06.03.2023
BNB EXPLAINS HOW OUR MONEY WILL CHANGE INTO EUROS
BNB publishes answers to the most important questions related to our savings and loans in connection with the adoption of the euro.
What is the Eurozone?
The Eurozone is an association of those member states of the European Union (EU) that have adopted the euro as their national currency. A common currency, a single monetary policy aimed at price stability and the coordination of economic and fiscal policies are the key features of Economic and Monetary Union. All the newly joined EU member states participate in the Economic and Monetary Union with a derogation regarding the common currency and the single monetary policy until the moment of their accession to the Eurozone (with the exception of Denmark), with which they become full participants in the Economic and Monetary Union.
When the euro was first introduced in 1999 – initially for cashless payments in trade and financial transactions – the eurozone was made up of 11 of the then 15 EU member states. The number of participating countries increased to 12 on 1 January 2001 with the accession of Greece, just one year before the appearance of the available form of the euro as banknotes and coins. On 1 January 2007, Slovenia became the 13th member of the Eurozone, followed a year later by Cyprus and Malta, by Slovakia on 1 January 2009, Estonia on 1 January 2011, Latvia on 1 January 2014, Lithuania on 1 January 2015 and Croatia on 1 January 2023.
All EU member states have the obligation to join the eurozone when they fulfill the necessary conditions for the introduction of the euro, until then they participate in the Economic and Monetary Union of the EU as a member state with a derogation. The only exception is Denmark, which has a right of non-participation specified in a protocol annexed to the Treaty, although the country may introduce the euro if desired in the future.
Andorra, Monaco, San Marino and the Vatican have adopted the euro as their national currency under special monetary agreements with the EU and can issue their own euro coins within certain restrictions. Montenegro and Kosovo have also adopted the euro as their national currency, but by unilateral acts. As none of the six countries are members of the EU, they are not part of the Eurozone.
Which countries are part of the Eurozone?
The member states of the Eurozone are 20 and these are: Austria, Belgium, Cyprus, Germany, Greece, Estonia, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain, France and Croatia.
What is the European Central Bank?
According to the Treaty on the Functioning of the European Union, the European Central Bank and the national central banks of all EU member states, whether or not they have adopted the euro, form the European System of Central Banks. With the accession of Bulgaria to the EU on January 1, 2007, the Bulgarian National Bank is part of the European system of central banks.
The European Central Bank and the national central banks of the member states whose currency is the euro together make up the Eurosystem.
The European Central Bank was established as the center of the Eurosystem and the European System of Central Banks and is based in Frankfurt am Main, Germany. The European System of Central Banks and the Eurosystem will exist in parallel as long as there are EU member states that have not adopted the euro as their currency.
The main objective of the Eurosystem is to maintain price stability, preserving the value of the euro. By maintaining low, stable and predictable levels of inflation, the aim is to assist citizens and businesses in planning their savings and spending. The goal is that tomorrow people will be able to buy as much with their money as they can today. Through its Governing Council, the European Central Bank determines the monetary policy for the entire eurozone - a single monetary authority with a single monetary policy and the main objective of maintaining price stability.
The European Central Bank contributes to the security and stability of the European banking system, develops and issues euro banknotes, manages and maintains the normal functioning of payment systems, contributes to the preservation of financial stability.
What are the criteria for accepting the euro?
Achieving nominal and sustainable convergence is the condition for membership, according to the EU Treaty, which our country must fulfill. The achievement of such convergence is determined by the fulfillment of the criteria for membership of the Eurozone defined in the Maastricht Treaty, namely:
Along with the implementation of legal, economic and structural measures to strengthen the competitiveness and sustainability of the economy, the path to the smooth adoption of the euro is also connected with in-depth planning and practical preparation for the adoption of the single currency by both the administration, businesses and citizens.
What are the benefits of the euro?
The euro offers many benefits to the citizens, businesses and economies of the countries that use it. Some of them are:
Many of these benefits are interrelated. For example, economic stability benefits the economy of an EU country as it makes it easier for the government to make strategic long-term decisions. But economic stability also benefits businesses, as it reduces uncertainty and stimulates investment. This, in turn, benefits the citizens due to increased employment and better quality jobs.
