CCB affair leaves Bulgarian central bank with egg on face

Aside from the shareholders and large depositors in the Corporate Commercial Bank (CCB), the other big loser in the ongoing saga surrounding the lender is without doubt the Bulgarian National Bank (BNB) and its governor, Ivan Iskrov.

It was bad enough that most media organisations were prevented from attending Iskrov’s news conference on July 11 to announce the results of the CCB audit – as it later emerged, the decision was made by BNB’s media liaison, but Iskrov refused to explain how this was allowed to happen given the massive public interest in the issue, trying to deflect any criticism by saying he was not a “one-man orchestra.”

More damaging, however, are the latest statements from the Prosecutor’s Office, which seem to invalidate the most dramatic claims made by Iskrov during that news conference.

Iskrov claimed that the audit showed 205.9 million leva in cash being withdrawn from CCB on June 19, a day before the bank’s management asked to be put under BNB administration, and “delivered to the Corporate Commercial Bank majority shareholder” Tsvetan Vassilev in exchange for only a receipt.

Vassilev was quick to deny the charge, saying that he had been out of the country for the previous month. With one TV station quickly assembling a mock-up to illustrate just how large the pile of banknotes would be, it was not long before BNB’s claim came to be questioned.

In a statement on July 17, the prosecutors said they dismissed this scenario, saying that the bank draft issued on June 19 was meant to cover for missing cash that had been withdrawn since the end of 2011.

The obvious question is how did BNB miss this?

Iskrov’s defence, repeated several times during the open hearing in Parliament’s budgetary committee on July 11 (the first time in years that a committee meeting was broadcast live by the Bulgarian National Television), was that only the deputy governor in charge of the bank supervision department had any oversight authority, while the BNB governor and board had none.

The deputy governor in question, Tsvetan Gounev, has been under investigation for a month now, for failing to fulfil his duties and carry out proper oversight of CCB’s activities. In its statement on July 17, the Prosecutor’s Office said that this investigation remained underway, but gave no new details.

It does seem to reflect rather poorly on Iskrov that he was apparently unaware of the activities of his deputy, whom he had put forth for the job in June 2013. (The anonymous letter to the Bulgarian media, which broke the news that Gounev was under investigation, alleged that far from being unaware, Iskrov was the one who, alongside his deputy, put pressure on the bank supervision department to “not apply legal requirements equally to all banks in Bulgaria”.)

Reports in Bulgarian media earlier this week also said, quoting unnamed sources in the prosecutor’s office, that investigators have dismissed Iskrov’s other claim made on July 11, namely that “significant parts of credit files for a loan portfolio of 3.5 billion leva, out of the total 5.4 billion leva loan portfolio [of CCB], are missing, most probably destroyed during the days before the conservatorship was placed.”

It was this missing paperwork that made it difficult to assess the lender’s state, but that has not prevented Iskrov from suggesting a transfer of the “good part” of CCB’s assets and deposits – that vague definition on its own gave several observers more ammunition to criticise the central bank governor – to CCB’s subsidiary, Credit Agricole Bulgaria, which would then be nationalised.

Iskrov’s impassioned plea – “from now on, it is the turn of the politicians!” as the BNB statement put it on July 11, repeated later by Iskrov during the budgetary committee hearing – for quick amendments to the banking law to deal with the CCB fallout is yet to be heeded by the parliamentary-represented parties.

The major stumbling block remains disagreement over what to do with CCB deposits that exceed the 196 000 leva (about 100 000 euro) threshold guaranteed under the current legislation. The central bank and the government have hinted that they supported the idea of guaranteeing all deposits in full, but political parties have been wary of doing so.

(Given that millions of Bulgarians lost their savings in the banking collapse of 1996, the question routinely asked on social media is why should CCB’s large-scale deposits, attracted by the lender’s policy to offer higher interest rates than other banks, be guaranteed by taxpayers.)

Political talks hosted by President Rossen Plevneliev on July 14 failed to achieve consensus – not least because the BNB, judging by the statements made by various politicians involved in the discussions in the National Assembly, has been unable to present a clear estimate of the cost of bailout.

Given this lack of political consensus, BNB has been forced to extend the administration period for CCB and Credit Agricole Bulgaria to three months, meaning that the lenders could stay under conservatorship until September 21. BNB can keep a lender under administration for six months, so this period looks could to be extended further if Parliament cannot reach agreement on the CCB situation before the National Assembly is prorogued on August 6, ahead of early elections on October 5.

The talks hosted by Plevneliev did, however, reach consensus on another issue, namely joining the European Central Bank’s single supervisory mechanism, as a first step towards joining the EU banking union. This move would curtail BNB’s own powers and as such, rightly or wrongly, has been interpreted as another blow to how the Bulgarian central bank is perceived.

Iskrov, whose second term at the helm of the BNB expires in September 2015, has not been spared criticism from all quarters, with Vassilev, the CCB majority shareholder, going as far as to accuse Iskrov of carrying out a hatchet job, saying that the BNB governor repeatedly refused the proposals by the shareholders to recapitalise the bank.

The leader of opposition party GERB, Boiko Borissov, called for Iskrov’s resignation earlier this week. Borissov had put forth Iskrov for the second term in 2009, at the height of the global financial crisis, and said recently that he did so in order to avoid rocking the boat.

(Bulgarian National Bank building. Photo: Clive Leviev-Sawyer)



Alex Bivol

Alex Bivol is the Deputy Editor-in-Chief of The Sofia Globe.