agentúra pre riadenie dlhu a likvidity debt and liquidity management agency

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1 Agentúra pre riadenie dlhu a likvidity Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency Debt and Liquidity Management Agency Slovak Public Finance Reform Slovak Public Finance Reform and ARDAL and ARDAL World Bank World Bank September 6, 2005 September 6, 2005

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Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency. Slovak Public Finance Reform and ARDAL. World BankSeptember 6, 2005. REASONS OF ARDAL CREATION . To centralize and make more effective cash-flows of state and public finances - PowerPoint PPT Presentation

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Page 1: Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency

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Agentúra pre riadenie dlhu a likvidityAgentúra pre riadenie dlhu a likvidityDebt and Liquidity Management AgencyDebt and Liquidity Management Agency

Slovak Public Finance Reform Slovak Public Finance Reform

and ARDALand ARDAL

World BankWorld Bank September 6, 2005September 6, 2005

Page 2: Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency

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• To centralize and make more effective cash-flows of state and public finances

• To make more effective management of the state debt, liquidity and public debt

• To reduce risks of the state debt and cash portfolio• To ensure transparency of management of the debt and liquidity• To minimize cost of debt in medium and long term perspective• To achieve separation of the state debt and liquidity management

apart from negative political influence• To use standard market instruments to manage the debt,

liquidity and risks

REASONS OF ARDAL CREATION

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• The ARDAL was established within the reform of public finance management

• Formation of the ARDAL is anchored in law of the State Treasury

• The ARDAL is a budgetary institution which realizes transactions on money market and capital markets for the State Treasury and Ministry of Finance SR (MoF)

• Supervising is the main responsibility of MoF SR regarding the ARDAL

• The ARDAL is fully responsible for management ofliquiditydebt related risks

DEBT AND LIQUIDITY MANAGEMENT AGENCY

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• Flexible organization – immediate reaction to market changes, straightforward communication with investors

• Online access to domestic and foreign markets through standard dealing system – trading by Reuters Dealing 3000,

• Online access to market information through information systems – Active8, Reuters 3000 „Xtra“

• Improvement of payment system via payment information system - ManEx

• Enhancement of financial flows information – fund planning• Using Slovak Reuters Auction System to auction State debt securities• Activities of ARDAL are similar to treasury departments in commercial

banks – resulting in use of treasury information system Finance Kit• ARDAL provided the performed activities with the working capacity of 14

employees in 2003 and of 16 employees in 2004

DEBT AND LIQUIDITY MANAGEMENT AGENCY

Page 5: Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency

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ARDAL ORGANIZATIONAL STRUCTURE

Director

Lawyer

Supervisor

Debt management department

Departmernt of cash

management and hedging operations

Back officedepartment

Departmernt of risk

management and Middle

office

Departmernt of General

administration and personal

office

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• Responsibility for debt and cash management was fully on the MoF

• Debt management was passive– securities issue driven by estimated immediate needs of the State

without considering market condition and development– using only simplest transactions

• issuance of bonds• issuance of bills• loans

• Absence of risk management • Absence of utilization of market instruments• Absence of MoF on the secondary market

STATE DEBT MANAGEMENT UNTIL THE END OF 2003

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Previous situation

Current situation

Ministry of Finance SR

Central bank (NBS)

Ministry of Finance SR

Central bank (NBS)

State Treasury ARDAL

RELATIONSHIPS AMONG THE INSTITUTIONS

Subjects of liquidity management

• MoF, i.e. State debt client

• Central Bank

• State Treasury

• ARDAL

Page 8: Agentúra pre riadenie dlhu a likvidity Debt and Liquidity Management Agency

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Public sector customers

CA, Deposits (0,75;3%)Commercial banks

SKK 2 bil.

at 5%

e.g. SKK 2 bil.

T-Bills5%

Ministry ofFinance SR

Total margin for commercial banks was 2,00% - 4,25%.

Situation without using public sector temporary free funds

COST SAVING PRINCIPLE

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State Treasury

State e.g. SKK 2 bil.

e.g. SKK 2 bil.

Rate based on the market

conditions

Cover of State Budget and Debt

ARDAL

Ministry ofFinance SR

In case of liquidity surplus ARDAL places free funds on Money Market

MM deposits Commercial Banks

Public sector clientsCA, deposits

Rate based on the market

conditions

Current situation with using public sector temporary free funds

Rate based on the market conditions

COST SAVING PRINCIPLE

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ARDAL TASKS IN 2003

• Institutional building of ARDAL as a budgetary organisation

• Preparation of conditions for ARDAL core activities (legislation,

processes,...)

• Implementation of State Treasury information system

• Implementation of ARDAL information systems

• Transfer of agenda from MoF SR to ARDAL

• Security market and issues of T-Bonds in 2003

• Strategy of state debt management to year 2006 – first in Slovak history

• Schedule of State securities auctions for whole year 2004 – first in

Slovak history

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ARDAL ACTIVITIES EVALUATION AND STRATEGY FULFILMENT

• provision of trouble free state refinancing• transparency of the state issuing policy• supporting the money market stabilization• introducing the partnership approach towards investors • state debt cost reduction – saving of SKK 3,707 bln. on cash basis and SKK 4,699 bln. on accrual basis against approved budget • active management of free liquidity of the state• benchmark issue of Slovak Eurobond• improvement of state bonds portfolio indicators• change of state securities issuance system – amount standardising, issues

reduction • aproximation of state securities primary market to EU standarts• establishing of transparent and effective refinancing system between ST and MoF – saving by using ST funds was approximately SKK 241mil.

