TWINNING NEWSLETTERThis publication has been produced by Information and Public Relations Department of the National Bank of the Republic of Belarus jointly with the EU Twinning Project, twinning1@nbrb.by

№ 6 JULY 2019

One important characteristic of this project is that it was not implemented as a one-way technical assistance instrument but as shared commitment, by facilitating peer-to-peer contacts and exchange between professionals from the central banks of the EU and of the National Bank of the Republic of Belarus. Many of the challenges addressed in this way have become particularly relevant in light of the global financial crisis, whose implications have challenged central banks to update approaches to performing their core functions.

Unlike the earlier Twinning projects in Central and Eastern Europe targeting central banks, this project addressed a wider range of areas constituting the key aspects of the core mandate

Twinning first appeared on our agenda in 2016. While the central banks of the EU member states and of the EU candidates had had a long and successful record of using this instrument of technical cooperation, in Belarus, we were pioneers. However rewarding, being first is a great challenge.

I would like to express my sincere acknowledgements to the European Commission, the EU Delegation to Belarus and to Ms. Andrea Wiktorin personally, and also to the Deutsche Bundesbank, Narodowy Bank Polski and the Bank of Lithuania; I would like to thank the project leaders – Mr. Martin Dinkelborg, Ms. Agata Lagowska, and Ms. Gitana Kaminskiene for their support and willingness to build a flexible and stable relationship and to facilitate stronger professional ties among the staff of the central banks.

The work completed over the eighteen months of the Twinning project has been truly impressive. The main results have already been presented. We have heard on multiple occasions the statistics on number of the

Dariusz LEWANDOWSKI:

«I AM FULLY CONFIDENT THAT THE TWINNING PROJECT’S RESULTS AND ACHIEVEMENTS WILL BE SUSTAINABLE AND LASTING»

LARISA LITVINIENKO:

THE TWINNING PROJECT – A PLATFORM FOR NEW ACHIEVEMENTS

Resident Twinning Adviser

Counterpart

Resident Twinning Advise

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of a central bank - payment systems, financial stability, banking supervision, financial risk management, financial consumer protection, and communication policy. The other projects have had a more narrow focus, such as human resources (Serbia) or banking supervision (Ukraine).

A product of the long-standing bilateral ties between NBRB and the central banks of Germany, Poland and Lithuania, this project adds a new quality to this partnership by joining the three central banks within a single project consortium, including experts from the central banks of several other EU members (Romania, Estonia, France, Austria, Slovak Republic and Finland). Some 100 professionals from the EU have been involved in the project as its short-term experts.

The main formats of the dialogue and exchange included expert missions, training activities, and expert forums. Throughout the project, there have been dozens of expert

missions, multiple study visits to the EU central banks and several expert forums. They have helped not only to facilitate contacts among the relevant professionals, but also to expand these contacts by bringing more people on board and make them more lasting. In the long run, this puts us all in a better position to enhance our working practices and respond more effectively to emerging risks and challenges.

In the course of our twinning experience, our Belarusian counterparts have been very open and willing to explore, evaluate, and apply creatively the EU experiences and practices for the benefit of the Belarusian public. Considering the excellent organisation, high degree of professionalism of the Belarusian specialists and their deep interest in the implementation of this project, I am confident that the results of this joint project will be sustainable and the professional contacts established through it will continue.

expert missions, forums, internships, study visits and roundtables organised throughout the project. But there is a lot more about these numbers than meets the eye. Behind them is the hard work of the NBRB staff and almost a hundred international experts.

I express my deepest gratitude to the people who have participated in the project – the component leaders, Mr. Robert Klepacz, Mr. Simonas Krepsta, Ms. Erika Balaikiene, Ms. Ewa Szafarczyk, Mr. Thomas Goswin, Ms. Sonja Juko and all of the short-term experts. Their professionalism, openness, friendliness and sound advice are highly appreciated. This was an exciting, interesting and highly productive time. It was not without its difficulties, but even at these moments we never lost sight of the results that we were aiming for. Our partnership and collaboration have evolved into a mutually beneficial relationship.

My sincere thanks are due to all the people involved in the project for their positive and optimistic attitudes, initiative, engagement, creativity and their responsible approach, and also for their willingness to always move forward and strive for excellence. Let me also express my deepest appreciation to all the colleagues from the National Bank of the Republic of Belarus who have remained on board for all these years, and have been so responsive to our needs and so helpful in achieving our objectives.

Let me also thank the project manager Ms. Elena Rakova, the Resident Twinning Advisor Mr. Dariusz Lewandowski, and his ubiquitous assistants Ms. Elena Kachinskaya and Mr. Alexander Piskounov.

I wish to everyone involved new discoveries and new windows of opportunity. I am hopeful that their work will make a difference and become a platform for new achievements.