Who is responsible for the coordination of Bulgaria's preparations for the introduction of the euro?
The Coordinating Council for the Preparation of the Republic of Bulgaria for Eurozone Membership (hereinafter referred to as "the Council") is responsible for organizing, coordinating and monitoring the practical preparation of the Republic of Bulgaria for Eurozone membership. The Council is also responsible for the development, implementation and, if necessary, the updating of the National Plan for the introduction of the euro in the Republic of Bulgaria.
Among its functions are also the approval of documents, activities and initiatives related to the preparation for the adoption of the single European currency, as well as periodic reporting to the Council of Ministers on the progress of the preparation. The Council was established back in 2015 (by Decree No. 168 of the Council of Ministers), and its activity was resumed after the accession of the Bulgarian lev to the Exchange Rate Mechanism II.
The Council is jointly chaired by the Governor of the Bulgarian National Bank and the Minister of Finance, who is the national coordinator of the preparation of the Republic of Bulgaria for membership in the Eurozone.
Members of the Council are:
Where can I find complete and accurate information about the introduction of the euro in Bulgaria?
The website for the euro, which will start operating from the end of March 2023, will be the main institutional channel for informing citizens and businesses about the introduction of the euro in Bulgaria. It will publish information аbout:
Information will also be available on a dedicated toll-free phone line, which will be revealed later. A mobile application is also planned to be developed. Its function will be to inform and provide an opportunity to calculate the value of goods and services from BGN to EUR and vice versa.
A comprehensive communication campaign will be conducted to inform citizens and businesses about the introduction of the euro. Various channels will be used to inform the public: TV channels, radio, social networks, online and print media, etc.
At what rate will leva be exchanged for euros after the introduction of the euro in Bulgaria?
The exchange of the left c epo will take place at the current exchange rate of BGN 1.95583 for 1 epo. The commitment of the Bulgarian authorities for our country to join the eurozone only with the current fixed exchange rate has been confirmed both in the National Plan for the introduction of the euro in the Republic of Bulgaria, adopted by the Council of Ministers in May 2022, and in the Decision of the National Assembly of 27 October 2022.
What does conversion from BGN to EUR mean?
Currency conversion means the physical exchange of levs in cash for euros and the recalculation of prices, deposits, loans, financial instruments and other balance sheet items from levs to euros. The conversion will be carried out through the application of the irrevocably fixed exchange rate of BGN 1.95583 per 1 euro, which will be confirmed by amending Regulation (EC) No. 2866/98 of the Council of 31 December 1998 on exchange rates to the euro of currencies of the Member States adopting the euro.
The conversion of prices and currency units from BGN to EUR will be done by applying the full numerical value of the fixed conversion rate, i.e. using all five decimal places. The resulting amount will be rounded to two decimal places based on the third decimal place according to the following mathematical rounding rule:
Recalculation of prices at a rate other than the fixed exchange rate is not permitted. The imposition of additional fees and commissions for the recalculation on users will not be allowed.
How will the accounts be converted from BGN to EUR?
From the date of Bulgaria's membership in the Eurozone, all types of accounts: current accounts, deposit accounts, current budget accounts, savings accounts, collection accounts, liquidation accounts and other accounts in local banks, as well as payment accounts with other payment service providers (payment institutions and electronic money companies) will be converted to Euro once, automatically and free of charge. There will be no transition period for these accounts. This means that from the very first day of adoption of the euro, account holders will be able to withdraw only euros from their leva accounts, regardless of whether the withdrawal will be made through an ATM/POS device or at an office of the payment service provider (bank, payment institution or electronic money company). This is a fast and convenient way to exchange BGN with EUR without any special commitment for the account holder himself. From the first day of the introduction of the euro, non-cash payments will only be made in euros.
With the introduction of the euro, does the lev immediately cease to be legal tender?
