Although we are in the fourth year after the collapse of Lehman Brothers, which triggered the turmoil on the global financial markets, the ripples of which we still evidence, the Bulgarian banking sector continues to stand out with its stability and predictability. Irrespective of the unfavourable general economic situation, the banks in this country demonstrated flexibility and operational efficiency, enabling them to preserve significant capital and liquidity buffers. Although loan portfolio quality deteriorated (as of end-2011 the share of bad loans was 14.93%), the banking sector continues to have at its disposal adequate degree of provisioning and capital protection. The sum of loan impairment according to the International Financial Reporting Standards, specific provisions for credit risk and capital surplus (i.e. the capital in the system in excess of the required regulatory minimum) amounts to 103% of the gross amount of bad loans. Notwithstanding the considerable increase of provisioning costs in the recent three years, the banking system has  BIS central bankers’ speeches  1  never stopped generating positive financial results which increase the capital buffer. And in the cases of shortage or lack of profit in an institution, the BNB exercised supervisory pressure on shareholders to invest additional capital. Today our banking sector enjoys extremely high indicators (including compared to international practices) of liquidity (25.87% as of February this year) and capital adequacy (17.53% as of December last year, including 15.74% Tier 1 capital adequacy), without counting a single lev of public funds in calculating these ratios, at that.

Book capital is now equivalent to 5.2 per cent of total assets, compared with 4.2 per cent in the mid-1990s. The Commission Bancaire is at pains to ensure that all French banks - small and large - build up their capital gradually but steadily until it well exceeds the regulatory minimum. Furthermore, provision cover for doubtful loans now stands at 60.4 per cent. The industry must pursue this prudential policy. In particular, as we have been urging for several years, it must capitalise on the progress made in future risk analysis, based on statistical databases and stress testing, to adopt a more forward-looking provisioning policy. This has already been accomplished in several areas of sectoral or geographical risk. That being said, we firmly believe that international accounting standards should move in this direction, fostering the widespread use of forward-looking provisions and thereby contributing immensely to financial stability. In a context of economic crisis, the constant strengthening of French credit institutions’ financial structure gives them an appreciable safety margin, which could also allow them to play a part in the consolidation of Europe’s financial industry. 2.2  Priority has rightly been placed on controlling risks and ordinary profitability  The other fundamental elements that contribute to the resilience of French banks’ earnings are risk management and control over operating conditions. As you know, the Commission Bancaire places a premium on ensuring that French banks, and credit institutions in general, generate satisfactory profits at operating level.