BNB Sets New Requirements for Banks' Remuneration Policies

BNB Sets New Requirements for Banks' Remuneration Policies

The Bulgarian National Bank (BNB) has adopted Ordinance 4 on the requirements for banks' remuneration and related amendments to Ordinance 8 on the capital adequacy of credit institutions, the central bank said.

The new Ordinance 4 introduces a requirement for the implementation of remuneration policies towards categories of employees whose activity has a significant effect on the banks' risk profile. These policies should cover all aspects of remuneration and should meet the principles and requirements laid down in the ordinance, with an accent on the payment and formation of the variable component of the total remuneration, the BNB said.

Variable remuneration will be determined and paid on the basis of criteria assessing the performance of the bank, the structural unit and the respective employee. Banks should have an adequate mechanism to form and distribute variable remuneration which includes evaluation based on long-term performance and taking into account the main operational risks.

The new Ordinance envisages rescheduling of at least 40 per cent of the variable remuneration over at least three years. At least 50 per cent of the remuneration must be paid in shares and other capital instruments of the bank which adequately reflect its condition.

Ordinance 4 is part of the general framework for risk management in the individual banks. It encourages them to refrain from excessive risk taking.

The amendments to BNB's Ordinance 8 on the capital adequacy of credit institutions applies primarily to requirements for public information on bank remuneration policies and practices, the BNB said.

The new Ordinance 4 and the amendments to Ordinance 8 enter into force as of January 1, 2011. Transitional lower limits in the setting of capital requirements for banks using an internal ratings-based approach to credit risk or an advanced measurement approach to operational risk will be effective until the end of 2011.

Through these amendments the Bulgarian statutory framework on banking introduces the new EU regulations on the principles and requirements to banks' remuneration policies, the BNB said.

Source: BTA

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