BDIF WORKSHOP “Risk-Adjusted Premiums and Credit Ratings” Radisson

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					                    BDIF WORKSHOP
        “Risk-Adjusted Premiums and Credit Ratings”
                Radisson SAS Hotel, Sofia
                     November 16, 2005




Co-organizer: Standard & Poor’s-London           Sponsored by:
Summarized analysis of the
 Questionnaire’s responses
   Mr. Dragomir Nedeltchev
Bulgarian Deposit Insurance Fund
1. Bulgarian Banking Industry

2. Shift to Risk Based Premiums

3. Pattern of Risk Based Premiums

4. What do commercial banks expect from the
introduction of Risk Based Premiums
1. Bulgarian Banking Industry

2. Shift to Risk Based Premiums

3. Pattern of Risk Based Premiums

4. What do commercial banks expect from the
introduction of Risk Based Premiums
branch
  5%




    banks
     95%
      FHCs
 BU   45%
55%
                        assets


                       Bg
                 EU   29%
 Bg             45%
55%
                              EU
                             71%




       equity         deposit base


                       Bg
  Bg
                      29%
 34%

             EU
                                  EU
            66%
                                 71%
                                         assets
            n.a.
specialized 5%
   20%
                                 other
                                 40%
                                                  diversified
                   diversified                       60%
                      75%




            equity                deposit base


        other                    other
        21%                      26%



                                              diversified
                   diversified
                                                 74%
                      79%
co
     rp
          or
               at
                    e
                        ba




                                    0
                                    2
                                    4
                                    6
                                    8
                                   10
                                   12
                                   14
                                   16
                                   18
                                   20
                             nk
                          in
                             g
                m       re
                  or t a
                    tg        il
               cr a g
                 ed in
                    it       g
               in ca
                 ve r d
                    st s
                       m
                         en
                            ts
                        ot
                           he
                     le        r
                       as
                  in in
                    su g
                       ra
                          nc
                             e
                                                       Areas of activity:



                                   Series2
                                             Series1
         Self-assessment by size and clientele

12
10
                                                1
 8
                                                2
 6
                                                3
 4
 2                                              4
 0
     assets     credits    SME      personnel
                              assets

    n.a.
    10%                   other
                          28%
no CR                CR
 35%                55%
                                    CR
                                   72%




          equity           deposit base


                           other
  other
                           29%
  36%
                    CR
                                        CR
                   64%
                                       71%
1. Bulgarian Banking Industry


2. Shift to Risk Based Premiums

3. Pattern of Risk Based Premiums

4. What commercial banks expect from the
introduction of Risk Based Premiums
                                    assets
                                              very
        n.a.                                important
        11%                                   12%
  minor                 very
importance            important
   32%                  57%
                                  other
                                  88%




             equity               deposit base
                   very                        very
                 important                   important
                   15%                         11%



       other                        other
       85%                          89%
                                 assets

      n/a                      other
     20%                       14%

positive
 10%
                    negative           negative
                      70%                86%




           equity              deposit base

                               other
    other                      14%
    23%


                                       negative
                negative
                                         86%
                  77%
                      de
                           po
                               si
                          cr t pr




                                                  0
                                                  2
                                                  4
                                                  6
                                                  8
                                                 10
                                                 12
                                                 14
                                                 16
                             ed i c
                                it ing
                                   pr
                                      ic
                       la                in
               cu w liq g
i n cr s
   t e ed to ad uid
      re        it m e he ity
         st        ris r s re
            ra        k          re nce
               te         m
                   ris an latio
                       k        a
                          m ge ns
                             an m
                                ag en
                                     em t
                               c/         en
                                  a
                                     ba t
                               c/ nk
             ca                   a         s
                  pi                 FH
                    ta
                        l m so C s
                            an lve
                                ag nc
                                     em y
            op                 di
                er                vi ent
                   at                de
                      iv                nd
                          e                 s
                            ris o
                               k th
                                  t ra er
                                      ns
                                          fe
                                             r
                                                      Deposit Insurance and Banking Management:
                                          assets



                                      other
combination              risk based   36%
   45%                       45%               risk based
                                                  64%
                 flat
                10%




               equity                  deposit base



                                      other
       other
                                      36%
       41%
                        risk based
                                                   risk based
                           59%
                                                      64%
1. Bulgarian Banking Industry

2. Shift to Risk Based Premiums

3. Pattern of Risk Based Premiums

4. What commercial banks expect from the
introduction of Risk Based Premiums
                                      assets

               n/a                            3-5
> 8 indicators
      5%       5%                          indicators
                        5-8                   26%
    3-5              indicators
 indicators             50%
    40%                           other
                                  74%




              equity              deposit base

                        3 -5                  3-5
                     indicators            indicators
                        30%                   26%


      other
                                  other
      70%
                                  74%
 > 8 groups
     6%
5-8 groups
    6%



