Bulgaria’s Parliament approved a resolution on October 31 to bring Bulgarian laws in line with EU banking regulations, meant to speed up the payment of claims by depositors in the Corporate Commercial Bank (CCB), but made no mention of a possible rescue for the lender.
Parliament spent five hours debating the draft resolution submitted by the interim budget committee, based on the Bulgarian National Bank’s (BNB) report on its actions concerning CCB, filed to Parliament on October 27.
The final version of the resolution called on the Cabinet to draft a package of amendments to the BNB Act, Credit Institutions Act and the Deposit Guarantee Act that would bring them fully in line with European law. (Bulgaria is currently subject to a European Commission infringement procedure for only partially transposing the deposit guarantee directive.)
The resolution also called on Parliament to pass legislative amendments that would insure the immediate payout of deposits in CCB, which are guaranteed under Bulgarian law for up to 100 000 euro, and recommended that BNB hire an international firm with experience in the banking sector to track transactions carried out by CCB shareholders and executives, as well as any affiliated third parties.
The latter point was passed as suggested by the budget committee, despite the objection of BNB governor Ivan Iskrov, who said that handing such a contract was not part of the central bank’s powers and that this recommendation should be made to the administrators appointed by BNB at CCB.
Before the final vote on the resolution, MPs agreed to amend the budget committee’s proposal, withdrawing one of the suggestions that raised the most objections in recent days. The draft resolution envisioned legislative amendments that would have required the central bank to undertake rescue measures when a lender’s own capital strayed into negative figures.
Critics of the proposal pointed out that the central bank had no levers to do so given the limited monetary policy instruments available to it under the currency board agreement in Bulgaria, put in place in 1997 as a result of the banking crisis that wiped out the savings of millions of Bulgarians in 1996.
Some voices even interpreted the proposal as an attempt to undermine the currency board, a charge denied by the head of the interim budget committee, Menda Stoyanova. She said that the proposal was merely meant to make it easier to draft a rescue plan, but the intention had been misunderstood by the public.
Before the debates, Iskrov addressed parliament to present the rescue offer made by a consortium that included the Omani sovereign fund that held 30 per cent in CCB, Vienna-based investment house EPIC and Gemcorp, the investment fund set up by Atanas Bostandjiev, a former senior executive of Russian investment bank VTB Capital (the Russian group has a stake of just under 10 per cent in CCB).
Iskrov said that the consortium offered to cover half of the recapitalisation costs if the Bulgarian state covered the other half. He said that the proposal included provisions that breach EU and Bulgarian law – such as deferring access to guaranteed deposits – and said that BNB had not vetted EPIC and Gemcorp.
During the debate, representatives of several parliamentary parties described CCB, which was Bulgaria’s fourth largest lender by assets at the point it was put under BNB’s special supervision on June 20, as unsalvageable. The central bank and Iskrov personally were also blamed repeatedly as one of several state institutions that failed to exercise proper oversight, leading to the CCB crisis.
Moving forward, the CCB administrators were expected to put on the books 4.2 billion leva worth of impaired assets – the figure assessed by three audit firms during their recent review of CCB’s assets – by the end of the day on October 31, as mandated by the BNB last week.
Barring any last-minute amendment by Parliament, the central bank will then have five business days – until November 7 – to repeal CCB’s licence and declare it insolvent, starting the clock on the 20-day period after which BNB would have to start paying out depositor claims.
(For full coverage of the CCB situation from The Sofia Globe, click here. BNB governor Ivan Iskrov addresses Parliament on October 31, screengrab from Bulgarian National Television.)