During the first one month from the date of the introduction of the single European currency in the Republic of Bulgaria, the lev and the euro will be in circulation at the same time, and both currencies will have the status of legal tender. After the expiration of this one month, the euro will remain the only legal tender in Bulgaria.
The one-month transition period will help ensure a gradual transition to the new currency. During this one month, citizens will be able to pay in both currencies at retail outlets and service centers. On the other hand, merchants must return change to their customers exclusively in euros unless they cannot do so for practical reasons. Thus, in practice, part of the levs in circulation will be exchanged through merchants and persons providing services, thereby providing another exchange channel for Bulgarian citizens. At the same time, in implementation of Council Regulation (EC) No. 974/98 of May 3, 1998 on the introduction of the euro, a rule will be adopted according to which, in this transitional period, the merchant may not accept more than 50 pieces of leva coins and pennies in within a transaction with the buyer.
How will money be exchanged between accounts?
The conversion of bank accounts from BGN to EUR will take place on the day of the introduction of the euro. All funds in BGN on current, deposit, savings and other accounts in local banks and other payment service providers will be converted into euros free of charge on the day of the introduction of the euro. Therefore, in the months after the decision of the Council of the EU that Bulgaria meets the conditions for adopting the euro and before the introduction of the euro, citizens will be invited to deposit as many leva banknotes and coins as possible in bank accounts. Starting from the day of the introduction of the euro, all non-cash payments in Bulgaria will be made only in euros.
How will the cash be exchanged? Where and when will it be possible to exchange levs for euros after the introduction of the euro in Bulgaria? Will there be a fee?
From the date of the introduction of the euro, the Bulgarian National Bank will exchange for free, in an unlimited quantity and without a time limit, banknotes and coins from levs into euros at the official exchange rate of BGN 1.95583 for 1 euro.
During the first six months from the date of introduction of the euro in Bulgaria, banks and "Bulgarian Post" EAD will exchange banknotes and coins from levs into euros at the cash desk free of charge at the official exchange rate.
In the next six months, banks will continue to exchange banknotes and coins from levs to euros, but they will have the right to charge a fee for this service.
After the expiration of the first 12 months of the introduction of the euro, banks and "Bulgarian Post" EAD may suspend the service for exchanging banknotes and coins from levs to euros in cash.
How long will it be possible to pay with BGN?
During the first one month from the date of introduction of the euro in Bulgaria, the lev and the euro will be in circulation at the same time, and both currencies will have the status of legal tender (the so-called period of dual circulation of the lev and the euro). After the expiration of this one month, the euro will remain the only currency of our country.
If I pay in levs, do they have the right to refund me in euros and vice versa?
In the first month of the introduction of the euro, citizens will be able to pay in both currencies at retail outlets and service centers.
During this period, merchants will have the obligation to return the change to their customers only in euros. Only in case of objective impossibility, the trader will have the right to return the balance in cash in BGN or in BGN and Euro. In this way, another exchange channel will be provided for replacing the leva with the euro and for withdrawing the leva from circulation.
Pursuant to Council Regulation (EC) No. 974/98 of May 3, 1998 on the introduction of the euro, a rule will be adopted according to which a merchant may not accept more than 50 BGN coins, including pennies, in that one month. within a transaction with the buyer.
When will the prices start to be indicated in euros?
One month after the Council of the EU decides on the adoption of the euro in the Republic of Bulgaria, a requirement for mandatory labeling of prices in both BGN and EUR will enter into force. This obligation will continue to apply for 12 months from the date of adoption of the euro.
From when will double labeling of prices in euros and leva be introduced?
It is planned that the obligation for double labeling of prices will come into effect one month after the Council's decision to adopt the euro in the Republic of Bulgaria and will remain in force 12 months after the adoption of the European currency. The experience of the Member States that recently adopted the euro shows that this obligation has produced very good results. It has helped prevent price gouging by allowing consumers to easily identify merchants and other businesses who have illegally inflated prices.
