Bulgarian Parliament Rejects Plan to Bail Out Corporate Bank

Bulgaria’s parliament opened the way for Corporate Commercial Bank AD’s bankruptcy, rejecting a plan that would have allowed the central bank to rescue the lender with public funds.

Lawmakers in the capital Sofia voted 138 to 35 with one abstention, to make legal amendments to repay guaranteed deposits in Corpbank of as much as 100,000 euros ($125,000) and hire international forensic accountants to investigate and trace the cash flow of Corpbank to “protect the public interest,” Speaker Tsetska Tsacheva said in parliament today.

“The audit report shows that Corpbank is in a very grave state and it cannot be rehabilitated,” former Prime Minister Boyko Borissov, who is also leader of Gerb, the biggest party in parliament, told lawmakers. “The cost of rescuing the bank will throw the country into recession for the next five years.”

Bulgaria’s central bank put the country’s fourth-largest lender, known as Corpbank, under supervision on June 20 after it ran out of liquidity amid reports about a feud between its majority shareholder, Tsvetan Vassilev, and a large depositor, a member of parliament who withdrew his funds.

That led to the worst banking crisis in Bulgaria in 17 years and threatened the economy. The Socialist cabinet resigned in July, triggering early elections on Oct. 5. Election winner Gerb is in talks with other parties to form a coalition government.

Revoking the bank’s license, which will start bankruptcy procedures, will cost less in public funds than rescuing it, central bank Governor Ivan Iskrov said in parliament today. The bank faces 4.2 billion lev ($2.7 billion) in write-offs, according to its audit report presented in the assembly today.

Epic, Gemcorp

Iskrov unveiled a non-binding offer by the Vienna-based Epic Financial Consulting, which advises Corpbank’s shareholders, London-based Gemcorp Capital Services Ltd. and the State General Reserve Fund of Oman, to recapitalize the bank through a joint venture. In that plan, the government would pay

2.3 billion lev and the investors would participate with the assets of Vassilev’s Bromak EOOD.

Borissov said the proposal was “impudent” and the assembly voted against the bank’s rehabilitation in a 150 to zero vote with seven abstentions.

Vassilev is under indictment for misappropriation of funds as a majority shareholder through Bromak. He is in the Serbian capital Belgrade, where his passport was seized and he was banned from traveling while Serbian authorities are processing his extradition request by Bulgaria.

Deposits, Costs

Deposits in Corpbank of as much as 100,000 euros, guaranteed by European Union law, amount to 3.7 billion lev, while the State Deposit Guarantee Fund has means to repay 2.1 billion lev, the central bank said on Aug. 11. The gap of 1.6 billion lev can be covered by a government loan that needs to be approved by parliament.

“Regardless of which decision is chosen, there will be a serious impact on the economy, macroeconomic indicators and public finances,” interim Finance Minister Rumen Porozhanov said in parliament. “The government should also prepare for costs in legal cases against the state by interested shareholders and depositors. And there will be many of those.”

Corpbank is at the heart of the country’s political and corporate establishment. It handled the accounts of most ministries and state companies, including Bulgarian Energy Holding AD, the country’s biggest grouping of state-owned utilities.

The European Banking Authority is investigating whether Bulgarian regulators breached EU deposit guarantee rules “according to which depositors should be compensated no later than 25 days after the unavailability of deposits,” the EBA said on Sept. 25.

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