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

№ 5 MAY

2019

- Now that most of the Twinning project is complete, what is your assessment of its progress, and the work performed?

First of all I welcome the opportunity to be a part of this Project. This work is a big challenge, also a very interesting experience. I think that together with the distinguished partners from the Deutsche Bundesbank (BBK) and Narodowy Bank Polski (NBP) we are forming a well- balanced and experienced consortium which is offering well-tested solutions for the National Bank of the Republic of Belarus (NBRB). It is very important to us that our Belarusian counterparts are committed to implement the Project professionally and responsibly.

Lietuvos bankas has the leading role in two important Project components - Financial stability and Banking supervision and I am happy to mention the present results: review of the legal and institutional framework for financial stability has been presented to the NBRB Board, and its key recommendations have been accepted, assessment of the NBRB process of financial stability analysis has been presented and supported, the SREP manual is completed, the early warning system is at the final stage of completion.

Therefore, the progress made during the first half of the project implementation is fully in line with the agreed timeline and project goals. The majority of the tasks have been completed. No doubt, the high level of dialogue, active and

– Agata, what are your professional interests in Narodowy Bank Polski? Have you participated in a Twinning project before?

I’ve been working at NBP since 2007. I am currently the Director of the International Department, which performs tasks related, among others, to the cooperation of Poland and NBP with international financial and banking institutions, foreign banks and European Union institutions. The International Department is also responsible for coordination of technical cooperation activities, organization of international conferences and translation services in NBP as well as servicing foreign loans of the State vis a vis international financial institutions. I also worked for some time at the Financial Stability Department of our Bank, where I conducted analyses related to the external risk to the domestic banking sector and was involved in forming macroprudential policy framework.

As for my experience in twinning projects – between 2009-2011, when I was the Director of the International Department, NBP was involved in a twinning project for the benefit of the National Bank of Ukraine.

–The twinning project of the EU and the National Bank of the Republic of Belarus is surely coming to a conclusion. How do you evaluate the work done at this

THE LITHUANIAN PERSPECTIVE OF THE TWINNING PROJECT

CONTINUED PARTNERSHIP IS HOPED FOR

Gitana KaminskieneJunior Project Leader,

LithuaniaProject Manager,

Department of International Relations

of Lietuvos bankas

Agata Lagowska,Junior Project Leader,

PolandDirector, International

Department of Narodowy Bank Polski

(National Bank of Poland)

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open cooperation between our STEs and the NBRB counterparts has ensured those results. Therefore, I am very confident of the success of the Project.

– This is the first Twinning project in which Lietuvos bankas is participaring as a part of an EU member state consortium. What have been some of the issues that you have encountered, and how were they addressed? How would you rate the quality of the partnership with the Belarusian colleagues in general?

According to the European Commission, Lithuania is one of the five most successful countries implementing the EU Twinning projects in 2014-2016. But, yes, it is the first EU Twinning programme project to the implementation of which Lietuvos bankas contributes. Therefore, our bank needed to establish general organizational rules and necessary legislation for the institutional participation in this Project. Of course, a lot of work has been done before the project implementation started but there were no notable problems. This Project, I would say, is very useful for all of us, as working in the international environment we significantly increase our competences in the areas of international issues as well as analysis, moderation, negotiations skills. Such activities undoubtedly contribute to the development of professional knowledge but it is a challenging extra job which takes a lot of time on the evenings or weekends.

This project extends our long-standing bilateral cooperation with the NBRB. It testifies to the highest level of professional maturity and international recognition achieved by our institution. Together with two other EU central banks – BBK and NBP, Lietuvos bankas carries out an important knowledge-

sharing mission in Europe and Belarus by participating in the project outside the EU. It is a great responsibility.

– The leaders of two of the project‘s components – Erika Balaikiene and Simonas Krepsta are from Lietuvos bankas? Do they have any assistants in Lithuania? How many staff of Lietuvos bankas are involved in the project altogether?

Lietuvos bankas has delegated fifteen representatives – a project manager, two component leaders and twelve short term experts – to this project. They are assisted by a legal adviser, persons responsible for the coordination of financial accounting issues and for the logistical assistance.

