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EU suspends payment of €2.3bn in development funds to Hungary

Asked On: April 16, 2015

Question: Hi, thanks for this article.  When was Hungary planning on receiving these funds, ie when is receipt of these funds planned for in the govt budget?  Are the funds for projects that have already been completed and paid for, or projects that have not yet started?  How much credence should we give Csepreghy's claims that this is a temporary technical delay?

Answers: The EC suspended HUF 700bn of EU funding to Hungary from the previous 2007-2013 funding cycle. It followed a probe by the EC into the method of project selection and choosing winning bids. The commission established that in Hungary between 2007 and 2014 the beneficiaries of EU development funds were chosen in a manner that did not reflect the quality of their bids. The government has said it is working to resolve the issue by making prompt changes to the public procurement system in line with EU best practice. Still the provisional official estimate is that Hungary may lose HUF 70bn inevitably through fines and sanctions. The suspended funds are for projects that have already been completed and their contractors have been paid. Csepreghy says alternative projects, to be funded by the same money, will be put forward in case there is not enough time to correct the problems in the old paperwork. The deadline for finalisation is end-2015.   The EC has periodically frozen EU structural funding for various reasons, of which accounting irregularities was a typical problem. Usually though, Hungary has managed to get the funds back subject to 8%-10% penalties.

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Croatian banks accept conversion of Swiss franc loans into euro denominated loans

Asked On: April 9, 2015

Question: Are there any indications that the banks actually agreed to this?  I have a hard time believing they would.  This would be the most costly possible solution for them.

Answers: The statement was made by Finance Minister Boris Lalovac in an interview with HRT. Negotiations went in the right direction now- conversion to euro, Lalovac said during the interview. However, the Croatian Banking Associations HUB has not made any comments so far. Talks with the banks will continue for a month while banks will make the preliminary calculations and probably propose their own terms for converting the Swiss franc loans into euro denominated loans. The Franak association has recently complained banks were too slow in preparing models for converting Swiss franc loans into euro loans.   The conversion to euro is the only solution backed by the country’s government which considers it the best long-term option. A proposal to convert the loans into kuna has been opposed by the central bank, while the banks’ proposal under which the borrowers who could not repay their loans would become tenants in their property was rejected by the government.   (A short video recording can be seen here -

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Kazakh National Bank’s reserves remain flat in March

Asked On: April 8, 2015

Question: I have a question about these reserves. When I met with Halyk Finance a couple weekds ago, I was told that among these reserves, there is a huge amount of collateral deposited by commercial banks to get access to tenge. Therefore the NBK counts as "currency reserves" money which is basically deposits in the first place (process has been ongoing since last summer). What is your opinion on that? Do you have any figures?  

Answers:   Kazakhstan's central bank announced a 12-month, $10bn dollar/tenge swap line in May 2014.    Basically, commercial banks are experiencing growing currency risks as people are increasingly exchanging their tenge deposits into dollars because they fear a new devaluation. So they buy dollars in the spot market, then they go to the central bank and swap some of these dollars for tenge to hedge the underlining maturity risk - they receive an interest rate on the dollar swapped and close the swap in 12 months.    The dollars the central bank receives in this way are indeed accounted as "foreign currency reserves" even though after a maximum 12-month the swap expires - banks should be able to renew swap lines for another 12-24 months. In this way it looks like the central bank's hard currency reserves are not going down even when central authorities are reportedly spending billions of dollars to sustain the exchange rate.    There is no official disclosure on the real amount of "swapped" dollars accounted as foreign reserves. The IMF used to give some insight on it, but apparently stopped reporting on this specific detail ( At least we can say it should not be more than $10bn, the overall value of the swap programme.   

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Montenegro likely to keep using euro as national currency after joining EU – c-bank

Asked On: April 8, 2015

Question: Would you know where I can find this statement of the central bank?

Answers: Thank you for the question!The information has been provided to local media and has not been published on the central bank's website.  

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Transnistria’s tax collection drops by one third y/y in March

Asked On: April 6, 2015

Question: Is this the 2nd month that public wages and pensions have been paid at 70%?  

