Statement by the BNB Governing Council

PRESS RELEASE

11July2014

Statement by the BNB Governing Council

Ladies and Gentlemen,

After numerous media publications and the odd, in our view, press conference given by the then Corporate Commercial Bank AD management, on 18, 19 and 20 June nearly BGN 1 billion was withdrawn from the bank.

On 20 June, Friday, at 11.40 a.m., the BNB received a letter from Corporate Commercial Bank AD management requesting the bank to be placed under special supervision on the grounds of art. 115, par. 2, items 2 and 3 of the Law on Credit Institutions.

As this is not very well known and there have been some misinterpretations in the media about the initial actions of the Central Bank, we would like to point out that in case and following of such a specific request the Bulgarian National Bank has an obligation by law to place a bank under special supervision. And we did so – first Corporate Commercial Bank AD, and then Crédit Agricole Bulgaria EAD.

You know that conservators were immediately appointed in both banks belonging to the Corporate Commercial Bank group. On 25 June independent auditors started their review of the banks’ assets and liabilities of both banks. The review was carried out for ten business days and ended on Wednesday. Yesterday, on Thursday, the Central Bank received the auditors’ reports.

In summary, the auditors’ review came to the following conclusions:

1.The results of the review of Crédit Agricole Bulgaria EAD are positive. This is a well managed bank with good banking practices. Its loan portfolio quality is very good and sufficiently covered with collateral and adequately provisioned.

2.The results of the audit of Corporate Commercial Bank AD show actions which are inconsistent with the law and the good banking practices, to put it mildly. Significant parts of credit files for a loan portfolio of BGN 3.5 billion, out of the total BGN 5.4 billion loan portfolio, are missing, most probably destroyed during the days before the conservatorship was placed. A considerable part of that credit portfolio suggests a very large connectedness between debtors and the majority shareholder of the bank, Mr. Tsvetan Vassilev.

As a result of the insufficient available information, the auditors expressed the opinion that it is difficult for them to assess the financial position of the debtors and their capabilities to service their loans. It is also difficult to assess the availability and quality of the items of collateral, and therefore it is impossible for the auditors to make a final conclusion about the quality of the loan portfolio of BGN 3.5 billion. Unfortunately, all these actions cannot be identified with the available tools of the off-site supervision and make us think of intentional abuse.

These particular actions of Corporate Commercial Bank AD officers could possibly lead to intentional damages to the bank, running into hundreds of millions of levs. It is obvious that the minority shareholders of Corporate Commercial Bank AD have also fallen victim to these breaches.

For all the above reasons, today we are going to present the auditors’ report on the review of Corporate Commercial Bank AD assets and liabilities to the attention of the Prosecutor General of the Republic of Bulgaria.

In addition to all said about Corporate Commercial Bank AD, and on the grounds of the data provided by the conservators’ separate review, on 9 July 2014 with entry number 6199, we already submitted to the Prosecutor’s Office another signal due to suspicions of criminal actions of persons connected to the bank. More specifically, according to the conservators’ data, on 19 June this year, only a day before Corporate Commercial Bank AD was placed under special supervision, a cash amount equivalent to BGN 205 887 223 mostly in euro, was drawn by a third person, and against a receipt delivered to the Corporate Commercial Bank AD majority shareholder. How this should be qualified and what actions will follow is within the competences of the Prosecution to decide. The investigating authorities can answer the question if in this manner the majority shareholder has robbed his own bank. The Prosecution of the Republic of Bulgaria can fully rely on the BNB expertise so as to discover the whole truth behind this criminal case.

Henceforth, we will leave the issues set out above to the Prosecutor’s Office to have their say, so as not to obstruct the judicial investigation. From now on, the Bulgarian National Bank jointly with the Government will focus on the restructuring and recovery of the “good part” of Corporate Commercial Bank AD with the aim to safeguard the interest of all its depositors.

What actions will be undertaken with regard to Corporate Commercial Bank AD and Crédit Agricole Bulgaria EAD from now on?

Obviously, we cannot fill a “bottomless barrel”, as goes the wise Bulgarian saying, nor could we nationalize Corporate Commercial Bank AD in its current position, as was announced on 22 June, before the outcomes of the review become known.

Else, we would jeopardize both the activities and operations of the Bulgarian Development Bank and a large part of the public funds and of the BNB funds.

But the goal remains unchanged! This goal remains that all citizens and companies to have at their disposal the full amount of their funds. The only exception to this will be the companies of the majority shareholder of Corporate Commercial Bank AD and persons and companies connected to him.

What is the new practical plan for action, already discussed between the BNB and the Government, and supported by the main political powers represented in Parliament?

This plan contains a number of technical details but, in short, the measures will include the following steps:

1.A nationalization of Crédit Agricole Bulgaria EAD.

2.A transfer of all “good” assets and liabilities of KTB to Crédit Agricole Bulgaria EAD. It is important to note that this involves all deposits of citizens and companies, for whom this will represent just a legal and accounting operation which does not affect in any way the main thing – that every citizen and every company will have at their disposal their accounts, deposits and savings. The only exception from this, and we underline this, will be the majority shareholder of KTB and the natural persons and companies that are connected to him. Their deposits will not be guaranteed by the State and will remain in KTB.

3.A provision of absolute liquidity support to the state Crédit Agricole Bulgaria EAD (which will be renamed) by its new owner, the State. For that purpose, enough resources will be ensured by the Deposit Insurance Fund, the State budget and the BNB. As many resources as needed. The mechanisms for that have already been designed, as a result of the joint work of the public institutions involved in this process, including the BNB and the Ministry of Finance.

4.The license of KTB will be revoked and insolvency proceedings will be started against it. The State, through the Ministry of Finance, and the Deposit Insurance Fund will be privileged creditors in the insolvency.

5.The above steps will be made possible after the voting of a draft special law, which is already prepared and which will be submitted today to the main political powers in Parliament.

From now on, it is the turn of the politicians!

And finally, Ladies and Gentlemen,

We are very much aware that in this particular case the Bulgarian National Bank is being criticized for the activities of the Banking Supervision. What, however, the general public does not know, which I would like to make clear today, is that according to the Law on the Bulgarian National Bank, which has been in force since 1997, the legislator has delegated the rights and responsibilities of the Banking Supervision function to the Deputy Governor in charge of the Banking Supervision Department. Neither the Governor, nor any other members of the Central Bank’s Governing Council has direct responsibilities or rights with regard to the ongoing banking supervision. Therefore, we submit to the National Assembly legal amendments whereby we will assume such responsibilities.

In conclusion, I would like to share that over the last few weeks the Bulgarian National Bank has been working in full synchronicity with the President of the Republic of Bulgaria and other state institutions, led by the understanding that the banking stability is a primary public good. We also believe that even if there were doubts, now everyone is convinced that this is an undisputable fact.

Restructuring and recovering of this credit institution is very important for key sectors of the economy and for sizable Bulgarian municipalities, hospitals, many companies and thousands of citizens alike. Any other decision would be irresponsible and would entail adverse social, economic and political implications in the long run.

We reiterate, we are working to open on 21 July the recovered state bank.

Once again we underline, now it’s the politicians’ turn!

Thank you for your attention.