Special attention will be given to merchants and service providers who should display the prices of their products and/or services in both currencies during the dual pricing period. In the same period, the indication of prices in levs and in euros should also be done in the advertising materials containing information regarding the prices of the advertised services and/or products.
Double labeling of prices will also apply to public authorities. During this period, all sums owed by Bulgarian citizens to the state, including taxes, fees, etc., should be indicated in BGN and EUR. The same applies to the amounts owed by the state to citizens. Public authorities should also prepare information materials in relation to dual pricing and price lists in which prices are written in both currencies.
How will merchants return change from the day of the introduction of the euro?
In order to facilitate the introduction of the euro, during the first month from the date of Bulgaria's membership in the eurozone, the change in case of payment in cash, regardless of leva or euro, should be paid by merchants only in euro, unless for objective reasons this cannot be done. For this purpose, companies and traders will be supplied with euro banknotes and coins even before the date of introduction of the euro. The rule will also apply, according to which in the transitional period of circulation of the two currencies, the trader will not be obliged to receive more than 50 coins in BGN, including cents, in one transaction.
Will the replacement of the leva with the euro double the price of goods and services?
Replacing the leva with the euro will not lead to a double increase in the price of goods and services.
The method of converting the prices of goods and services will be regulated in the Law on the introduction of the euro in the Republic of Bulgaria. There it will be expressly provided that the conversion from BGN to EUR will be done by dividing the price in BGN by the full numerical value of the official exchange rate with all five decimal places. Conversion by using an abbreviated form of the official exchange rate will not be permitted. After conversion, the resulting amount will be rounded to two decimal places based on the third decimal place according to the following mathematical rounding rule:
A long period of double marking of the prices of goods and services is also foreseen, in order to avoid the speculative rise in their prices as a result of the introduction of the euro. This period will begin one month after the adoption of the Decision of the Council of the European Union on the introduction of the euro by the Republic of Bulgaria and will be in force 12 months after the date of the country's admission to the eurozone. The purpose of the introduction of the dual designation obligation is easier adaptation of citizens to the new currency and prevention of abuses and speculative price increases.
In the EU Member States that recently adopted the euro, dual pricing has proven to be a successful measure in countering the price increases resulting from the introduction of the euro.
In order to encourage honest traders, the Ministry of Economy and Industry, together with the Commission for Consumer Protection and representatives of non-governmental organizations, will organize an "Honest Trader" campaign with a clearly recognizable campaign logo. Those traders/service providers who comply with the rules for accurate price conversion of their products/services from BGN to EUR, as well as for comprehensible and correct indication of prices during the dual pricing period, will receive an "Honest Trader" sticker, to inform users that they are participating in the campaign. The institutions - organizers of the campaign - should be responsible for monitoring the good practices of traders, and citizens will be invited to participate in the process of collecting and transmitting information.
Will inflation rise after the introduction of the euro?
The experience of the countries that recently joined the Eurozone shows that the immediate effect of joining the Eurozone on price levels is in the order of 0.3-0.5% increase in inflation. At the same time, it should not be forgotten that due to the catch-up economic effect and lower prices in Bulgaria compared to the EU, as well as as a result of the increase in energy prices and geopolitical upheavals in the last year, inflation in our country is growing.
The introduction of the euro is expected to have a minimal effect on price increases. If we take as an example the Republic of Croatia, the latest country to join the Eurozone at the moment, we will see that according to Eurostat inflation in Croatia for January 2023 rose by 0.2%. Annual inflation in January 2023 is 12.5%, in December 2022 – 12.7%, and in November 2022 – 13%.
The effect of the changeover to the euro on headline inflation in Slovenia was 0.3, in Slovakia – 0.15, in Estonia – 0.3, in Latvia – 0.2 and in Lithuania – 0.11 percentage points.
Who will monitor fraud and penalize abuse?
The Bulgarian National Bank and the Commission for Financial Supervision, in accordance with their powers, will monitor compliance with the requirements by their supervised entities - banks, insurance and pension companies, etc.
