Bulgaria agrees to rescue Corpbank by bailing-in shareholders, injecting state capital

By bne IntelliNews June 23, 2014

Bulgaria's central bank (BNB) announced on Sunday (June 22) that it plans to recapitalise the troubled Corporate Commercial Bank, which it put under special supervision two days earlier, through a bail-in of shareholders and by injecting state capital into the lender. The central bank stressed that Corpbank's liquidity problems are an isolated case and the banking system remains stable.

BNB will write off the stakes of Corpbank's current shareholders and it would also order the state-owned Bulgarian Development Bank and the country's Deposit Insurance Fund to inject capital into the banking group. BNB said that it has also put under special supervision for three months Corpbank's recently acquired subsidiary - Credit Agricole Bulgaria.

The amount of the capital needed to prop up the banking group will likely become known only after independent auditors carry out a full audit of its books. Corpbank's assets stood at BGN 7.3bn (EUR 3.73bn) at end-March. Its first quarter net non-consolidated profit grew 18.2% y/y to BGN 13.1mn.

Corpbank, Bulgaria's fourth-largest lender, asked BNB for help on Friday (June 20), realising that depositors are withdrawing vast amounts of cash from the bank, triggering a liquidity . BNB intervened promptly by freezing all of the bank's operations and taking control of its management.

The bank's customers reacted to the indictment of Tsvetan Gunev, the deputy governor of the central bank in charge of supervising lenders and their loan books. Gunev is under investigation for failing to perform his banking supervision duties. Gunev allegedly failed to act when Corpbank exceeded the limit for bad loans after it loaned money to firms associated with its controversial majority owner, Tsvetan Vasilev.

Central bank governor Ivan Iskrov told a news conference on Friday afternoon that the bank's depositors should not worry about their money, underlining the lender is not bankrupt. Bulgaria's Deposit Insurance Fund (BDIF) guarantees deposits in local and foreign currency of up to BGN 196,000 (EUR 100,000).

BNB also said on Friday that one of Corpbank's minority shareholders - Russia's VTB Bank (which owns 9.9%), has expressed interest to negotiate with the central bank authorities in order to help Corpbank.

The troubled lender is controlled by local non-bank financial company Bromak (owned by local businessman Tsvetan Vasilev), which has a 50.6% stake. The second largest shareholder in the bank is the Bulgarian Acquisition Company II (a sovereign fund controlled by the Sultan of Oman) with 30.3%.

The lender's problems come at a time of heightened political instability in the country. The government of PM Plamen Oresharski, backed by socialist BSP and ethnic Turk MRF, is expected to resign soon as the main political parties have already agreed on early parliamentary elections in the autumn. The ruling coalition embraced the idea of snap polls after the senior ruling partner BSP suffered a defeat by wide margin in the May European Parliament elections.

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