/ world today news/ On the occasion of the numerous and varied opinions within the framework of the public debate regarding the problems of the KTB banking group and the attempt to attribute these problems entirely and solely to the central bank, the Bulgarian National Bank states the following:
“KTB was placed under special supervision on June 20, 2014 and Victoria Bank on June 22, 2014, for reasons completely independent of the BNB – the massive withdrawal of funds, which led to a request from their management to the BNB to place them under special supervision The facts, circumstances and chronology of events are well known and repeatedly discussed in the public space.
The BNB is clearly aware of the limitations and difficulties that the special supervision imposes on all customers of the KTB banking group – citizens, commercial companies, municipalities, hospitals, etc. That is why, in the two months that have already passed since KTB was placed under special supervision, the Bulgarian National Bank in all its actions has been guided by the desire to find the fastest and most efficient approach possible in order to preserve the bank’s viability in order to be in the interests of its depositors. investors and customers protected to the maximum extent.
As is known, on July 14, 2014, a meeting was held at the President of the Republic of Bulgaria, in which representatives of the main parliamentary political forces in the 42nd National Assembly, the previous government and the BNB participated. At this meeting, the proposal of the BNB and the government to adopt a Law on the restructuring of KTB, the development of which was necessary due to the lack of legislation on the restructuring of banks in Bulgaria, was not supported. The drafted bill used some restructuring tools provided for in the new Directive 2014/59/EU on the creation of a framework for the recovery and restructuring of credit institutions and investment intermediaries, whose introduction into Bulgarian legislation is expected by the end of 2014. The proposed restructuring of KTB , previously consulted with the Directorate General “Competition” of the European Commission at a meeting held in Brussels on July 8, 2014, represents an established and working European model in recent years, which only a few days ago was applied in a similar version again in Portugal during the rescue of “Banco Espirito Santo” – the second largest bank in this country. It should be noted that the proposed model did not envisage the use of public funds to repay deposits above the guaranteed amount, but the creation of a viable institution that would continue to serve its clients.
The rejection of the proposed restructuring of the activity of the KTB group did not allow the full service to the customers of the KTB banking group to be renewed on July 21, although at an earlier stage the majority of the representatives of the parliamentary forces had committed themselves to support the opening of the KTB on the 21 July (a date that was not chosen unilaterally by the BNB, but was the result of an agreement between the political representatives, the government and the BNB).
Due to the failure to obtain support for the proposed model of the restructuring of the KTB banking group by the Bulgarian National Bank and the government, which required the adoption of new legislation, the central bank continues work on the special supervision procedure, strictly prescribed in the current Law on Credit Institutions, which is the only legal option currently available. One of the important factors accompanying the massive withdrawal of funds from KTB and the subsequent development of the process is the opinion planted in society and in a number of institutions that the bank’s reports do not provide a reliable picture of the quality of the assets. For this reason, one of the first decisions was to assign the conservators to organize for a short period a review of the assets and, in particular, of the loan portfolio.
In order to make informed decisions about the future of the KTB banking group, the actions of the conservators continue to carry out the full assessment of the quality of the assets of KTB commissioned by the BNB, which includes restoring and completing the credit files, identifying and describing the collateral for the loans, etc. .
As it was publicly announced on July 11, 2014, as a result of the commissioned partial verification of the assets, which was carried out within a period of ten days, the appointed auditors could not express a final conclusion and give an assessment of the credit portfolio of KTB in the amount of 3.5 billion. BGN (out of the total credit portfolio of BGN 5.4 billion) due to lack of sufficient information and documents. If there are doubts about the quality of the credit portfolio, in order to provide more reliable information for making decisions about the bank’s future, the BNB organizes the continuation of the work on the assessment of the assets. This process will take more time and will also require that the borrowers’ current difficulties be taken into account in the final assessments. These are circumstances that greatly delay the process, also not caused by the BNB. We remind you that the conservators currently have the task set by the central bank to create a special team, which, by 15.09.2014, will organize the preparation of credit files for the purposes of the audit evaluation and assist the conservators in managing relations with borrowers. As already announced, the expected deadline for the implementation of this assessment is no later than 20.10.2014. Based on the full assessment of the assets, the BNB will be able to determine the real state of KTB’s capital.
Before a clear assessment of the asset quality and capital adequacy of KTB, it is not possible to make any legally justified and binding decisions about the future of the KTB banking group.
The Bulgarian National Bank treats with understanding and respect the concern expressed in many of the opinions expressed by experts, trade unions and employers’ organizations, regardless of the unreasonably aggressive tone of some of them. Along with this, however, it is very important not to create unrealistic public expectations for instant and almost “magical” options for solving the problem surrounding the KTB banking group. European and world practice in identical situations clearly says that such “magical” options are not exist, especially in conditions of doubt in the available information and incompleteness in the legal framework for such decisions.
In this regard, we emphasize once again that regardless of the fact that the central bank employs the best experts in the field of banking supervision and banking law, the BNB has no other option but to strictly follow the procedures described in the laws, regularly and publicly announcing its decisions on its website actions and their results (all previous messages on the subject can be found here).
It is absolutely clear that, at the current stage, the possible solutions for the exit of the KTB banking group from the special supervision procedure can only be sought within the framework of the current legislation and in view of the final findings of the conservators and inspection teams regarding its financial condition.
Currently, KTB and TB Victoria continue to
have a huge shortage of liquid funds needed to pay off the obligations to depositors and other creditors, which are respectively in the amount of about BGN 6.3 billion for KTB and BGN 284 million for TB Victoria. For this reason, there are no conditions for exiting the procedure of special supervision, under which the two banks are placed, since there are not enough liquid funds provided for the banks to meet a potential new massive withdrawal of deposits from their customers.
Outside of the legal steps and regulatory measures, we have always remained ready to contact and discuss various legally permissible “market solutions” and proposals from the current shareholders of KTB, including the provision of the liquidity necessary to restore the bank’s operations. However, until now on the part of the majority shareholder “Bromak” EOOD, regardless of some public appearances of its sole owner Tsvetan Vasilev, no initiative has been shown to the supervisory authority to provide support to KTB, nor has a discussion with the central bank on the current financial situation of KTB been sought and the financial resources necessary to restore its activity.
Initially, the declared intentions of the second largest shareholder – the General State Reserve Fund of the Sultanate of Oman – tied the possibility of considering possible solutions to the presence of clarity regarding the state of the bank and significant liquidity support from the BNB, which is impossible according to the current legislation. The third largest shareholder in KTB – VTB Capital, initially stated its intentions to consider the possibilities of supporting the bank, but on June 24 this year. publicly announced that it has no such interest.
In this regard, today we sent letters to the two largest shareholders in the bank and we are waiting for their specific proposals for commitment by the end of August in accordance with the current legislation in Bulgaria and the EU.
As for some claims that KTB should have been granted state aid under the scheme for liquidity support of Bulgarian banks approved by the EC on 29.06.2014, it should be borne in mind that the provision of state aid in the countries of the European union is carried out by the governments of the member states according to strict and clear rules that cannot be violated. In this regard, the Commission Communication on the application from 1 August 2013 of the State aid rules to support measures for banks in the context of the financial crisis (2013/C 216/01) should be taken into account. A basic requirement is that state aid in the EU is granted only to solvent and economically viable banks. More specifically: in the case of liquidity support schemes, they should be used only for banks without capital shortages, which circumstance should be certified by the competent supervisory authority in a sufficiently categorical and indisputable way.
Both at the time of the scheme for liquidity support of Bulgarian banks approved by the EC on 29.06.2014, and at the current date, in the conditions of continuing doubts about the quality of the assets for KTB, it is not possible to draw a definite conclusion that it meets the requirement for solvency, which is why all the mandatory conditions for receiving state aid are not covered, according to the scheme for liquidity support of Bulgarian banks approved by the EC on 29.06.2014.
In addition to the above, it should be noted that in the case of KTB, the conditions for providing liquidity by the central bank, referred to in Art. 33 of the Law on the Bulgarian National Bank and Ordinance No. 6 of 19.02.1998 on lending to banks against collateral, as the bank did not have liquid assets meeting the legal requirements to provide as collateral to the BNB.
Regarding the urgent requests for immediate payment of the guaranteed deposits, it should be taken into account that the guaranteed deposits according to the current Bulgarian legislation are paid out after the license of the bank is revoked.
In addition, the guaranteed amount of deposits in KTB is BGN 3,684.6 million, and in its subsidiary TB Victoria it is BGN 55.1 million. As of 31.07.2014, the funds from premium contributions accumulated in the Bank Deposit Guarantee Fund are in the amount of BGN 2,103.6 million. The shortfall in terms of the total funds required to pay the guaranteed deposits of customers of KTB and TB Victoria is in the amount to BGN 1,636.1 million, and currently there are no funds set aside in the state budget to cover the shortfall.
It is a well-known fact that the political forces in the 42nd National Assembly refused to support the proposal of the President of the Republic of Bulgaria to update the state budget in this regard, for which the BNB could not be held responsible either. We expect this to be a priority task of the 43rd National Assembly.
In the meantime, the Bulgarian National Bank, together with the government, continues the dialogue with the General Directorate “Internal Market and Services” of the European Commission in relation to Directive 94/19/EC, amended by Directive 2009/14/EC, regarding deposit guarantee schemes in relation to of the guaranteed amount and repayment term, introduced into Bulgarian legislation through the Law on guaranteeing deposits in banks and the Law on credit institutions.
In conclusion, we draw attention to the fact that all private or party-motivated attempts to put pressure on public opinion and on the institutions involved in the problems caused by the difficulties of KTB can only harm the process of defining and applying adequate measures.
The BNB remains the guarantor and bears its responsibility for the purpose of protecting public interests.
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