Answers: it is actually the third month the wages/pensions are paid partly. the payments will be made at the same rate in the coming months, but the government insists that it is not a wage cut but rather delayed payment. Transnistrian officials have recently visited Russia seeking more substantial support. Results are unclear.  

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Montenegro's Atlas Hotels Group posts €780,000 net loss in 2014

Asked On: March 26, 2015

Question: Hi, thanks for this article.  Is Atlas Hotels Group the largest hotels group in the country?  Which hotel companies are the main players in the hotel market?

Answers: Atlas Hotels Group is among the biggest players on the Montenegrin market. It owns Princess hotel in the Adriatic city of Bar, which is the sole four-star hotel in the area, and the three-star VIR hotel located at the Skarad lake. At the end of 2014, the five-star hotel Regent, part of the luxury Porto Montenegro marina project, won the Wild Beauty Award for the best new hotel in the country. The renovated Budvanska Rivijera hotel, which was renamed Kastel Lastva, was the the best hotel at the Adroatic coast, while the four-star Franca hotel was the best hotel in the northern part of the country, according to the awards granted in the Wild Beauty Award competition. Among the biggest and most luxurious hotels in Montenegro's Adriatic municipality of Budva are Splendid (five stars), Iberostar - BELLEVUE (four stars), Montenegro (four stars).  

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Horizon Capital exits Belarusian MTBank

Asked On: March 26, 2015

Question: What was the sale price?  What about the sale price in relation to book value of the bank?  Did Horizon make or lose money?  How has MTBank fared in the recent market stress?  

Answers: Information on the MTBank deal is very sparse at present. The sides have been careful not to disclose the value of the deal, so cannot comment on the sale price in relation to the book value. Below you can find the P&L of the bank. We hope this helps.   BALANCE SHEET* as of 1 October 2014   / in mln rubles /   Item 01/10/2014 01/10/2013 ASSETS Monetary funds 234,479 290,955 Precious metals and precious stones 0 0 Funds in the National Bank 297,921 376,308 Funds in banks 316,474 290,693 Securities 704,059 246,065 Credits to clients 2,951,284 3,046,138 Derivative financial assets 0 0 Long-term financial investments 244 244 Fixed assets and intangible assets 131,575 86,886 Property for sale 0 346 Deferred tax assets 0 0 Other assets 102,377 94,932 Total assets 4,738,413 4,432,567 LIABILITIES Funds of the National Bank 0 0 Funds of banks 687,913 796,265 Clients' funds 3,201,456 2,908,897 Securities issued by the Bank 215,579 241,509 Derivative financial liabilities 0 0 Deferred tax liabilities 0 0 Other liabilities 53,480 58,886 Total liabilities 4,158,428 4,005,557 OWN CAPITAL Authorized capital 121,857 121,857 Issue profit 0 0 Surplus capital 53,494 17,234 Balance sheet revaluation fund 25,680 17,979 Accumulated profit 378,954 269,940 Total equity capital 579,985 427,010 Total liabilities and equity capital 4,738,413 4,432,567   PROFIT AND LOSS STATEMENT* as of 1 October 2014   / in mln rubles / Item 01/10/2014 01/10/2013 Interest income 765,749 561,625 Interest expenses 486,364 411,262 Net interest income 279,385 150,363 Commission income 327,159 300,542 Commission expenses 41,274 37,795 Net commission income 285,885 262,747 Net income from precious metals and precious stones transactions 0 0 Net income from transactions involving securities 9,008 2,146 Net income from foreign exchange transactions 45,942 41,005 Net income from transactions involving financial derivatives -165 85 Net transfers for reserves 201,491 93,754 Other income 38,446 33,807 Operational expenses 286,907 197,840 Other expenses 18,105 35,363 Profit (Loss) before taxation 151,998 163,196 Income tax expenditure (revenue) 19,815 23,101 Profit (Loss) 132,183 140,095

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Macedonia’s 2014 tobacco crop fully purchased - minister

Asked On: March 24, 2015

Question: How large/distortive are the tobacco subsidies?