– What are your areas of professional involvement at Lietuvos bankas?

I have been working at the International Relations Department of Lietuvos bankas for 25 years since the establishment of the Department, 18 years of which I headed the EU and international affairs coordination issues at the Department. From 2011 to 2015 I was appointed as an Attache for Monetary and Banking Affairs of the Permanent Representation of Lithuania to the EU in Brussels and participated in the process of the Lithuanian Presidency of the Council of the EU, carried out tasks related to the preparation for the euro introduction in Lithuania.

My main work is related to continuous monitoring and analysis of EU decision-making, EU legal and institutional framework adoption, coordination of international issues as well as cooperation of central banks, also representing Lietuvos bankas at the various working parties.

– Lithuania and Belarus are neighbours. Minsk and Vilnius are less than 200 kilometers

stage? What obstacles have you come across?

This twinning project is a continuation of our extremely productive and long-term cooperation with the NBRB, so engaging in it was natural for us. Cooperation of NBP’s experts with the NBRB colleagues has always been very good and effective as they’ve known each other for many years. It now helps a lot in achieving mandatory results of this twinning project. We have learned that mutual trust and good relations are instrumental in technical cooperation.

Among the many positive results of this twinning project the most outstanding ones are – preparation of the draft law on payment services in Component 1 and Action Plan on financial risk management framework and Manual on FRM in Component 4. NBP is responsible for implementation of these two components but our experts also support the financial stability, financial consumer protection and communication components. Implementation of the twinning project is quite challenging – we have to follow the EU twinning rules, requirements, etc. So I can expect that for NBRB colleagues it was something new comparing with technical assistance we’ve provided them with so far. Nevertheless, I’m sure that the positive outcomes of the project will be longstanding. I can declare that NBP will continue to cooperate with the NBRB on a bilateral basis also after the twinning project.

– The twinning project has become a very good incentive for professional growth of the staff of Narodowy Bank Polski. To what extent has participation in

this project been useful for experts from Narodowy Bank Polski and personally for you? The central banks of Belarus and Poland actively cooperate also out of the twinning project. Could you tell us more about cooperation of the two banks? What prospects are there for further cooperation?

Without any doubt, participation in the twinning project, working in an international environment is a very interesting and valuable experience for all experts involved in it. Moreover, the project engages not only central banks from Poland, Germany and Lithuania but also experts from other countries (among others Romania, Estonia and Slovakia). Therefore, the twinning project offers a window of opportunity for the banks since this is not only the tool to share the Polish experience but also a platform to exchange and transfer knowledge between many partners.

As mentioned before, the partnership between NBP and the NBRB is very strong on all levels and is based on firm foundations. The long-term cooperation is carried out in many areas of central banking i.e. in the field of operational risk management, internal audit, payment system or financial risk management. In addition to this, between 2015 and 2017 intensive cooperation in the field of statistics resulted in a joint publication on the seasonal adjustment of time series in the NBRB scientific journal. Last year we launched a new, very challenging but inspiring project in the area of macroeconomic modelling. Its main goal is to support the NBRB in building a forecasting model, similar to

3TWINNING NEWSLETTER № 5 MAY 2019

apart. Our countries share a rich history. In your assessment, how close is the relationship between Lietuvos bankas and the National Bank of the Republic of Belarus?

Lithuania and Belarus share a centuries-old history, common historical personalities and experience, all of which contribute to the cultural and economic cooperation and the strengthening of human relations between the countries.

According to Lietuvos bankas’ international representation and cooperation policy, Belarus is identified as an important

technical cooperation country. Technical cooperation between the central banks of Lithuania and Belarus has been developed for more than a decade, prompting the exchange of best practices in internal audit, HR, performance management, financial market supervision, communication, etc. Such cooperation is enhanced by a bilateral cooperation agreement as well as regular bilateral high level meetings. I would like to note that our bank is ready to extend the scope of the technical cooperation and to share the knowledge and best practice.

the NECMOD model, developed and used at NBP. We provided the NBRB with the specifications of the model’s blocks, including behavioural equations regarding GDP and its components, the labour market, costs and prices, the external sector and the exchange rate. Moreover, the forecasting equations in EViews and software that are used in estimating and simulating the model were also delivered. Right now, the cooperation is going on mainly in the form of email and phone

consultations. Every 1-2 months the Belarusian colleagues send the results of their work to NBP experts, who analyze them and give feedback, advice or directions for further work.

