/ world today news/ The Bulgarian National Bank (BNB) sends the reports of the three auditing firms on the state of the assets of the Corporate Commercial Bank (KTB) to the attention of the Sofia City Prosecutor’s Office (SGP).
On October 20, KTB’s conservators submitted to the BNB the reports on the audit of the financial institution, which has been under special supervision since June. On October 21, the Governing Board of the BNB reviewed the report of the audit firms “Ernst & Young Audit” OOD, “Deloitte Bulgaria” OOD and “AFA” OOD.
As of September 30, 2014, the total amount of all the bank’s assets is BGN 6,662 thousand. The conclusion of the audit firms is that there is a need for write-downs of the bank’s assets in the total amount of BGN 4,222 million.
The BNB states that in the period from August 5 to October 20, the mentioned audit firms performed an analysis and assessment of main balance sheet items and bank guarantees issued by the bank. The analysis and evaluation performed is based on the principles of recognition and measurement according to the applicable International Financial Reporting Standards (IFRS). The assessment was carried out on the basis of the assets and bank guarantees reported in the bank’s registers as of June 30, 2014, reflecting all significant events until September 30, 2014, affecting the analysis.
Based on the bank’s balance sheet and the results of the analysis and assessment of main balance sheet items (including loans, investment portfolio, securities, other assets, real estate) and bank guarantees issued by the bank, the BNB draws the following conclusions:
KTB’s management did not adhere to prudent and conservative banking practices. After placing the bank under special supervision, numerous omissions were found that were allowed before it was placed in this status:
In the process of granting credits, there is a lack of in-depth research of the credit seekers, there are no complete analyzes of business plans and estimates regarding the projects justifying the financing.
There is a lack of control over the establishment and ongoing monitoring of the negotiated collateral. The analysis carried out shows that a significant part of the guarantees have gaps in their establishment or are non-existent, which makes them unrealizable. The coverage ratio of the bank’s loan portfolio with valid collateral is around 13 percent.
There is a lack of ongoing monitoring and control over the activities of the borrowers and the targeted use of the funds from the granted loans. Numerous loan renegotiations were allowed without the necessary justifications for this.
The documentation in the credit files is not maintained in a condition that allows the bank to manage its receivables in order to obtain the economic benefits associated with them.
In the bank’s activity, vicious business practices unusual for the banking system are observed, which are carried out through complex operations aimed at concealing the essence of deals and transactions. One of the examples of this is the specific way of lending, mediated by “special purpose companies”, holding companies and the like, in order to finance the acquisition of assets, does not correspond to standard and reliable banking practices.
The financial and supervisory reports submitted by the management of the bank before it was placed under special supervision before the “Banking Supervision” Department of the BNB were unreliable and misleading.
The Management Board of the BNB assigned the conservators to book the estimates prepared in full compliance with IFRS standards and to submit to the BNB the relevant supervisory reports by October 31, 2014, which are necessary for making the decisions provided for in the Law on Credit Institutions. Other decisions, including restructuring and/or rehabilitation of the KTB, are possible if the National Assembly, within its legislative powers, finds it appropriate and promptly adopts amendments and additions to the current legislation, including with regard to resource provision.
In conclusion, the BNB says that in order to make an informed decision and support the work of the people’s representatives on the KTB case, the Governing Council of the BNB will submit on October 27, 2014, the first working day of the 43rd National Assembly, summary information on the events and all decisions taken by the BNB regarding the KTB group from June 20, 2014 (the day of placing under special supervision of KTB) until now.
BGNES recalls that it has already become clear that the Oman Fund has expressed interest in the recovery of KTB, but without the participation of the majority owner Tsvetan Vassilev. The second largest shareholder in KTB has expressed interest in its rehabilitation together with the already known Austrian fund EPIK and a new partner – “Gemcorp” and “Freshfields”. The Oman Fund insisted that a meeting be held with the BNB within this week. The Fund emphasized that measures must be taken immediately to preserve the assets of KTB and its subsidiaries, both during the period of the quaesture imposed by the BNB and during the transition period that would be necessary.
Meanwhile, in an interview for “Banker”, Tsvetan Vasilev, who is in Serbia with a “signature” measure, said that the BNB and the prosecutor’s office are playing a ridiculous and absurd farce. Even before the report was made public, Vassilev defined it as “a politically motivated report based on the ‘fact’ that the main part of the files is ‘missing’. If the ‘remedial measures’ taken by the quaestors consist in the latter transformed into an outsourced unit of the investigation and prosecution, yes – the bank is “healthier” than ever. Their “healing” contribution to the bank is revealed in all possible ways, Vassilev believes.
On September 26, Brussels started criminal proceedings against Bulgaria due to the delayed payment of the deposits.
KTB has been closed for four months now. By November 20, the new government must decide on the fate of the financial institution – liquidation or stabilization. Then the payment of the guaranteed deposits of the Bulgarians will begin. Acting Finance Minister Rumen Porozhanov announced a few days ago that regardless of whether KTB will be liquidated or not, people will have access to their deposits after November 20.
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