Bulgarian National BankBulgarian National Bank

ANNUAL REPORT 2009ANNUAL REPORT 2009

Published by the Bulgarian National Bank1, Knyaz Alexander I Square, 1000 SofiaTel.: (+359 2) 9145 1351, 9145 1209, 9145 1231, 9145 1978Fax: (+359 2) 980 2425, 980 6493Printed in the BNB Printing Centre

Bulgarian National Bank, 2010

ISSN 1313-1494

Materials and information in the BNB 2009 Annual Report may be quoted or reproduced without further permission.Due acknowledgment is requested.

Website: www.bnb.bg

The cover shows an engraving of the BNB building from the 1938 banknote with a nominal value of 5000 levs.

Honourable Chairman of the National Assembly,

Honourable Peoples Representatives,

Under the provisions of Article 1, paragraph 2 and Article 51 of the

Law on the Bulgarian National Bank, I have the honour of presenting

the Banks 2009 Annual Report.

Ivan Iskrov

Governor

of the Bulgarian National Bank

BN

B G

over

ning

Cou

ncil

Sitting from left to right: Kalin Hristov, Ivan Iskrov, Rumen Simeonov, Dimitar KostovStanding from left to right: Oleg Nedyalkov, Penka Kratunova, Statty Stattev

Governing Council

Ivan IskrovGovernor

Dimitar KostovDeputy GovernorBanking Department

Rumen SimeonovDeputy GovernorBanking Supervision Department

Kalin Hristov*Deputy GovernorIssue Department

Penka Kratunova

Statty Stattev

Oleg Nedyalkov

* As of 23 October 2009 Kalin Hristov is a Deputy Governor heading the Issue Department. Until 22 October 2009 Tsvetan Manchev was a Deputy Governor heading the Issue Department.

Organisational Structure of the BNB(as of 1 March 2010)

GOVERNING COUNCIL

DEPUTY GOVERNORDimitar Kostov

Banking Fiscal Services Department Department

Bank Policy Directorate

Economic Research and Projections Directorate

Supervisory Policy Directorate

Legal Services and Administration Directorate

GOVERNORIvan Iskrov

Chief Auditor

DEPUTY GOVERNORKalin Hristov

Issue Department

Treasury Directorate

Risk Analysis and Control Directorate

Credit Institutions Supervision Directorate

Macro-prudential Analysis and Strategy

Directorate

Special Supervision Directorate

DEPUTY GOVERNORRumen Simeonov

Banking Supervision Department

Statistics Directorate

General Accounting Directorate

Government and Government Guaranteed

Debts Depository Directorate

Projections and Management of State Budget Cash Flows

Directorate

Issuing Policy and Control Directorate

GENERAL SECRETARYPetko Krastev

Administrative Directorate

Information Systems Directorate

Capital Investment, Main-tenance and Transport

Directorate

ProcurementDirectorate

STRUCTURAL UNITS SUBORDINATED TO

THE GOVERNOR

Human Resources Management Directorate

International Relations Directorate

Legal Directorate

Banking Security and Protection of Classified

Information Directorate

Financial StabilityDirectorate

Public Relations Directorate

Issue and Cash Directorate

In 2009 the Bulgarian National Bank one of the first and oldest institutions dating back to the Bulgarian National Revival period marked its 130 anniversary. With a view to its significant role in Bulgarias past and present the BNB took a number of initiatives to celebrate the occasion. The anniversary provided great opportunities to familiarise the general public with the Banks role and functions in the past, with its current objectives and activities and with its responsibilities as a national central bank and a member of the European System of Central Banks.

In early 2009 four students of economics who submitted essays on issues of great importance to the BNB received scholarships. The Bank minted a silver commemorative coin for its 130th Anniversary and published catalogues of Bulgarian coin and banknote specimens. Also published were the final four volumes of the BNB Archives covering the period between 19481990, and a short bilingual illustrated history of the Bank, as well as an album of 130 works of fine art from the BNB collection.