The main authorities regarding the control and sanctioning of abuses by traders related to the introduction of the euro will be: the Consumer Protection Commission, the Competition Protection Commission, the National Revenue Agency and the "Economic Police" sector of the Ministry of Internal Affairs. Every citizen will have the right to report violations to the Commission for Consumer Protection or to the relevant supervisory authority.
Merchants who willfully violate the conversion or rounding rules will be penalized according to applicable law.
Where will I be able to report if I come across unfair traders?
Reports will be able to be submitted via the website of the Commission for Consumer Protection, on the euro page, as well as via the free euro telephone line, which will be opened 6 months before the date of introduction of the euro.
After exchanging the leva for my salary, if it is 1,500 leva, will it automatically become 1,500 euro?
Salaries will be paid in euros after the date of introduction of the euro. The amounts in the employment contracts should be converted in favor of the employee by rounding the amount to the nearest euro cent. If the sign that follows the last sign to which rounding is done is greater than 0, one unit should be added to the last sign or a new amount will be determined, the value of which is not lower than that in BGN. Thus, during the conversion, the amount of BGN 1,500 will become 766.94 euros, and it is possible for the employer to round it up to 767 euros.
What will happen to my savings in the bank, which are in BGN?
From the date of Bulgaria's membership in the Eurozone, all accounts - checking, deposit, savings and other accounts in local banks will be converted into euros once, automatically and free of charge.
There will be no transition period for these accounts. This means that from the very first day of adoption of the euro, account holders will be able to withdraw only euros from their leva accounts, regardless of whether the withdrawal will be made through an ATM/POS device or at the office of a bank, payment institution or electronic money company.
This is a quick and extremely convenient way to exchange BGN for Euros without any special commitment for the account holder himself.
From the first day of the introduction of the euro, non-cash payments will only be made in euros.
If I have more than BGN 10,000 saved and they are not in the bank, how can I exchange them into euros after the introduction of the euro in Bulgaria?
In the months leading up to the introduction of the euro, citizens will be encouraged to deposit as many leva banknotes and coins as possible into bank accounts. Considering that all BGN funds on the accounts will be converted free of charge into Euros on the date of introduction of the Euro, starting from that day, cashless payment transactions will be carried out only in Euros.
From the date of the introduction of the euro, the Bulgarian National Bank will exchange for free, in an unlimited quantity and without a time limit, banknotes and coins from levs into euros at the official exchange rate of BGN 1.95583 for 1 euro.
During the first six months from the date of introduction of the euro in Bulgaria, banks and "Bulgarian Post" EAD will exchange banknotes and coins from levs into euros at the cash desk free of charge at the official exchange rate.
In the next six months, banks will continue to exchange banknotes and coins from levs to euros, but they will have the right to charge a fee for this service.
After the expiration of the first 12 months of the introduction of the euro, banks and "Bulgarian Post" EAD may suspend the service for exchanging banknotes and coins from levs to euros in cash.
How will taxes be paid after the introduction of the euro in Bulgaria?
With the introduction of the euro, all taxes, fees and other payments to the state and municipalities must be made in euros. An exception to this rule will be made during the period of dual circulation of the leva and the euro, i.e. one month from the date of introduction of the euro.
After the date of the introduction of the euro in Bulgaria, the refund of amounts unduly paid or collected before the introduction of the euro for taxes, state or municipal fees, mandatory insurance contributions, fines and property sanctions, and other public obligations, will be carried out in euros.
Amounts on tax returns will be stated in the currency that was legal tender at the end of the tax period for which the tax return is submitted. When the tax period for which the declaration is submitted ends in the period of double circulation of leva and euro, the monetary values in the tax declaration should be indicated in euros.
With the adoption of the euro, will the contracts change?
In the process of introducing the euro, the principle of continuity of contracts will be applied. This means that:
I have a home loan in euros. Can the bank request a renegotiation of its terms after the introduction of the euro?
From the date of the introduction of the euro, all loans originally granted in BGN or loans with a currency clause in euro will be considered as loans in euro. The introduction of the euro will not be allowed to be used as a condition for the renegotiation of clauses in contracts already concluded between banks and their customers or as a basis for other similar actions by banks in relation to their customers that would put them in a less favorable financial position relative to their position before the revaluation.