              3 -5 groups
                  88%
      BDIF elaborates a Code of Best
             Bank Practices
• Most of the banks support the suggestion;

• Many banks propose that BNB and ACB
  participate;

• 2 banks are against such a code.
          Qualitative indicators for
           assessing risk profile
• CAMELS - 8 banks;
• Credit rating – 7 banks (45% of the assets, 38% of
  the equity and 44% of the deposit base);
• A combination of the above – 7 banks;
• Banking Supervision rating – 5 banks (o/w 2 for
  on-site inspections);
• BDIF rating – 1 bank;
• Most of the banks have given more than one
  answer.
ca
     pi
    ta
       lr
          eq
      as ui
          se re m




                                   0
                                   2
                                   4
                                   6
                                   8
                                  10
                                  12
                                  14
                                  16
                                  18
                                  20



              ts e
                 po nt
                      r tf s
                          o
                   liq li o
                c r u id
                   e d it y
                        i
                 s o t r is
     in               lv k
        te                en
           re fu cy
              st n d
                 r a in
                             g
ec    o p c a te r
   o n er a sh isk
      o m tio fl o
            ic n a w s
               in l r i
                  d i sk
                     ca
                          t
                     in or s
                                            profile assessment




                        co
                            m
                         ot e
                            he
                              r
                                       Quantitative indicators for risk
  Usage of market information for risk
          profile assessment
The banks responded negatively…




because of the lack of practice and a real
market.
     Securities emission as a ground for
              different treating

Most banks would not like it.
      Restrictions on risky behaviour of
       banks of systemic importance

• 4 banks in favour;

• The largest banks are against.
    Basis for determining the risk
   group and paying the premiums.
• the annual period.
1.20
1.00

0.80
0.60
0.40
0.20
0.00
       1   2   3
     Funding BDIF as a function of
           the deposit base
• Most of the banks consider that after the introduction
  of risk-based premiums the BDIF Management
  Board should preserve its right to reduce the rate of
  premiums provided that the BDIF resources reach
  5% of the total deposit base, calculated on an
  average daily basis.
   Funding BDIF as a function of
         the deposit base
• 4 banks suggest that BDIF MB should have the right
  to change the rate of premiums;
• 3 banks – MB should have the right of changing the
  rate but within the range of 2 – 3%;
• 6 banks – MB should have such a right, but the ratio
  should be floating;
• 5 banks – MB should not have the right of changing
  the rate of the premiums due.
    Funding BDIF as a function of
          the deposit base
• 3 banks suggest determining the rate in relation to
  the total deposit base;
• Other 3 banks suggest changing both the rate and the
  basis for its calculation, i.e. the basis of the
  guaranteed amount;
• 9 banks suggest changing the calculation basis but
  without advancing any arguments.
1. Bulgarian Banking Industry

2. Shift to Risk Based Premiums

3. Pattern of Risk Based Premiums

4. What commercial banks expect from the
introduction of Risk Based Premiums
                   Basel II
• Banks expect that the implementation of
  BASEL II Capital Accord would affect
  positively the risk-based premiums system;

• However, they have not referred to the
  interaction between BASEL II and the
  premiums.
                                           assets

              n/a                      other
negative exp. 5%                       22%
    25%
                      positive exp.
                           for                  positive exp.
                       enhancing                    78%
                      bank stability
                         70%




            equity                     deposit base

         other                         other
         19%                           21%



                    positive exp.              positive exp.
                        81%                        79%
           n/a
           5%
moral hazard
 increase
   15%

                 moral hazard
                  decrease
                    80%
           Banks vs. non-bank financial
                   institutions
• No substantial change in the competition is expected.
  8 banks expect that the change of the premiums will
  favour non-bank financial institutions;
• 3 banks do not expect that switching to risk-based
  premiums would preserve their comparative
  advantages;
• 1 bank considers that the introduction of risk-based
  premiums will have a negative impact on operations
  of FHCs, 5 banks – positive impact;
• 2 banks expect that the introduction of risk-based
  premiums would shift the risk to the non-bank
  financial entities within the holding.
         Preserving comparative
        advantages vis-a-vis FHCs
• 3 banks expect to keep neither their comparative
  advantages as far as small and medium business is
  concerned, nor the customers’ interest;

• 10 banks consider that they would manage to keep
  their advantages by focusing on better regulation,
  transparency, safety and awareness.
         banking
         serivces
other
        expenses
50%
        increase
           50%
         n/a
no new 5%
services
  25%

               new services
                  70%
                                        assets
                               middle-risk
middle-risk       high-risk      banks
  banks            banks          18%
   30%               0%

                  low-risk
                   banks                     low-risk
                    70%                       banks
                                               82%




              equity                 deposit base
                               middle-risk
middle-risk                      banks
  banks                           20%
   32%

                    low-risk
                     banks                    low-risk
                      68%                      banks
                                                80%
Thank you for your attention!

				
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posted:10/26/2011
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