Meeting of the Twinning Project Steering Committee in Minsk on 9 July 2019

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TWINNING PROJECT: Taking Stock

With support from the project, a capacity building strategy has been developed for the National Bank in the area of financial stability and macroprudential policy.

A presidential decree drafted defines the legal foundations for ensuring financial stability in Belarus.

The project has made a major contribution to the drafting of the Law «On Payment Systems and Payment Services in the Republic of Belarus», and to the preparation of the annual oversight report on the payment system in Belarus, addressing, inter alia, the impact on the system of the financial market infrastructures.

FINANCIAL STABILITYCOMPONENT 2.

PAYMENT SYSTEMSCOMPONENT 1.

Igor MOGILEVICH, Head of Financial Stability Department

Similar to price stability, financial stability is a key financial policy objective for the state. Success in ensuring financial stability is a prerequisite to sound economic growth. Absence of shocks in the financial market makes it possible to direct resources towards development and improvement of people’s well-being.

The Twinning project has helped the National Bank make substantive progress in establishing an effective mechanism for

financial stability and to mount efficient and timely responses to systemic financial risks. In light of the international best practices, the National Bank’s staff have performed a detailed review of the financial stability framework at the National Bank. Reports have been presented to the Board of the National Bank on the audit of the legal and institutional framework for the provision of financial stability, strengthening analytical standards for monitoring financial stability, as well as developing and applying macroprudential tools.

One result of the fruitful partnership under the project have been a range of recommendations and proposals on strengthening the National Bank’s capacity in the area of financial stability approved by the Board of the National Bank. The implementation of these recommendations will help put in place a sound legal and institutional framework for financial stability and a comprehensive system for macroprudential regulation, while further developing the analytical capabilities to identify in a timely manner the emerging risks and vulnerabilities of the financial system.

Tatyana RUSKEVICH Deputy Head of Payment System and Digital Technologies Directorate

The development of payment system of the Republic of Belarus and the oversight thereof are some of the key functions of the National Bank. In this regard, with the view to maximising the efficiency of payment services, developing competition and innovations in the payment market, ensuring strong protection of the rights of consumers of payment services, as well as enforcing mechanisms of control and supervision of payment services’

suppliers by the National Bank, the draft Law was prepared as part of the project and submitted for consideration in September 2018.

The financial sector assessment conducted in Belarus in 2016 by the World Bank and IMF recommended that an annual payment system oversight report be prepared to present an overall picture of the condition of the payment system in Belarus and to assess the impact of the financial market infrastructures.

In collaboration with the short-term experts from the Twinning project, the staff of the National Bank of the Republic of Belarus prepared in September 2018- April 2019 two versions of the annual oversight report. The full version updates the National Bank’s management on the state of the Belarusian payment system, and the public version provides a brief presentation of the outcomes of payment system monitoring in 2017.

The public version of the oversight report (titled «Review of the Results of Payment System Oversight in 2017») has been approved by the Board of the National Bank and posted on the official web-site under the heading «Payment Systems».

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As a part of the Twinning Project, a comprehensive review of the financial risk management framework at the National Bank, resulting in recommendations and an action plan on further enhancement of the risk management system, was carried out. A draft internal manual has been produced to act as a guideline for financial risk management practices. The National Bank’s staff have been trained in financial risk management at a central bank.

The project has helped put in place a range of state-of-the art tools of banking supervision, adopt a methodology for the supervisory review and evaluation process (SREP) and establish an early warning system.

FINANCIAL RISK MANAGEMENTCOMPONENT 4.

BANKING SUPERVISIONCOMPONENT 3.

Sergey GREBENKO, Head of Risk Management Department

Successful performance of any organization is as dependent as ever on the management of the risks to which it is exposed in its day-to-day operations.

Financial risk management is particularly important, given the significant amount of potential losses to an institution if the risks materialize. For the National Bank, financial losses may be accompanied by diminished trust in it as a public institution and a regulator, with potentially negative implications for its ability

to pursue monetary and credit policies successfully. Therefore, the National Bank is investing considerable energy in building a financial risk management framework to respond adequately to changes in the operating environment and suited for the specific tasks and functions of a central bank.

Over the course of the Twinning project, a review of the National Bank’s risk management framework was performed, resulting in a set recommendations to inform the development of an action plan on enhancement of the risk management system. The action plan has been approved by the Board of the National Bank.

Training has also been provided to the relevant National Bank staff during workshops and study visits. The material covered lay the groundwork for the drafting of an internal manual as a guideline for financial risk management.

In general, the Twinning project has helped incorporate best EU practices in risk management in the work of the National Bank, and maintain highs level of financial resilience, efficiency and trust in the National Bank of the Republic of Belarus as prerequisites to successful achievement of its goals and performance of its functions.

