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THE FINANCIAL MARKETS IN BULGARIA IN 2007
MONEY MARKET
In 2007, the behaviour of interbank money market participants was to a greater or lesser extent influenced by the BNB minimum reserve requirements, a regulation that is directly reflected on the system’s excess reserves and on money market dynamics.
The repeal of the AMRR (additional minimum required reserves) in early May resulted in freeing resources for banks for almost BGN 1 billion.
Later on, however, in early September, in order to dampen excessive credit expansion, the MRR (minimum required reserves) ratio was raised from 8 to 12 per cent, which led to absorption of liquidity while maintaining large BGN resources in the system and to a rise in interest rate levels on the interbank market for BGN resources.
The largest average daily excess reserve was maintained by banks in July (BGN 66274 thousand), and the lowest was in August (BGN 9733 thousand).
Liquidity in the banking system continued to be influenced in 2007 also by the movement of monetary flows from and to the Ministry of Finance. From government bond issuance, there is a net outflow of resource from commercial banks by BGN 118.7 million for the year (a difference between the sums paid at the Ministry’s auctions and the coupon and capital amount payments received by banks). There was a monthly influx of liquidity into the system from transfers of pensions and of subsidies to municipalities, while in mid-month significant amounts left the banks as payments to the budget (of VAT, excises, etc).
Interbank money market
In 2007 commercial banks in the system increased their money market activity vis-à-vis 2006 to a total volume of BGN 71922.7 million in BGN transactions, including BGN 67331.2 million (93.6%) in deposit lending, BGN 3166.7 million (4.4%) in repurchase of government securities, and BGN 1426.3 million (2.0%) in outright deals in government securities (issued in the country, of any maturity and denomination) with movement on transaction accounts with the BNB. The proportion between the three types of transactions (deposit lending, repos, and outright purchases) remained stable and did not differ substantially from that in previous years.
Compared to 2006, the increase for the totality of deals is by BGN 5412.5 million, or 8.1%. In deposit lending, the growth is by 5.2% (BGN 3323.4 million), resulting from a 5.5% (BGN 3526.1 million) increase in unsecured deposit lending and a 56.9% (BGN 202.9 million) decrease in secured deposit lending. No secured deposit-lending deals were registered from April till the end of 2007. Repo operations gained in volume 3.5 times and amounted to BGN 2251.4 million more than in 2006. In outright deals in government securities there was a total decrease by 10.0% (BGN 157.8 million), resulting from a 17.6% (BGN 265.0 million) decline in BGN-denominates issues trading, while in foreign-currency-denominated government securities trading the volume more than doubled (rose by BGN 104.1 million) and mainly EUR-denominated issues were dealt in.
In the deposit-lending deals group, 1-day (mostly overnight) transactions were preferred, with a 90.8% share in all deposit lending (a 94.0% in 2006). At the same time, the prevalence of unsecured operations further increased to 99.8% from 99.6% in 2006.
The tradition established in the previous years of a last-day rise in money market volume every month continued in 2007, and the largest size for the year was BGN 1000.6 million on 30th March, while the largest for 2006 was BGN 1085.1 million on 30th September.
In 2007, the average interest rate on interbank term transactions reached 3.99%, after 2.84% in 2006. In deposit-lending deals it was 3.98% (3.99% in unsecured lending and 3.53% in secured lending) and in repos it was 4.11%.
The size of the monthly average interest rate in interbank deposit lending and repo operations gradually rose from 3.53% in January to 4.73% in December, till September it was on the levels of and followed the changes in the euro area interest rates, subsequently it gradually moved above those levels.
In monetary operations in foreign currencies between local commercial banks, the year 2007 confirmed the gradual rising trend established since 2003. The total volume of transactions grew by 31.8%, in terms of the BGN equivalent of the currencies, vis-à-vis 2006, there was an increase only in deposit lending in all currencies (USD, EUR, GBP, CHF, etc.), by 37.3%, while repos of government securities marked a 64.7% decrease, and there was a 61.7% decline in outright deals in government securities (issued in the country, of any maturity and denomination). Also here 1-day deposit lending was preferred, with a share of 81.6%, after 85.6% in 2006.
