The Bulgarian banking crisis: "An inside job" Stéphane Giner

It’s been almost two months after the beginning of the biggest banking crisis in Bulgaria since the 1990s. Two of the largest lenders in the country- First Investment Bank (FIB) and Corporate Commercial Bank (CCB) experienced a run in June. According to the New York Times FIB lost around $550 million in a single day, while CCB was put under supervision and was closed. 1.7 billion euro will be needed for the rescue, potentially doubling the country’s deficit. However, extensive media debates the government and the central bank do not seem to be doing much to solve the numerous problems.

On August 1, the European Commission warned Bulgaria to speed up the repayment of guaranteed deposits at CCB as depositors have no access to them at the moment. In a letter signed by Director-General Jonathan Faull, EC says that it finds the situation “very thrilling” and that it may take steps to guarantee the application of the EU law, meaning that a legal action against Bulgaria may ensue.

But who and what caused this financial Apocalypse? There have been many suspicious details surrounding the whole affair, most of all: a serious discrepancy between the official statements of the National Bank and its governor Ivan Iskrov and the proven facts.

National Bank.jpg

After the audit performed on CCB by the national bank, here is what Iskrov said on one of the main TV broadcasters (date July 11) and how it all turned out to be untrue:

Claim No.1: Financial documents for 3.5 billion out of 5.4 billion total credit portfolio are missing, which were probably destroyed days before the closing of CCB. As a result of the missing information, it’s impossible to evaluate the debtors’ ability to return their loans.

Refutation: After several experts stated that such information and documents cannot just vanish into thin air, the Bulgarian prosecution refuted its claims for missing credit files 5 days later, by explaining that the files were not missing, but were simply not filled out correctly. CCB is not the only party to be blamed for that, as the National Bank must have acted as a regulator while the credits were given.

Claim No.2: One day before the closing of CCB, 200 million BGN were withdrawn from the bank and given to the owner in cash. As a result of this claim the bank’s cashier, chief accountant and assistant accountant were arrested.

Refutation: According to some media sources, the prosecution had denied that one as well, stating that there were no clues of such activity (later on the prosecution “changed its mind” and backed his claims). It is interesting to note that after all these claims of criminal activity, the prosecution did nothing for months, even though there was a civil complaint against CCB, the owner Tsvetan Vassilev, politicians Delyan Peevski and Nikolay Barekov back in February 2014. There was no information for arrests or even interrogation; in fact, the only ones detained were accountants and the cashier- mere employees of the bank with no decision-making functions. Nevertheless, on August 12- exactly on Vassilev’s birthday, a European order for his detainment was issued. No actions have been taken against Peevski or Barekov so far.

Claim No.3: Corporate Commercial Bank is in a very bad financial condition, its licence will be denied and the bank will be bankrupted after the “good” part of its assets are acquired and managed by the state.

Refutation: Although it’s been speculated in public space that CCB’s losses were in a matter of billions, the evaluation of the auditors from Ernst & Young, Deloitte and AFA as per August 1 is that the loss is only 65 million meaning capital adequacy of 10.5%- only a bit under the legally required 12%. Bear in mind that these results come after a month and a half after the bank was closed and heavily compromised. On the other hand, the credits to connected firms and persons consist of a big percentage- 33.3% (legally permitted 10 %).

It turns out that CCB was not in such a bad shape after all and the main problems came directly and indirectly from the Bulgarian National Bank and the government. Why bankrupt our own major bank, you’d ask? Well, that’s a good question. Especially since the results of this entire affair are as follows:

1) Billions of taxpayers’ money goes for covering deposits and ensuring liquidity for CCB.

2) All the companies and private persons having credits in CCB (no one knows who they are; media are quite silent about it) are apparantly not paying them and will not have to pay them as the bank will probably be closed.

Point number 1 hasn’t been completed yet (that’s why the EC warns Bulgaria) as many political parties have been trying to evade the law and make taxpayers pay for all deposits, not only the ones up to 100 000 EUR guaranteed by the National Bank, for no apparent reason (all countries guarantee deposits only up to a certain amount).

When we add to all this the fact that CCB has been the major bank for many companies connected to the major political forces in Bulgaria (which have also put a lot of government money in that bank) the picture becomes quite clear. Let us steal some money from the bank and let the taxpayers pay for it. Not happening for the first time, but will that be the last?

Edited by: Lilit Mkrtchyan
Photo credits: Stéphane Giner via Compfight cc
via Compfight cc