This will also apply to non-bank financial institutions that provide loans to customers.
If I buy a gift voucher shortly before the date of introduction of the euro and it remains unused until that date, will it be lost?
Postage stamps, lotteries with a predetermined result, discount coupons, coupons for the value of returned goods, vouchers, including food vouchers and other bearer securities which were on sale or in circulation before the date of introduction of the euro and whose values are expressed in BGN, will be able to be used even after the date of introduction of the euro until their expiration date or until stocks are exhausted.
I am a private trader, will the state cover my costs related to the introduction of the euro?
In the process of introducing the euro, the principle of efficiency and economy will be applied. According to this principle, the costs arising for individuals from the introduction of the euro as the monetary unit of the Republic of Bulgaria are at their expense and are not compensated with public funds.
The mere revaluation of receivables and liabilities, the servicing of bank accounts and the transition to payments in euros is not expected to lead to additional costs for the companies - clients of the banks.
What changes will occur in the preparation of the Annual Financial Report of companies?
The annual financial statements will be prepared in the currency that is in official circulation in the Republic of Bulgaria at the end of the reporting period, and the comparable data for the previous reporting period should be in the same currency.
How will accounting be done when adopting the euro?
With a view to defining a uniform accounting procedure for the transition to the euro, the future Law on the introduction of the euro in the Republic of Bulgaria and/or other normative acts will adopt normative changes related to:
With the introduction of the euro, economic and public entities should conduct their financial reporting in the new currency, and the data for the previous accounting period should be converted into euros in order to ensure comparability between the current and previous period. In the declarations and forms that citizens and legal entities will fill out after the introduction of the euro and which refer to tax and other obligations to the state or receivables from the state for the period preceding the year of introduction of the euro, the amounts will be in Bulgarian levs. However, the payments themselves based on these liabilities and receivables will be made in euros, with the amounts converted into the new currency at the official fixed exchange rate.
How will the deposits be converted from BGN to EUR?
The conversion of levs into euros on accounts with banks and other payment service providers will take place on the date of introduction of the euro. All funds in BGN in current, savings, custody and other accounts in local banks and other payment service providers will be converted into euros once and free of charge on the day of the introduction of the euro.
Will the revaluation affect the interest rate on deposits?
If the agreed interest rate on the deposit is fixed, the bank should continue to apply a fixed interest rate even after the introduction of the euro. The mechanism for transferring from a fixed interest rate in BGN to a fixed interest rate in Euro should not lead to less favorable conditions or results for the parties to the transaction - both for the client and for the bank. In this regard, the transition from a fixed interest rate in BGN to a fixed interest rate in EUR should be determined according to the bank's methodology, guaranteeing that the resulting interest payment in EUR is equivalent to that in BGN on the date of conversion.
If the deposit is agreed with a variable interest rate, this parameter will be modified in a manner regulated in the provisions of the Law on the introduction of the euro. The transition from a variable interest rate in BGN to a variable interest rate in EUR should be determined according to the bank's methodology, ensuring that the resulting interest payment in EUR is equivalent to that in BGN on the date of the conversion. Unlike cash, the conversion of which is a relatively time-consuming and logistically more difficult task, money held in bank accounts and in payment accounts with other payment service providers will be converted into euros immediately, with no transition period required. In the months before the introduction of the euro, citizens will be invited to deposit as many leva banknotes and coins as possible in bank accounts. Taking into account that all BGN funds on the accounts will be converted into Euros on the day of the introduction of the Euro, starting from that day, cashless payment transactions will be carried out exclusively in Euros.
How will loans from levs to euros be converted?
From the day of the introduction of the euro, all loans originally granted in BGN or loans with a currency clause in euro will be considered as loans in euro. It is not allowed that the revaluation be used as a condition for renegotiation of clauses of already concluded contracts between the banks and their customers or as a basis for other similar actions by the banks in relation to their customers, which would put them in a less favorable financial position compared to their position before the conversion. The same will apply to non-bank financial institutions that provide loans to customers.