In the total volume of transactions in foreign currency, in 2007 there was an increase in the share of deposit lending, to 98.5% from 94.6% in 2006, while the shares of repurchase and outright trades in government securities declined to respectively 1.3% and 0.2% from 4.7% and 0.7% in 2006.
FOREIGN EXCHANGE MARKET
In2007 thetotalturnoveroftheforeignexchangemarketreachedEUR256015.9million (the figure covers deals in foreign exchange against Bulgarian levs of commercial banks and the BNB with value date up to 2 business days and includes double counting for trades between the BNB and commercial banks and for trades between the latter).Comparedto2006,the total turnover grew more than three times.Increaseinforeignexchangetradingcompared to thepreviousyeartook placein the dealingbetween commercial banks andfinal clients and trading between BNB and commercial banks.
During 2007 tradingbetweencommercialbanksandfinalclientsincreasedby almost 1.5 timescompared to 2006.As in the previous year, there was an excess in bank purchases of foreign exchange over bank sales of foreign exchange – by EUR 1154.8 million. Inthistrading, EUR-BGNdealsprevailed, withashareofmorethan 80 per cent.In 2007 there were no changes in the structure of foreign currencies traded both in purchases and sales compared to 2006.
In 2007is observeda serious increaseinforeign currenciestradingbetween BNB and commercial banks – morethen 4 times. FromFebruary 2007 theforeignexchange(EUR) trades between BNB and commercial banks increased continuously till November, when there wasdecrease in the turnover. Ontheinterbankmarket, theBNBisanetbuyer of foreign exchange, increasing its foreign assets from this factor by more than EUR 1500million.
The share of the central bank in the total turnover of the foreign exchange market in 2007 exceeded42.7%.
Ontheotherside,therewassignificantdecrease inthe pureinterbank foreign exchange market (without BNB) where the turnoverdecreasedby 39.9% compared to the previous year (2006).
In 2007there was a change in the structure of the traded currenciesinthe pureinterbank marketcompared to 2006, wherethe share of deals in EUR expandedby 16 percentage points at the expense of deals in USD.
Tillthemiddleoftheyear is observed an increase in net foreign exchange spot trading of commercial banks with final customers, including with nonresidents.This increase was mainly on the side of purchases and for the year reachedmore than EUR 1100 million.
There was a still bigger increase in forward deals, where, reversely, the balance was constantly negative, i.e. sales of banks to their final customers exceeded their purchases. In the end of 2007 this balance was more than EUR –3500 million.
CAPITAL MARKET
Government securities
The maturity structure of the BGN-denominated issues of the Ministry of Finance included 3M discount treasury bills and fixed-interest 3Y, 5Y, and 10Y treasury bonds. All fixed-interest issues were of the open type (auctioned in tranches during the year).
The issuance of 3M discount T-Bills becamemore frequent, up to 4 issues for the year (there were 3 issues in 2006), and the total annual nominal value of placement decreased to BGN 60 million (compared to BGN 65 million for 2006).
Placement of 3Y government securities increased by 17.5% to BGN 150 million in par value, of 5Y securities increased by 16.1% to BGN 180 million in par value, and of 10Y bonds grew by 38.9% toBGN 250million in par value.
The total size of placement of newly launched government securities increased by 23.6% compared to 2006.
The average annual yield at issuance increased in all maturities.
There was no subscription for conversion of USD-denominated ZUNK(Law on Settlement of Non-performing Credits) bonds into analogous EUR-denominated government securities.
From July 2005 the Ministry of Finance stopped the placement of treasury bonds earmarked for direct sale to individuals (the so-called targeted issues, or savings treasury bonds) and in 2007 there was only buyback which amounted to around BGN 17 million(on average BGN 1.4 million monthly).
On the secondary market, the total sum of the outright deals between commercial banks (including those of the investment intermediaries that have been licensed for primary dealership) amounted to BGN 1426.3 million at market value, according to the statistics of operations with movement on current accounts with the BNB: 11.3% less than in 2006. Of this, the turnover of BGN-denominated securitiesdecreased by 17.6% to BGN 1242.8 million.Thedecreasewas mainlyin the long-term securities. In the case of EUR-denominated bonds there was a threefoldincrease in turnover to BGN 180.5 million, while trade in USD-denominated ZUNK bonds decreased manyfold, to BGN 2.9 million.