Open Days at the Bank ranked as the most popular of celebration events. More than four thousand people visited the BNB Building on 11 and 12 April to learn a lot about banking, price stability, and the past and present of the Bank through a multiplicity of in-formation leaflets, exhibits, interactive displays, and games. To mark the anniversary, the Bank also held a celebration concert on 12 June at the Ivan Vazov National Theatre, play-ing host to the President, the President of the European Central Bank, government offi-cials, representatives of financial bodies, central banks, and international organisations. The Bulgarian National Television broadcast the concert live. A documentary on the BNB, Zlatnoto Doverie (Faith as Good as Gold) produced by Boyko Iliev and scripted by Yuriy Dachev, was also shot and shown by BNT.

The BNB held events to raise public awareness of the importance of financial stabil-ity, the role and nature of the currency board in Bulgaria, and the euro as the currency of united Europe and Bulgarias coming adoption of it. An important mission of many initia-tives was to acquaint the public with the rights of those who use financial, payment and information services. All BNB initiatives to celebrate the occasion were guided by those foremost principles of modern central banking: openness, transparency, and public ac-countability.

* The Articles of Association of the Bulgarian National Bank were approved on 25 January 1879. The first Governor was appointed on 4 April that year. The Bank was officially inaugurated on 23 May 1879 and BNB anniversaries are tradition-ally marked on 6 June, the day on which the Bank opened for business that year.

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Summary _________________________________________________________ 11

I. Economic Development in 2009 __________________________________ 13

1. The External Environment _______________________________________ 13

2. The Bulgarian Economy ________________________________________ 15

II. Gross International Foreign Currency Reserves _____________________ 25

1. The Amount and Structure of Gross International Foreign Currency Reserves 25

2. Gross International Foreign Currency Reserve Risk and Yield ___________ 27

III. The National Payment System ___________________________________ 32

1. The RINGS Real-time Gross Settlement System _____________________ 33

2. Regulatory Changes ___________________________________________ 33

3. Payment System Developments __________________________________ 33

4. Payment System Oversight ______________________________________ 34

IV. Bank Reserves at the BNB ______________________________________ 35

V. Cash in Circulation ____________________________________________ 36

VI. Maintaining Banking System Stability _____________________________ 40

1. State of the Banking System _____________________________________ 40

2. Compliance with Prudent Banking Requirements _____________________ 45

3. Banking Supervision ___________________________________________ 45

VII. The Central Credit Register _____________________________________ 48

VIII. The Fiscal Agent and State Depository Function _____________________ 49

IX. International Relations and Participation in the ESCB ________________ 52

X. Statistics ____________________________________________________ 55

XI. Research ____________________________________________________ 57

XII. Information Infrastructure _______________________________________ 58

XIII. Human Resource Management ___________________________________ 60

XIV. Facilities Management __________________________________________ 62

XV. Internal Audit _________________________________________________ 63

XVI. BNB Budget Implementation _____________________________________ 65

XVII. Bulgarian National Bank Consolidated Financial Statements as of 31 December 2009 _______________________________________ 67

Major Resolutions of the BNB Governing Council _________________________ 101

Appendix (CD)

Bulg

arian National B

ank. Annual R

eport 2009

Contents

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Abbreviations

BIR Base interest rate BIS Bank for International Settlements, Basle, Switzerland BISERA System for servicing customer payments initiated for execution at a designated time BNB Bulgarian National Bank BORICA Banking Organization for Payments Initiated by Cards BSE Bulgarian Stock Exchange BTC Bulgarian Telecommunication Company CEFTA Central European Free Trade Association CIF Cost, Insurance, Freight CM Council of Ministers EBRD European Bank for Reconstruction and Development EC European Commission ECB European Central Bank ECOFIN Economic and Financial Council EFTA European Free Trade Association EMU Economic and Monetary Union ESCB European System of Central Banks EU European Union FLIRBs Front-loaded Interest Reduction Bonds FOB Free on Board GDDS General Data Dissemination System GDP Gross Domestic Product HICP Harmonized Index of Consumer Prices IFO Institute of Economic Research, Germany IMF International Monetary Fund MF Ministry