Therefore, as I said before, the ending of the twinning project doesn’t mean the end of cooperation – we are looking forward to new projects and challenges that aim to build a continuous improvement of central banks’ capacity and the whole banking system.

TWINNING PROJECTOutcome: Establishment of a revised

legal and regulatory framework for payment systems in Belarus

In the course of the mission on 23-26 April 2019, the short-term experts from Narodowy Bank Polski and Lietuvos bankas reviewed the global trends in

the development of innovative payment solutions, tools and services from the perspective of the existing legal framework of the EU. The mission participants also considered the impacts of interchange fee regulation for the development of retail cashless payments.

Special attention was paid to the European approaches (as exemplified by Narodowy Bank Polski) to cyber-risk management within payment systems. The STEs provided a detailed overview of the assessment of the Polish financial market infrastructure for cyber-risk resilience expectations (CROE) and on the implementation of the cyber-risk

testing mechanism by a ‘red team’ (TIBER).On 26 April 2019 experts from Narodowy

Bank Polski and Lietuvos bankas delivered a presentation titled «Development of innovative payment instruments and services in Poland and Lithuania within the context of the relevant provisions of PSD-II and RTS» at the conference «Digital Banking – 2019».

Result: The NBRB will have enhanced capacity to effectively monitor risks, take mitigating action and manage systemic problems that nonetheless occur, so as to maintain financial stability.

In the first quarter of 2019 the final version of the report on macroprudential policy tools was prepared, finalised and translated. The report contains an overview of EU experiences in using a variety of macroprudential policy tools and measures, and presents detailed analysis of their

strengths and weaknesses, with relevance for the selection of the tools and their effective application in Belarus.

The report reviews the macroprudential policy tools currently effective in Belarus, presents recommendations on the development of the legal and institutional framework for the use of macroprudential instruments and measures, and on the sequencing of the proposed changes. The report expected under the third activity of the Component was presented to the Board

of the National Bank of Belarus on 14 March 2019. Its recommendations and conclusions were broadly approved by the Board.

Consistent with the action plan under the second subcomponent, the NBRB staff have prepared a first draft of the Financial Sector Stability manual. The empirical and statistical base of the Manual has been upgraded; work is in progress on the formulation of the conclusions and recommendations, and on the structuring of the material and the choice of the most effective presentation format, following a review by the STEs. The

short-term experts will contribute additional materials to the text of the Manual concerning market intelligence collection and the methodology of systemic risk analysis.

In addition, throughout the first quarter of 2019 NBRB were drafting a manual on the application of macroprudential tools. To date, the empirical and statistical base has been completed, and, a first draft of the Manual has been prepared.

Training workshops for the relevant NBRB staff under the component have been scheduled for May – June, 2019.

PAYMENT SYSTEMSCOMPONENT 1.

FINANCIAL STABILITYCOMPONENT 2.

4TWINNING NEWSLETTER № 5 MAY 2019

Result: Comprehensive revision of the financial risk management framework at the National Bank of Belarus building on the best practices of the EU central banks.

The mission on 4-6 March 2019 reviewed the Action Plan on enhancement of the financial risk management framework at the NBRB drafted by the Department of Risk Management based on the recommendations developed by the short-term experts of the Twinning project. The Action Plan has been analysed by the experts from the Central Banks of Poland and Austria, and received a broadly positive review, with a range of recommendations on improving some of its aspects.

Following a review of the risk management practices of the central banks of Poland, Austria, Romania, and of the experience of the NBRB, the Risk Management Department of the NBRB has prepared a draft internal manual on financial risk management which lays out uniform approaches to financial risk management at the National Bank in the conduct of operations in domestic and international financial markets. The draft manual was presented to the Twinning Project’s STEs in February, 2019 and was discussed during the mission at the beginning of March. A range of recommendations were made, which will be used for finalising the draft throughout the second quarter of 2019.