Answers: The tobacco subsidies appear to be substantial. The state subsidy for the 2012 and 2013 crops was MKD60 (roughly €1) per kilogram of produced and sold tobacco. It seems that the subsidy for the 2014 crop has been kept at the same level - according to local media reports, in late December 2014 some tobacco growers demanded unsuccessfully raising the subsidy to MKD90 per kilogram.   The minister of agriculture rejected the demand, but promised that the surplus production of tobacco will be purchased. However, according to a recent report, there was no surplus from the 2014 crop.

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Romania to discontinue imports of Russian gas in April

Asked On: March 23, 2015

Question: Thanks for the article.  Is this a seasonal drop-off in imports or is Romania now producing sufficient quantities of gas domestically so that it now longer needs Russian imports?

Answers: This is definitely a drop-off in Romania's natural gas imports, if we are speaking of April. But it is also a long-term decline in the import of Russian gas. There will definitely be imports during the winter time, even if the country will produce enough to cover annual consumption. The gas stored in deposits can not be extracted at the speed required in very cold winter periods -- and this makes impors essential [be them from Russia, through Hungary from Baumgartner or-- optimistic scenario, through Bulgaria from TAP/TANAP]. So far, all imports are from Russia. Imports were 5% in country's consumption last year, 21% in 2012 and 24% in 2011 [and 30% before recession]. Basically, this is because of lower domestic consumption. As of 2019 we expect offshore gas to hit the market. Domestic production of 11-12bn is very slowly declining [recent investments in mature fields stopped the decline though]. Romania used to import some 5bn m3 before 2008. Domestic consumption was at that time 17-18bn m3. A combination of recession and gas market liberalisation pushed down consumption to 11-12bn m3 currently.  It was rather "managed liberalisation", since the regulated price of domestic gas was lifted to import prices under a firm schedule -- but for the purpose of this discussion it matters that the price has increased, making low value-added businesses such as fertilizers production inefficient [hence lower consumption].

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EC approves €1.4bn innovations, competitiveness operational programme for Bulgaria

Asked On: March 17, 2015

Question: Thanks for this article.  Which other EU funds programs for 2014-2020 have been approved for Bulgaria so far?  Are there others in the pipeline for approval?

Answers: So far, other 2014-2020 operational programmes approved for Bulgaria include: [1] Transport and Transport Infrastructure (from this link; [2] Human Resources Development. Approved by the EC in November 2014. The provided amount is BGN 2,135mn (€1,092mn); [3] Good Governance. Approved by the EC in February 2015. Total value is €335mn; and [4] Science and Education for Smart Growth. Approved by the EC in February 2015. Total value is €701mn.   It seems, the following operational programmes for the period 2014-2020 are still in the pipeline: [1] Regions in Growth; [2] Environment; [3] Maritime and Fisheries; and [4] Rural Development.

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Montenegro sells €500mn five-year Eurobond with 3.875% coupon

Asked On: March 16, 2015

Question: Excellent and timely report. Better than Reuters and others I have seen on the same subject  

Answers: Thank-you.

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Croatian government endorses consumer bankruptcy bill

Asked On: March 13, 2015

Question: Has the banking association/any banks commented on this bankruptcy bill yet?

Answers: Following a roundtable meeting organised in February at which representatives of banks, consumers, lawyers, notaries and Justice Minister Orsat Miljenic participated, the head of the Croatian banks association Zoran Bohacek said the proposed change in legislation is good. However, he added bankruptcy is an undesirable outcome and having many insolvent people is not the banks’ aim. No other recent comments of the Croatian Banking Association or other banks have been made on the topic.   However, it is expected that in most cases, agreements between the two sides are reached with the help of the Croatian Financial Agency FINA which will work as a mediator. The Croatian Justice Minister Orsat Miljenic has said he expects no more than 3,000 people to end up in bankruptcy from the 20,000 cases to be mediated by FINA.

