Bulgaria Will Start Corporate Bank Bankruptcy Process

Bulgaria will start the bankruptcy procedure for Corporate Commercial Bank AD, the eastern European country’s fourth-largest lender, after an audit found missing records for loans worth 3.5 billion lev ($2.4 billion).

The audit found “actions incompatible with the law and good banking practices” that led to a 1 billion-lev run on the bank in the three days before the central bank placed it under supervision on June 20, it said on its website. The Sofia-based central bank wants to transfer Corporate Bank assets and liabilities not linked to its majority shareholder to the former local unit of Credit Agricole SA, which the lender acquired a week before being placed under supervision. The central bank will also revoke its operating license.

“The Bulgarian National Bank together with the government will concentrate on the restructuring and rehabilitation of the ’good part’ of Corporate Commercial Bank to protect the interest of all its depositors,” the regulator said.

Bulgaria’s ruling Socialists are fighting to keep the banking system stable, while opposition politicians accuse the leadership of bringing the country to the brink of ruin. Prime Minister Plamen Oresharski’s cabinet will resign at the end of the month after President Rosen Plevneliev called elections for Oct. 5, three years ahead of schedule. He will dissolve parliament on Aug. 6.

The European Commission on June 30 approved Bulgaria’s extension of a 3.3 billion-lev credit line to lenders after police arrested men they said triggered a run on the deposits of First Investment Bank AD, the country’s third-largest financial institution.

Deposits Paybacks

The bank paid 800 million lev in deposits to clients on June 27, a week following the regulator’s seizure of Corporate Bank after a big depositor withdrew funds. The run on First Investment was contained, Oresharski said in a July 4 interview.

The central bank submitted a draft law to parliament that, when passed, will allow it to nationalize Corporate Bank’s unit and use it to repay depositors, it said. It is still working to open the healthy bank on July 21, which will have a new name after it becomes state-run, according to the regulator.

The state financial support needed for the new bank is estimated at 1.5 billion lev to 2 billion lev, which will be transferred from the state-owned Bulgarian Development Bank and the State Fund for Bank Deposits Guarantee, Finance Minister Petar Chobanov said in parliament today.

Budget Gap

The measure may widen Bulgaria’s budget deficit to exceed the EU limit of 3 percent of economic output, from its current target of 1.8 percent, Chobanov said.

Many missing files for the 3.5 billion lev in loans, out of Corporate Bank’s total credit portfolio of 5.4 billion lev, are linked to majority shareholder Tsvetan Vassilev, the central bank said. A day before the bank asked to be placed under special supervision, Vassilev withdrew about 206 million lev in cash through a third person, the central bank alleged.

The regulator said it has sent the audit report to Bulgaria’s chief prosecutor on suspicion “of criminal actions by people connected with the bank,” it said.

“Actions by employees of Corporate Bank have possibly intentionally caused damage to the bank worth hundreds of millions of lev,” it said.

Arrests, Denial

Police arrested today Orlin Rusev, Corporate Bank’s management board chairman and executive director, who allegedly ordered the withdrawal of the 206 million lev, the prosecution office in Sofia said on its website. The bank’s chief cashier, Margarita Petrova, was also arrested on allegations she took the bagged cash out of the bank’s vault and handed it to over to others, the prosecution said. The prosecution is also preparing documents to summon Vassilev from abroad.

The Sofix index fell 1.53 percent, the lowest in two weeks, making it the sixth worst-performing index among 93 benchmarks tracked by Bloomberg. The yield on Eurobonds maturing in July 2017 rose six basis points, or 0.06 percentage point, to 1.551 percent at 4:15 p.m. in Sofia, according to data compiled by Bloomberg.

Vassilev holds 50.66 percent of the bank through his brokerage, Bromak EOOD. VTB Group, Russia’s second-biggest lender, holds a 9.9 percent stake. Luxembourg-registered Bulgarian Acquisition Co., controlled by the State General Reserve Fund of Oman, has 30.35 percent, according to the regulator.

In a letter published by Bgnes private newswire today, Vassilev denied wrongdoing, saying the accusations against him are “trumped up” and that the missing loan records are with authorities. The report also says that Vassilev left Bulgaria on June 10 and couldn’t have ordered the cash withdrawal.

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