Bulgaria’s CCB saga and the central bank’s crisis of legitimacy

Amid the continued uncertainty surrounding the fate of Corporate Commercial Bank (CCB), Bulgaria’s fourth-largest lender before it was put under central bank administration in June, one of the lesser subplots has been the controversial performance of Bulgarian National Bank (BNB) and its governor Ivan Iskrov in acting to stamp their authority on proceedings.

While the focus has understandably been on the best solution to make CCB viable again – a debate keenly followed by the lender’s frustrated depositors, with small crowds staging protests outside BNB for the past two months, and creditors – the central bank has shed public and political approval under Iskrov’s stewardship, going by opinion polls and public statements.

From early on, Iskrov seemingly abdicated responsibility for salvaging the lender, shifting it onto Parliament and political parties when he asked, on July 11, for state aid and the nationalisation of CCB. Given the uncertainty about the bank’s loan portfolio, it was always likely that recapitalisation would require state aid and some form of political agreement, but by requesting unreserved political support before the price tag was known, Iskrov put both himself and the central bank in the weakest position possible.

Iskrov has been on the receiving end of cutting criticism for his handling of the CCB situation for months and has virtually no political support among the parties that are likely to make into the next National Assembly, which will have to decide CCB’s future. Additionally, Iskrov has been under fire personally, his credentials to remain at the helm of BNB questioned repeatedly.

Resignation calls
Former prime minister Boiko Borissov of GERB – the party expected to win the October 5 early elections – has been calling for Iskrov’s resignation since July. In his latest statement on the issue, during a campaign stop at the weekend, Borissov said that replacing Iskrov was a key prerequisite for restoring public trust in the banking system.

One possible candidate could be Svetoslav Gavriiski, who served as BNB governor between 1997 and 2003, overseeing the introduction of the currency board following the banking crisis and hyperinflation of 1996/97. His nomination for a second term in 2003 was rejected by Parliament, which elected Iskrov, then an MP for the governing party of former monarch-turned-prime minister Simeon Saxe-Coburg, instead.

“Gavriiski can do a great job, regardless of the fact that he was my competitor [for the 2005 mayoral election] in Sofia. He can succeed if he has Parliament’s support. This is the kind of person with reputation we need,” Borissov said.

Socialist leader Mihail Mikov, whose party is second in the polls, has joined the calls for Iskrov’s resignation, saying in an interview with Reuters that “it is obvious that the trust in the banking system cannot be restored with this governor.”

Of the three parties certain to make it into the next Parliament, only the predominantly-ethnic Turk Movement for Rights and Freedoms (MRF) has avoided outright criticism of the incumbent BNB governor. But when Iskrov offered to resign in July – conditional on the now-prorogued legislature reaching quick agreement on his replacement – one of MRF’s heavyweights, Yordan Tsonev, said that the party agreed “in principle” with the idea of Iskrov stepping down.

(At the time, some reports in Bulgarian media claimed that Iskrov offered to step down hoping to return as an MP, possibly on the MRF ticket.)

Iskrov cannot count on the support of the smaller parties credited with strong chances of making it into the next legislature either. The centre-right Reformist Bloc coalition has been among his fiercest critics, although its proposals for a solution to the CCB conundrum have focused more on the overhaul of Bulgaria’s banking and financial oversight institutions, rather than Iskrov personally.

Populist MEP Nikolai Barekov also called for Iskrov’s resignation after a meeting with trade unions in July, but has not repeated the request since then. However, during a campaign debate on Bulgarian National Television (BNT) on September 19, Barekov said that Iskrov missed every deadline to “stabilise” the bank.

On the same debate, Valeri Simeonov of the National Front for Salvation of Bulgaria, part of the nationalist Patriotic Front coalition, said Iskrov was one of the main executors of a “plot against CCB”.

Former president Georgi Purvanov’s socialist splinter ABC has been fairly quiet on the topic of late, following former interior minister Roumen Petkov’s bombastic statement that Iskrov should not just resign but be put “behind bars”, which Petkov made during a TV appearance on July 11. Two weeks later, the former foreign minister Ivailo Kalfin was more sedate in his commentary, telling Bulgarian National Radio that replacing Iskrov would serve no purpose, because his resignation would not help solve the CCB situation.

Moving forward
Since offering his resignation in July, Iskrov has remained tight-lipped about his future plans. In a rare TV appearance, on Bulgarian National Television on September 21, he said that the decision whether to resign was solely his own and warned that any attempt to oust him would breach both Bulgarian and EU laws.

Iskrov has less than a year remaining on his second term as governor, a period that could be a tense one.

Public opinion appears heavily skewed against him as well, with one recent poll showing a sharp erosion of public confidence in the central bank. The survey, by Alpha Research earlier in September, showed only 11 per cent approval of the central bank, versus 48 per cent disapproval.

BNB, which has had a steadily high rating in recent years, was blamed by 29 per cent of the respondents in the poll as the main culprit of the CCB situation, for failing to exercise proper oversight (politicians scored marginally higher and were blamed by 31 per cent of respondents), Alpha Research said. A total of 54 per cent said that they feared new troubles in the banking system could have a major negative impact on Bulgaria’s financial stability.

Whatever the resolution of the CCB situation, Iskrov’s legacy is already defined – he is the governor whose actions, after a decade of being largely inconspicuous in office, have spurred Bulgaria into deciding to join the European banking union.

The silver lining on the CCB cloud is that, in the future, Bulgaria’s large banks will be subject to the single supervisory mechanism of the European Central Bank – far from the worst outcome, given the experience of recent months.

(For full coverage of the CCB situation from The Sofia Globe, click here. BNB governor Ivan Iskrov photo: BBCC.)



Alex Bivol

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