The Bulgarian National Bank's plans to introduce a Real Time Gross Settlement (RTGS) system drew closer on March 12, with the submission of bids from institutions interested in the contract.

The RTGS system is an online electronic system designed for the transmission, processing, clearing and settlement of interbank payments on a real-time gross basis. It reduces credit, liquidity and systemic risks and is a pre-requisite for cross-border PVP (Payment Versus Payment) transactions.

RTGS prevents a bank from sending payment instructions to other banks unless it has the central bank funds (or agreed overdraft) to settle the transaction. If it does send instructions, the central bank will refuse to settle the transaction if there are insufficient funds. This system enables countries and banks to avoid the `domino' effect whereby when one bank fails to settle payments, its failure adversely affects all the other banks in the system. The RTGS facilitates the finality of payments by settling payments individually on a real-time basis.

In February, the bank announced the tender for a complete RTGS solution and, over the next few weeks, a commission headed by the banks's vice-governor Bojidar Kabakchiev is expected to select the two best offers. The bank will then hold simultaneous negotiations with both candidates and leave the final word to its board.

Initially, it appeared that the task of the commission, headed by Kabakchiev, would be a very tough one. Tender documentation was acquired by six of the leading companies in the financial software industry. These included - Logica, Unisys, Hewlett Packard, Montran, Perato and Stema Group.

However, after the March 12 deadline for submitting offers had passed, initial impressions suffered a minor disappointment. Instead of six tender offers, the BNB received three. Logica and Montran filed separate offers, Hewlett Packard and Perato submitted a joint offer, while US-based Unisys and UK-based Sema Group withdrew from the race.

BNB has announced that among the primary criteria used to select the tender winners would be their prior experience in developing RTGS systems. In this respect, it appears that the UK-based Logica is in the best position to win. It has developed the RTGS systems in 10 central banks in Europe, among which are those in Hungary, Luxembourg, Turkey, Slovenia, Latvia and Bosnia and Herzegovina.

The remaining contenders, however, also have experience with RTGS systems. Recently, Montran signed a contract for the development of a complete RTGS system with the Central Bank of Georgia, while, this January, Hewlet-Packard Bulgaria signed a similar contract with the Central Bank of Macedonia worth 2.46 million euros.

The BNB's RTGS system is expected to have a positive impact on the economy. "The RTGS system would significantly improve the speed at which bank transactions are executed," said Georgi Atanasov, head of the press centre at the BNB. "As its label says, the system would do the transactions in real time, while our current system requires between 24 and 48 hours to do so.

"According to our estimates, the system would process about 10 per cent of all banking transactions in terms of number, and over 80 per cent of banking transactions in terms of volume," added Atanasov.

The BNB expects to announce the winner of the tender by early April, and to have the system online by the middle of next year.