination.