Bulgaria’s proposed Budget revision package, passed by the Cabinet at its special sitting on November 11, included amendments to a number of laws, meant to “solve the problems” posed by the impending insolvency of the Corporate Commercial Bank (CCB), Finance Minister Vladislav Goranov said on November 11.
As part of the Budget revision, the government would lend two billion leva to the state deposit guarantee fund to ensure that it has enough money to pay out all claims on guaranteed deposits.
“The deposit guarantee fund is just one of the instruments for the state to carry out its commitment to Bulgarian citizens and the attempts to pass the issue onto it is avoiding responsibility – the state must do its job and guarantee the payment of those deposits as quickly as possible,” Goranov said after the Cabinet meeting.
Currently, the amount of outstanding claims is estimated at 3.6 billion leva, but it remains unclear whether this is the final figure or just the sum of all deposits under 196 000 leva or 100 000 euro (including deposits at preferential interest rates, which are not guaranteed by law).
As it stands, the law is ambiguous about which deposits are guaranteed, Goranov said, and some of the amendments approved by the Cabinet are meant to bring legislative clarity.
Specifically, the amendments to the Deposit Guarantee Act stipulate that deposits should be assessed as having a preferential rate or not at the point that the contract was signed – any unilateral administrative changes to the interest rate put in place at a later date would have no bearing on the status of the deposit, according to the Finance Ministry’s memorandum on the amendments.
Although the Finance Ministry’s memo did not specifically say so, the “unilateral administrative changes” it appeared to be referring to would be the decision of the Bulgarian National Bank (BNB) board on June 30 to reduce the interest rates on all deposits at CCB “down to the average market rate” starting July 1.
Additionally, any individuals that acquired the rights to a deposit during the special supervision period, are excluded from the list of guaranteed depositors.
To speed up the process of paying out the depositor claims and lengthy queues, the Cabinet approved an amendment that would allow more than one bank to handle the payouts. To further reduce administrative obstacles, another amendment envisions adding a new exception to the Limitation of Cash Transactions Act, which caps cash transactions at 15 000 leva, so that its provisions do not apply to payouts of guaranteed deposits.
Another amendment, to the Bank Insolvency Act, allows the piecemeal sale of a lender declared insolvent – meant to be used in the cases of large banks (CCB was Bulgaria’s fourth-largest lender by assets when it was put under the central bank’s special supervision) where it would be difficult to sell the bank as a whole and where such a sale could lead to market distortions.
BNB stripped CCB of its licence on November 6, after 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 also referred the case to the Sofia City Court, asking it to begin insolvency proceedings against the lender. The judge to which the case was assigned recused herself on November 11 following media reports casting doubts whether the case was assigned to a random judge, as required by law.
The software that assigns the cases at random automatically sends a notification to the Supreme Judicial Council, which is also automatically made public – but there was no such notification on the CCB insolvency case, with the court claiming that the lack of notification was due to a “technical issue with the internet connection” that prevented the notification from being sent, according to the reports in Bulgarian media.
The case has been re-assigned to judge Ivo Dachev, the head of the court’s college dealing with corporate lawsuits, but a date for the first hearing has not been announced.
(For full coverage of the CCB situation from The Sofia Globe, click here. Logo and corporate motto of Corporate Commercial Bank – “our clients are dear to us” – from a CCB advert. Screengrab from corpbank.bg)