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T - BILLS

T-Bills Issues

12M BRIBOR and interest rate of T-bills 3M BRIBOR and interest rate of T-bills

24,95%

15,59%14,13%

10,01%

7,02%

11,31%

17,60%

7,35% 7,73% 7,46%5,54%

4,34%

0

50 000

100 000

150 000

200 000

250 000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Bln

. SK

K

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%TOTAL DEMAND ACCEPTING DEMAND INTEREST RATE

BRIBORInterest rate of

T-bills

3,003,203,403,603,804,004,204,404,604,805,005,205,405,605,80

BRIBID

%

BRIBORInterest rate of

T-bills

3,00

3,20

3,40

3,60

3,80

4,00

4,20

4,40

4,60

BRIBID%

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T- BONDS – SKK

T-Bonds issues

• five T-Bond lines were opened on the domestic capital market

• 27 auctions were realized

• T-bonds at the nominal value of SKK 100,989 million were issued

• Eurobond at nominal value of EUR 1 billion was issued – approximate SKK 195 million of costs saving compared to Slovak T-bonds

• average interest rate reached in auctions, performed on the domestic market in 2004 was 4,821% p.a. (2,94% p.a. in 2005)

* Value as per June 30, 2005

23,89%

17,00%

9,49%

5,09%2,94%

7,87% 7,40%

4,82%

0

50 000

100 000

150 000

200 000

250 000

1998 1999 2000 2001 2002 2003 2004 2005*

Bln

. SK

K

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

TOTAL DEMAND ACCEPTING DEMAND INTEREST RATE

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T-BOND – EUROBOND 2014

Yield spread of Slovak Eurobond 2014 toward Asset Swap and appropriate Bund 2014 from 26.5.2004 to 16.8.2005

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

25.5.04 14.7.04 2.9.04 22.10.04 11.12.04 30.1.05 21.3.05 10.5.05 29.6.05

Time [days]

Yiel

ds s

prea

d [%

]

Spread toward ASW SR Spread toward Bund

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T-BOND – EUROBOND 2014

Yield spread of Slovak Eurobond 2014 toward Asset Swap and yield spread of Czech Eurobond toeard Asset Swap

0,00

0,02

0,04

0,06

0,08

0,10

0,12

0,14

0,16

0,18

26.5.04 15.7.04 3.9.04 23.10.04 12.12.04 31.1.05 22.3.05 11.5.05 30.6.05

Time [days]

Yiel

ds s

prea

d [%

]

Spread toward ASW SR Spread toward ASW CR

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*value as per June 30, 2005

*value as per June 30, 2005

STRATEGY FULFILMENT – SELECTED INDICATORS

Year 2002 2003 2004 2005*Duration 2,8 2,433 3,553 3,68

Duration (in years)

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

2002 2003 2004 2005*

Maturity (in years)

0,00

1,00

2,00

3,00

4,00

5,00

2002 2003 2004 2005*

Year 2002 2003 2004 2005*Maturity 3,29 3,824 4,654 4,615

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0

5

10

15

20

25

30

35

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

SK

K b

ln.

0

100

200

300

400

500

600

Expenditures State Debt (MoF reported)

State Debt to GDP ratio in 2004 = 39,5 %Debt and Liquidity Expenditures to State Budgetary Expenditures ratio in 2004 = 9,0 %

THE DEBT AND LIQUIDITY EXPENDITURES

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STATE POSITION IMPROVEMENT

• from the beginning of the year 2004 ARDAL started active trading on money market with major local banks

• at the end of year 2004 on behalf of state and State Treasury ARDAL traded with 15 banks and throughout 2004 ARDAL executed 1 214 financial transactions – received interest were aproximately 979 mil. SKK

• 25 refinancing transactions have been done throughout year 2004 with State Treasury

ARDAL intend to become a part of the interbank market using standard tools that the commercial banks have at disposal.

ARDAL realized transaction on behalf of State Treasury and MoF SR with commercial banks in compliance with the authorized credit limits for individual domestic and foreign commercial banks.

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THE ARDAL’S OBJECTIVES FOR THE FORTHCOMING YEARS

• to extend electronic auctions to MM and secondary state securities market

• ensuring the professional management of the debt and liquidity– optimizing the debt structure and related costs

• alloving the separation of the operational debt and liquidity management from the policy defining and controlling observace of rules and directives

• further improvement of communication with the market and investors –increasing the liquidity of the state securities market

• ensuring flexibility of the operational debt management

• increasing share of automatization in payments processing relating to the state debt installments

• acting interactively in integrating financial market and public-finance financial management with the EU countries at the international level

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ADDITIONAL DETAILS

LOGO

Address: Radlinského 32, 813 19 BratislavaTelephone: +421 2 57262503Fax: +421 2 52450381web: www.ardal.ske-mail: [email protected] Code: DLMA