Bulgaria Audit Office check gives insight into lax bank supervision

Bulgaria’s National Audit Office (NAO) has finalised a report detailing the extent of the bad practices in the Bulgarian National Bank’s (BNB) bank supervision, although the conclusion that the department was inefficient and unable to quickly ascertain possible problems in lending institutions will have caught no one by surprise, given the collapse of the Corporate Commercial Bank (CCB) last year.

The audit covered the 2012/2014 period and focused on the effectiveness of the bank supervision, but not the degree of efficiency, as NAO said that it had limited time and personnel to carry out such an assessment. Even so, the deficiencies noted by the report were extensive, but the office also said that it could not claim to have been exhaustive, because it was not given all the information it asked for.

Bulgaria’s central bank law gives the deputy governor in charge of bank supervision sole responsibility for the operations, but internal BNB guidelines were not “consistent, exhaustive and clear”, nor was there a mechanism in place for interdepartmental co-operation or clear-cut definition of duties inside the department.

BNB had no goal-oriented strategy on bank supervision or even a set of criteria for drafting the annual supervisory checks – with no documentation whatsoever on the process of selecting banks for annual checks. The number of checks showed a downward trend, with only 27 full checks carried out over the three year period, with four banks not checked by the BNB supervision at all during that time frame.

Even when full or partial checks were carried out, there were significant concerns highlighted by the NAO, such as the absence of a consistent approach to the process, incomplete data reports, instances where data was filled in by employees of the bank that was being checked, no rules on documenting the process and storing the data.

The bank supervision department also, in effect, never verified the data submitted by the banks themselves, nor did it have direct access to the IT systems of the lending institutions, while its own IT system was overly lax, with a “significant number of employees” given rights to “edit the sensitive data in storage”, which raised questions about the authenticity of the records.

In terms of preventing conflict of interest, the central bank appeared to rely on its ethics code for compliance – an ethics code that did not explicitly include the senior management. The code also did not forbid BNB employees from receiving privileged interest rates on deposits from lenders and, while it did forbid taking loans at privileged interest rates, it had no mechanisms to verify compliance.

The NAO report – ordered by Parliament’s ad hoc committee investigating CCB’s collapse – was the first time that the bank supervision’s department activities for 2012/2014 were audited. The NAO said that BNB’s own internal audit office had assigned a low-risk designation to the department, lower than departments such as the board secretariat and public relations (which did get audited by the internal office over that time frame).

To read the full report, click here (in Bulgarian).

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




The Sofia Globe staff

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