There was an increase in the yield in the Bulgarian and inthe euro area yield curve. The curves moved in unison at close levels.
In March 2007Moody’schangedthe outlook onBulgaria’s long-term foreign and local currency government bond rating Baa3from stable to positive.
The 2007 EUR-denominated Eurobonds matured on 1stMarch 2007, the also EUR-denominated 2013 global bonds got down to 112% in price, and the USD-denominated 2015 global bonds went under the 118% mark. The price of the ZUNK bonds (USD-denominated) remained centred at the 100% level.
Compensation instruments
The nulling of compensation instruments through conversion into shares on the BSE – Sofia privatisation market amounted at market value to some BGN 3.4 million.
In compensation instruments trading, in the first quarter the prices of compensation notes and vouchers (without housing savings compensation notes, which do not trade on the secondary market) and of investment vouchers consolidated at the level of BGN 0.44 by the end of June. In October the compensation instruments appreciated to BGN 0.60 and ended the year at the 0.43 line. The turnover of the compensation instruments market in 2007 amounted to BGN 47.4 million, with more substantial volumes during the first half of the year.
Municipal and corporate bonds
The practice of placement of corporate und municipal bonds outside the stock exchange with subsequent registration for stock exchange trading continued. The largest placement was in 5Y bonds, and the preferred currency of denomination by the issuers was the euro.
The turnover of bond trading on the stock exchange grew by 22.9% to BGN 397.4 million (corporate and municipal issues), from323.3 in 2006.
Equity capital
The size of the initial public offering(IPO) market of the BSE-Sofia amounted to BGN 25.2 million from rights on shares. There were a number of IPOs outsidethe stock exchange. In 2006, the stock-exchange IPO market amounted to BGN 12.3 million from shares and BGN 10.1 million from rights on shares.
The secondary market increased more than three times vis-à-vis 2006, reaching BGN 9370.8 million on the stock exchange (plus BGN 19.3 million paid through the central depository on non-bourse deals in shares.)
Thebasic contribution to the turnover came from the trading inBTC AD, ZPAD DZI and Economic and Investment Bank AD shares. The companies’ shares were actively traded in ordinary, block, and repo deals.
Besides the above-mentioned, the largest volumes were traded with shares inthe Bulgarian-American Credit BankAD, Chimimport AD, Kaolin AD, Monbat AD and Sparki Eltos AD. Actively traded were also the shares inthe Central Cooperative Bank AD and the Roads Holding Company. The biggest sole deals were concluded in August for shares in BTC AD for BGN 2770 million and in ZPAD DZI for BGN 580 million, and in December for Economic and Investment Bank AD for BGN 711 million.
Within the total turnover, cash privatisation amounted to BGN 3.8 million (from deals against levs in the privatisation market tenders).
Secondary market deals in rights on shares amounted to BGN 61.4 million, markinga 45.8% increase compared to 2006.
Trading in units of participation in contractual (mutual) funds on the BSE – Sofiaamounted to BGN 18.9 million.
It was a good year for both of the share price indices,the SOFIX and the BG40. The values of the indices in the beginning of the year were 1243.73 for the SOFIX and 200.63 for the BG40. The positive trend was particularly strong during the third and fourth quarters of 2007 whenthe SOFIX and the BG40 reached record values of respectively 1952.40 and 619.99 points(in October).The annual growth of the indices was respectively 42.1% and 158.2%.
The trend of the Bulgarian indices as a whole was similar to the trend of the leading foreign markets, differing only in second half of the fourthquarter, when the trend of the leading markets outstripped the Bulgarian.
The general appreciation of shares and the admittance of new companies for stock exchange trading led to almost a doubling of the market capitalisation, which at the end of the year reached BGN 28986.9 million (BGN 8537.6million on the official market and BGN20449.3million on the unofficial market).
On 15th January the segment C of the BSE official market of shares was closed and new segments – B and C were created on the unofficial market of shares.
From 12th November, block, registration and repo deals in stock-exchange-registered securities are concluded off-stock-exchange (this change is reflected in the table below).
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