Poor classification and provisioning methods used by Bulgaria's Corporate Commercial Bank (Corpbank) have concealed the unsound quality of the majority of its assets, according to a report by the three auditors that reviewed the bank's books during the last two and a half months.
The three auditors - Deloitte, Ernst & Young and AFA - have recognised 63% of Corpbank's BGN 6.66bn (EUR 3.4bn) assets as impaired, based on the methodology of the International Accounting Standards (IAS 39), which is more than enough to decapitalize the lender and push it into insolvency.
The bank's equity stood at BGN 198mn at the end of last month, meaning that the central bank (BNB) should revoke Corpbank's license if the results of the audit are taken into account. Under such a scenario, depositors would likely gain access to the guaranteed portion of their money at the beginning of December at the latest.
Corpbank will be able to avoid bankruptcy and resume lending only if private investors and/or the government agree to recapitalize it but that does not seem very likely at the moment. The reported capital gap is so big that the expected return from investing into Corpbank would probably not be enough to motivate shareholders or outside investors to pour money into it. On the other hand, the lender's poor accounting and risk practices prior to it falling under central bank receivership would render a state bailout rather unpopular among Bulgarians.
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