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Croatia to cut gas tariffs for households by 7%-10% - EconMin

Asked On: March 13, 2015

Question: How far off (theoretical) market prices will the new regulated prices be?  

Answers: Although the Croatian gas sector has seen new players entering the market, its regulation slows its development. In purchasing power standards terms, Croatia’s gas prices are the third highest in the EU for industry, while for households they are just above the EU average, the European Commission has commented earlier this year. There is currently no commodity exchange or gas hub. Wholesale gas trading in Croatia is based on bilateral contracts. Data from Eurostat issued at the end of last year show that gas prices for households and industry have evolved at a similar pace and will probably continue to do it . For example, in the first half of last year, the gas price for households was on average €0.046 per kWh, while for industry it was €0.042 per kWh. In the first half of 2013, average gas prices for households stayed at €0.047 per kWh, while for industry they averaged €0.046. The prices include taxes, levies and VAT for household consumers but exclude refundable taxes and levies and VAT for industrial/business users. Croatia’s move to cut regulated prices should be seen in the context of the expected meeting between the Croatian government and the representatives of Hungary’s MOL at the end of this month. Croatia is hoping to reach an agreement with the Hungarian company over INA’s management.

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Temporary administration introduced in Belarus Delta Bank

Asked On: March 13, 2015

Question: How big is Delta Bank in Belarus?

Answers: Hi, Delta Bank in Belarus is ranked 12th in therms of assets.   Assets BYR mn Deposits BYR mn Credit portfolio BYR mn Statutory fund Delta Bank 3 607 283 2 659 538 2 058 352 261 380

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Macedonian government reduces selling prices of 192 flats

Asked On: March 6, 2015

Question: Do you know how the prices of these apartments compare to the market prices of similar apartments?  As in, how large is the govt subsidy for this program?

Answers:   It seems the pricing policy varies, depending on the location. Cvetko Grozdanov, director of the state-owned company for construction and management of real estate, said that one of the planned new buildings in Skopje will be centrally located and will be offered at market prices. Concerning the other two, he talks about prices 10 to 15% below the ones offered by companies. The government’s comments on the new prices we reported also include a note that no VAT has been calculated. With regard to the subsidized housing loans project, it is offered in two models and has a number of eligibility requirements, concerning the potential beneficiaries’ income, assets and current debts, among others. In the case of apartments, their purchase price should not be higher than €900 (VAT included) per square metre. The government also says it is subsidizing housing loans of up to €50,000, or the first €50,000 of larger loans. The project was promoted in 2012 and as of October 2014 it had attracted 340 beneficiaries with the financial assistance totalling €2.5mn, according to a report of state news agency MIA dated October 27. To put things in perspective, total budget expenditures are seen at approximately €3bn in 2015. The project will run this year too.  

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Russian Reserve Fund drops sharply amid growing budget deficit

Asked On: March 4, 2015

Question: Do you know if the money coming out of the Reserve fund is sterilized?  Ie the Central bank switches the Reserve Fund withdrawals to RUB and gives it to the Finance Ministry, but does it take an equal amount of rubles out of the system via monetary operations?

Answers: There is no known link between the trasnfers from the Resrve Fund to the Finance Ministry and monetary operations of the Central Bank of Russia.In previous years the transfers to/from the Reserve Fund were calcualted in the end of the fiscal year and no related announcements by the CBR were ever made.  

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Telekom Srbija opens tender for privatisation advisor

Asked On: February 25, 2015

Question: Is there any speculation in the media what the government's (or telekom serbia's) preferred "privatization model" might be?

Answers: At present, it is believed that Serbia will go for selling a majority stake in Telekom Srbija even though there have been no fresh speculations on the privatisation model in the past month or so.   Last year, government officials and in particular Prime Minister Aleksandar Vucic said at several occasions that Serbia wants to privatise the company if it finds the right buyer and gets the asked price. Vucic said in October that different models are discussed concerning the fate of major state-owned firms. He mentioned that the government would seek an investment partner to acquire the majority stake in the telecom, preferably a company from the sector, while concerning power producer EPS, Serbia is willing to sell only a minority stake to a strategic partner.   As in the previous privatisation attempt for Telekom Srbija, which failed in 2011, the government will probably offer again 51% to investors. It is unlikely to change the model as the privatisation income, or at least part of it, could be used for key budget support in the times of austerity and recession. Serbia asked €1.4bn for the 51% stake back in 2011 but rejected the only bid of Telekom Austria as it offered only €900mn for the stake, promising to spend the other €500mn on investments.