In March, 2019 a scheduled study visit to Narodowy Bank Polski was organised for two staff of the Risk Management Department of NBRB, with a focus on the management of credit and market risks. The participating

team also included an employee of the Financial Markets Operations Directorate, who benefited from the review of the Polish experience in the provision of emergency liquidity assistance to banks.

FINANCIAL RISK MANAGEMENTCOMPONENT 4.

Result: Enhancement of the NBRB’s capacity to supervise banks’ internal capital & liquidity assessments (ICAAP and ILAAP), conduct off-site surveillance and compare bank prudential reports with those resulting from the application of Inter-national Financial Reporting Standards (IFRS).

The mission on 28-29 January 2019 reviewed the results of the completed work on implementation and testing of SREP and of the early warning system. The SREP methodology has been assessed as adequately detailed and meeting the current need. Areas of further improvement of SREP were identified.

During the next mission on 12–13 February 2019 the training needs of the banking supervision staff were further clarified with regard to the application of SREP. The training was conducted on 12–14 March 2019. The banking supervision staff of NBRB were introduced to the practices of SREP application and testing at Lietuvos bankas, and to examples of the relevant best practices.

The training continued during the study visit of NBRB bank supervisors to Lietuvos bankas on 26-27 March 2019. The participants in the visit discussed the implementation and automation of the SREP process, the institutional framework and the resources needed for SREP.

BANKING SUPERVISIONCOMPONENT 3.

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Result: The legal and practical arrangements for the Financial Ombudsman are revised as necessary to reflect lessons from Twinning Partner(s) experience with its Financial Ombudsman.

Meetings with the project STEs have taken place throughout the first quarter 2019. The meetings focused on a range of aspects pertaining to financial consumer protection. The short-term experts have made presentation on some of the following topics:

• Alternative settlement of financial disputes in Germany, Poland, Lithuania;

• Individual bankruptcy (permanent insolvency);

• The legal framework on financial consumer protection;

• Unfair market practices (unfair contractual provisions);

• Assessment of credit-worthiness.NBRB staff have been presented with

information on the legal framework and consumer protection practices utilised in the EU, illustrated by specific examples and cases. The Belarusian counterparts have received the texts of the appropriate EU directives and national laws of the EU Member States.

The information presented in the meetings will contribute to the performance of some of the following tasks:

• Definition of approaches to the classification of financial services with the view to elaborating strategies for further enhancement of the legal framework for financial consumer protection;

• Review of options for the definition of

the powers of NBRB with regard to financial consumer protection;

• Elaboration of proposals on coordination and structuring of the financial consumer protection framework.

Result: A new Communication Policy (CP) designed with and implemented by the NBRB to help it in pursuing its core mission - to deliver price stability, financial stability, and robust efficient payment systems - which includes a new system for assessing performance of the communications department. The Communication Policy will also enable key Twinning project information to be conveyed effectively to relevant stakeholders.

The short-term experts have reviewed the draft manual on communication performance assessment drafted by the staff of the Communication and Public Relations Department of NBRB, and have suggested improvements. The benchmarks referred to in Activity 6.3 of the project

have been submitted for consideration of the NBRB Board.

On 26-28 February 2019 a short-term expert mission took place under the Component 6.4 «Communication Policy Training of NBRB staff”.

The aim of the mission was to present relevant experiences of the EU central banks in the organisation of communication policy training, the definition of the goals and learning aspects, and the teaching methods and techniques used. The information obtained from the workshop will be applied in the development of a communication policy training framework at the National bank of Belarus with the view to enhancing the public communication skills the NBRB structural divisions.

The staff of the Communication and Public Relations Department of the NBRB have also discussed and agreed with the

RTA office the Twinning thematic events to inform the wider public about the progress of the project.

COMMUNICATION POLICYCOMPONENT 6.

FINANCIAL CONSUMER PROTECTIONCOMPONENT 5.