1. The Financial Sector in the EU Economic Surveillance Aglika Tzvetanova European Semester Officer for Bulgaria Sofia, 4 December 2014

2. From Analysis To Policy Conclusions 1. The financial sector in the Scoreboard of the Macroeconomic Imbalance Procedure (MIP) 2. The financial sector in the In-depth Reviews (IDPs) of the MIP and the Staff Working Documents (SWDs) of the European Semester 3.The financial sector in the Country-Specific Recommendations (CSRs)

3. "Financial" Indicators In The MIP Scoreboard Indicators of external imbalances: NIIP* as % of GDP (-35%). Indicators of internal imbalances: Y-o-y change in deflated house prices (6%) Private sector credit flow as % of GDP (14%) Private sector debt as % of GDP (133%) Y-o-y change in total financial sector liabilities (16.5%) Three factors are taken into account: Private sector indebtedness The growth of the financial sector Net inflation in the housing market * The difference between a country's external financial assets and liabilities is its net international investment position (NIIP).

4. Banks And Finance In The Analytical Work The scoreboard is very useful for an aggregated cross-country comparison. The analysis continues based on a country- specific assessment of latest developments in the IDR/SWD: in the banking sector as a whole (deposits, loans, quality of assets, solvency, liquidity, arrears management, etc.) with specific banks (liquidity or solvency failures, support schemes, restructuring, etc.) with other non-bank intermediaries in the supervisory and regulatory framework Identification (or not!) of underlying imbalances or of policy failures, threatening financial stability

5. The End-Result: Financial Sector Related CSRs The 2014 exercise concerned 13 member states. Detailed post-program CSRs: IE, ES, HU and PT. CSRs with respect to bank vulnerabilities: DE, HR, IT, AU and SI. A very diverse group! CSRs with respect to access to finance: IT, MT and the UK. CSRs with respect to indebtedness and the housing market: NL, SE and the UK.

7. The Case Of Bulgaria 2013 Scoreboard reading: NIIP is at -76.2% of GDP vs. -78.2% in 2012; Private sector debt is at 134.8% of GDP vs. 128.1% in 2012; Financial sector liabilities grew by 3.3% vs. 10.2% in 2012; Housing prices are stagnating, after several declines; Overall conclusion: no evident financial sector imbalances. Country-specific analysis: Very good aggregate solvency (core Tier 1 of 20.3%) and liquidity (24.8%) indicators. NPLs are persistently high, though. One bank ran illiquid, got resolved very slowly by international standards, depleted and indebted the Deposit Insurance Fund. Another bank received liquidity support for 15-20% of its funding base and rescheduled the support, while continuing to lose liquidity. Issues with asset quality, governance, supervision, resolution?