Vadim SHVED, Deputy Head of Banking Supervision Directorate

Belarus had already been utilizing best international practices in the area of banking supervision for several years before the project. However, the National Bank had the need to systematize its approaches to banking supervision and to form a supervisory mechanism based on the use of uniform comprehensive assessments of bank performance on a permanent basis. By that time, such a mechanism was already being successfully applied in the EU member states within the framework of the Supervisory

Review and Evaluation Process (SREP). The partners in the Twinning project from the central banks of Lithuania, Poland,

Germany, Estonia shared with their counterparts from the National Bank their professional expertise regarding the development and use of SREP in the European Union, and the practical implementation of the relevant approaches. This been conducive to substantial enhancement of the banking supervision tools consistent with the SREP methodology. The earlier approaches of the National Bank to supervisory evaluation have been systematized and supplemented with the missing elements of SREP.

Another success of the project has been the development and successful implementation of an early warning system, based on the monitoring of qualitative and quantitative indicators of banks’ performance in order to identify emerging problems in a timely manner and take steps towards their early prevention. In addition, specialists of the National Bank were trained in the field of the assessment of banks’ statements prepared using international financial reporting standards.

In general, the Twinning project with the National Bank has helped establish and put in place a set of up-to-date tools of banking supervision with the view to securing the stability of the banking system as one of the main objectives for the National Bank of the Republic of Belarus.

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With the assistance of the project, a communication policy was developed aimed at increasing the level of trust in the National Bank as a government agency that implements an open, consistent and understandable policy to maintain price and financial stability.

The internal guidelines for the implementation of communication policy and methods to assess its effectiveness were developed.

The Twinning project has supported the National Bank in drafting a regulatory legal act that lays the ground for the introduction of alternative dispute resolution mechanisms for financial consumers; a range of workshops and roundtables on financial consumer protection have been conducted to the relevant government institutions and financial market participants; approaches have been developed to the definition of unfair commercial practices of banks, and regulations prepared against unfair commercial practices; training has been conducted for the relevant staff of the National Bank.

COMMUNICATION POLICYCOMPONENT 6.

FINANCIAL CONSUMER PROTECTIONCOMPONENT 5.

Alexander TIMOSHENKO, Head of Information and Public Relations Department – Spokesman for the National Bank

For decades, central banks have preferred to remain in the shadow and to say as little as possible. Today, however, they are being increasingly challenged to become more public and transparent. They can no longer afford to act as silent technocrats. Nowadays, openness to the dialogue, aspiration to explain the decisions taken and delineate perspectives, responsibility for words and actions are crucial for gaining confidence, without

which one would find it difficult, if not impossible, to achieve the goals.Communications have become a powerful instrument in the pursuit of monetary

policies – they enhance the effectiveness of a central bank’s decisions by shaping expectations and exercising an influence on the behaviour of the stakeholders. This is exactly why opening up and becoming more transparent is a leading trend typical of most central banks.

The Twinning project has helped the National Bank of the Republic of Belarus make an important step in this area. Following a detailed review of the existing public information and communication practices, the short-term experts from the central banks of Germany, Lithuania, Poland and Estonia have compiled, arranged and shared with us a wealth of information on the practices of the leading central banks of the EU member states in building effective communications with the target audiences; they have also recommended solutions for incorporating these experiences in our work.

The new Communication Policy approved by the Board in December 2018, as well as the Guidelines for its implementation and the Methodology for evaluating the effectiveness of communications, approved already this year, are key documents that will guide the principal approaches to communications for the years to come. They are a product of our collaboration under the project over the last eighteen months.

Irina SKUMS, Head of Financial Consumer Protection Department

Recently, the central banks of many countries have been actively engaged in a new area of activity – protection of financial consumers.

The need for such engagement is defined by the great complexity of the business relationship between financial consumers and providers of financial services, and also by the growing sophistication of the financial services and the means of their provision; there is also a need to make financial service

providers more open and transparent in order to increase overall consumer confidence in the financial system.

The Twinning project has helped the National Bank define its approaches to the development of a system for financial consumer protection, define a vision for the institutional framework for the protection of individual consumers of banks, non-bank credit and financial institutions, leasing and microfinance organizations. Our partners in the project have shared useful and relevant experience pertaining to the establishment and operation of alternative dispute resolution mechanisms for individual consumers in their respective countries, as well as using the institute for recognizing unfair commercial practices in the context of financial consumer protection.

Government bodies, specialized associations of financial market participants, and banks have appreciated the events on various aspects of financial consumer protection conducted by the international experts from the Twinning project. The content covered in the seminars and roundtables will inform the efforts to draft a legal framework for financial consumer protection and facilitate responsible provision of financial services to individual consumers.