Bulgarian bank bailout to be delayed, officials tell EC

Bulgarian bank bailout to be delayed, officials tell EC

By Clive Leviev-Sawyer

Bulgaria’s central bank and the caretaker cabinet have told the European Commission that the country’s authorities could not pursue an immediate bail-out of the country’s fourth largest lender, Corporate Commercial Bank (CCB), because all measures to that end required a sitting parliament, which Bulgaria does not have.

In a letter sent to Jonathan Faull, head of the European Commission’s directorate-general for internal market and services, Bulgarian National Bank (BNB) governor Ivan Iskrov and caretaker Finance Minister Roumen Porozhanov said that the authorities could not offer immediate access to CCB depositors. The letter was a reply to an inquiry from Faull’s directorate-general, received last week.

Ikrov and Porozhanov said in their letter that repayment of guaranteed deposits was only possible once CCB’s licence was officially revoked, which was yet to happen. Partial access to deposits was not possible under Bulgaria’s current legislation and would require amending the law, the two officials said.

However, Bulgaria is currently without a parliament, which was prorogued last week to pave way for early elections on October 5. CCB, which was put under BNB’s special supervision on June 20 following a sharp decline in liquidity caused by a bank run on deposits, is scheduled to stay in conservatorship until September 21 – but that deadline is expected to be pushed further back after the BNB ordered a full audit of the bank, to be carried out by October 20.

The administrators appointed by the BNB said that the bank needed to undergo a “reliable assessment of the loan and investment portfolios” under the international financial reporting standards (IFRS), which is what the goal of the audit was, BNB said on July 31.

The central bank also said, at that time, that it authorised the administrators to draft a letter of invitation to CCB’s shareholders to declare their interest in the recapitalisation of the bank and change internal rules at the bank to ensure full compliance with IFRS.

In addition to institutional obstacles preventing CCB depositors from receiving access to their funds, Bulgaria did not have the necessary funds to cover the full extent of guaranteed deposits. Under Bulgarian law, deposits of up to 100 000 euro are guaranteed using the state Bank Deposit Guarantee Fund.

The total amount of guaranteed deposits in CCB was 3.68 billion leva (about 1.88 billion euro) – with a further 55 million leva held by CCV’s recently-acquired subsidiary, Victoria Commercial Bank. The money currently available in the deposit guarantee fund, however, was only 2.1 billion leva.

The large shortfall could only be covered by a state loan, which had to be approved by parliament, the letter said. Before the 42nd National Assembly was dissolved, it refused to give the caretaker government the powers to borrow money abroad, or increase the annual debt threshold to allow the government to borrow money domestically – as a result, bailout measures towards the CCB were only possible after the next legislature took office following the October 5 elections.