Bulgaria central bank strips Corporate Commercial Bank’s licence

Bulgarian National Bank (BNB) said on November 6 that it stripped the Corporate Commercial Bank (CCB) of its licence and would start the proceedings to declare the lender insolvent for failing to meet capital adequacy regulations.

BNB said that the write down of impaired assets worth 4.2 billion leva, as assessed by an audit completed last month, pushed the CCB capital figure to a negative 3.75 billion leva.

The central bank said it would ask “the appropriate court” to begin insolvency proceedings regarding the lender and would notify the state deposit guarantee fund of this request, so that the fund can begin preparations to appoint a bankruptcy receiver. Until such a receiver is named, the administrators appointed by BNB for the period CCB was under the central bank’s special supervision will continue to oversee CCB’s affairs.

Under current Bulgarian law, the stripping of the lender’s licence starts the clock on the period after which the state deposit guarantee fund will have start paying out depositor claims (with deposits of up to 100 000 euro or 196 000 leva guaranteed by the state) ­– which must begin no later than 20 business days, with a possible delay of 10 more days, after the bank’s licence is withdrawn.

The exact amount of such guaranteed claims is estimated at 3.6 billion leva – but it is unclear whether this figure is the final amount or just the sum of all deposits under 100 000 euro. In the latter case, the number could go down if deposits on preferential terms, which are not guaranteed by law, are removed from the tally.

The state guarantee fund has only 2.1 billion leva available at this time and could raise a further 300 million leva by asking Bulgaria’s banks to pay this year’s contribution to the fund in advance. However, the guarantee fund would still likely need to raise additional money to pay out all depositor claims, with a debt issue or a loan from the Budget being two options discussed as possible avenues to raise the necessary funding.

The fund will also have to set up detailed regulations about how the depositor claims are to be settled. Since its inception following the 1996 banking crisis, the fund has never had to pay out such claims because no bank had been declared insolvent since then.

The deposit guarantee fund said, later in the afternoon on November 6, that it would start paying out depositor claims on November 4.

Capital hike denied
BNB’s announcement came after an earlier statement said that the central bank withdrew the permission given to CCB to increase its tier 2 capital by 35 million leva (about 17.9 million euro) in March 2014.

CCB said at the time that it borrowed the money from Technology Center – Institute of Microelectronics (TC-IME). The company had been repeatedly linked to Tsvetan Vassilev, the majority owner of CCB, over the years.

The central bank said that during the review of CCB’s assets, the bank’s administrators found that the entire amount used to increase the tier 2 capital had been lent by CCB itself, albeit not directly to TC-IME but to several other companies. A total of 10 companies were involved in the money transfers before the funds were deposited in TC-IME’s account, with at least some of the transactions being done using accounts held by those companies at CCB.

CCB’s indirect funding of its capital hike breached EC Regulation 575/2013 on prudential requirements for credit institutions. In its loan contract with CCB, TC-IME said that the subsidiary debt was not financed directly or indirectly by the lender, which was clearly not the case, BNB said.

The central bank said that it has forwarded the findings to the Sofia city prosecutor’s office.

The capital hike increase was approved by the BNB deputy governor in charge of bank supervision, Tsvetan Gounev, who is currently being investigated for his alleged role in the events that led to the Corporate Commercial Bank (CCB) being put under BNB administration.

Gounev, who took leave of absence from the central bank just days before CCB was put into conservatorship on June 20, has not been formally indicted and an appellate court rejected in September the prosecution’s request to have him suspended.

BNB’s statement on November 6 led to some confusion in the local media, as some of them interpreted – erroneously – the central bank’s first statement as an announcement that it was withdrawing CCB’s licence.

(For full coverage of the CCB situation from The Sofia Globe, click here. Bulgarian National Bank photo: Clive Leviev-Sawyer.)



Alex Bivol

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