The introduction of the euro does not require changes to the existing loan contracts, regardless of whether they are loans in BGN or loans with a currency clause in euros, as the question of their conversion will be regulated by the euro law. In particular, the Eurolaw will provide that the credit agreements remain in force and BGN-denominated amounts in those agreements will be considered as amounts in Euros, being converted at the official fixed rate expressed to five decimal places, and are rounded according to the rules laid down in the future Law on the introduction of the euro.
Will the revaluation affect the interest rate on loans?
If the agreed interest rate on the loan is fixed, the bank should continue to apply a fixed interest rate even after the introduction of the euro.
The mechanism for transferring from a fixed interest rate in BGN to a fixed interest rate in Euro should not lead to less favorable conditions or results for the parties to the transaction - both for the client and for the bank. In this regard, the transition from a fixed interest rate in BGN to a fixed interest rate in EUR should be determined according to the bank's methodology, guaranteeing that the resulting interest payment in EUR is equivalent to that in BGN on the date of the conversion.
If the loan is contracted with a variable interest rate, this parameter will be modified in a manner regulated by the provisions of Eurolaw. The transition from a variable interest rate in BGN to a variable interest rate in EUR should be determined according to the bank's methodology, ensuring that the resulting interest payment in EUR is equivalent to the interest payment in BGN on the date of conversion.
In this regard, the financial situation of the debtor should not be a reason for the deterioration of the interest parameters under the contract. The change of the reference interest rates from BGN to EUR should be carried out in a sufficiently justified and transparent manner, which does not aggravate the financial situation of the clients and does not lead to additional costs compared to the interest costs that the client would incur in the BGN equivalent of his obligation.
Banks and other financial institutions will have to inform their customers about the upcoming changes in advance (for example, three months) before the official switch to the euro, incl. and by disclosing its interest rate recalculation algorithm pages.
How will revaluation of securities and other financial instruments be carried out?
From the date of introduction of the euro, all government securities originally denominated in levs are automatically converted into euros. Despite the prevailing volumes of government debt in the balance sheets of banks and financial institutions, there are also other forms of debt investments denominated in BGN - mostly investments in senior and subordinated debts (bonds) issued by financial and non-financial companies on the Bulgarian market, as and investments in shares of Bulgarian companies registered in the Central Depository. The value of the investments in such securities should also be converted into Euros, including the accumulated fair value revaluation and amortization reserves of the debt instruments to date. The change in the nominal value of debt securities and shares in the central securities register is carried out by the Central Depository.
If the agreed interest rate on the securities or other financial instruments is fixed, the issuer should continue to apply a fixed interest rate even after the introduction of the euro.
The mechanism for transferring from a fixed interest rate in BGN to a fixed interest rate in Euro should not lead to less favorable conditions or results for the parties to the transaction. In this regard, the transition from a fixed interest rate in BGN to a fixed interest rate in EUR should be determined according to the methodology of the issuer of the instrument, guaranteeing that the resulting interest payment in EUR is equivalent to that in BGN on the date of the conversion.
If the securities or other financial instruments are contracted with a variable interest rate, this parameter will be modified in a manner regulated by the provisions of Eurolaw. The transition from a variable interest rate in BGN to a variable interest rate in EUR should be determined according to the methodology of the issuer, ensuring that the resulting interest payment in EUR is equivalent to the interest payment in BGN on the date of the conversion.
What happens to the collateral during conversion from BGN to EUR?
The change in the nominal value of collateral pledged/mortgaged in favor of banks and financial institutions should be automatically reflected through the register of special pledges and/or the property register. In order to protect the interests of the persons who established the collateral, no other changes in the value of the pledged/mortgaged property are allowed as a result of the automatic conversion from BGN to EUR - i.e. the replacement of BGN with EUR should not be used as a basis for change (both in the direction of increase and in the direction of decrease) in the value of the collateral.