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Azerbaijan’s central bank devalues currency by 33.5%

Asked On: February 24, 2015

Question: There are different accounts from different sources on the actual size of the FX reserves, and how much was actually spent in 2015. Is the information available publically, and is it a transparent reflection of the actual state of the reserves? Also, there was a new statement by the Central Bank today (Feb 24), I believe about closing some FX outlets by local banks, but I did not find it in English. Can you comment on this, and if there are expectations, as far as you are aware, of further actions by the Central Bank to control the currency (i.e. further devaluation or capital controls)?    

Answers:   1) The Central Bank of Azerbaijan does publish information on its FX reserves and we believe it is a transparent reflection of the bank's reserves because they are itemised in great detail but the latest available (official) figure is for December 2014. It hasn't yet published information for January, but a 31 January meeting the bank announced that the reserves stood at $13.8bn at the end of 2014. According to Reuters, the bank's FX reserves decreased by $1.13bn in December and $1bn in January. Bloomberg says the reserves fell by 11% to $12.7bn in January, which means a drop of $1.57bn in January and that the reserves stood at $14.3bn at the beginning of the year. The discrepancy between the bank and Bloomberg figure may stem from methodology and semantics - Bloomberg talks about "foreign reserves" (which may also include gold and SDRs), while the Central Bank talks of "foreign currency reserves".   2) You are right the 24 February statement by the Central Bank is only in Azeri and in it says 10 bureaux des changes of six banks had their licence for FX operations revoked because of violations of requirements the bank set for FX. These violations are linked to speculative actions by these bureaux. The bank also said that it had "intensified" measures of control over FX operations due to an increase in FX operations. The bank didn't specify what these measures were or would be but after Azerbaijani citizens bought $4.5bn worth of foreign currency in the past two months, the Central Bank has increased insurance on interest payments on retail deposits by three percentage points to 12% to encourage commercial banks to increase interests on retail deposit to make manat-denominated deposits attractive. This measure will stabilise the market if the bank doesn't allow another sharp drop in the manat's value as the rate of inflation doesn't exceed 4% in Azerbaijan.    

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Albanian president proposes opening Communist era security files

Asked On: February 24, 2015

Question: Do you think this is a decision with political ramifications?  Ie are the Socialists more likely to experience embarrassing revelations than the Democratic party?  Or does it seem like this is a non-issue?

Answers: Given the amount of time that has elapsed - 25 years since the fall of communism - I would estimate the political consequences to be limited, though it obviously depends on what is revealed if and when the files are opened. In the short-term we can expect this to add to tensions between government and opposition. There is, as you mention, the possibility to embarrass some members of the Socialist party as the successor to the old Albanian Labour Party. The Socialists opposed the country’s previous lustration law, which was later abolished by the constitutional court. However, there was also strong opposition from the international community and human rights groups, so we should perhaps avoid reading too much into this.

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Serbia needs to foster privatisation and financial sector reforms in 2014 - EBRD

Asked On: February 23, 2015

Question: Do you know if EBRD has shown interest for the privatization of Zelezara Smederevo or was involved in any step of the privatization process that has recently failed (none that I can recall of...)?  

Answers: The EBRD has not indicated in any way it has been involved in the failed privatisation of Zelezara. There are have not been either any reports in local media suggesting it might have, at least not to our knowledge. On the other hand, last month the head of the EBRD's office in Belgrade spoke about the bank's interest as a shareholder and an advisor in several planned privatisations, including Telekom Srbija, insurer Dunav Osiguranje and the Belgrade airport operator. You can find some more details here -  

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