Newly-elected Bulgarian c-bank governor presents controversial deputy nominations

By bne IntelliNews July 14, 2015

Dimitar Radev, a senior economist with the International Monetary Fund (IMF), was expectedly elected by the parliament as the new governor of the Bulgarian National Bank (BNB). Quite unexpectedly, the man whose main task is to regain trust into the regulatory authority and recoup its reputation, said he plans to keep the current key management team. The central bank, which has most of its functions curtailed in the IMF-backed currency board regime, has been widely blamed for institutional weaknesses and supervisory lapses, leading to the problems faced by two systemically important banks last year. 

Shortly after his election for a six-year term on June 14, Radev told reporters he will propose that Dimitar Kostov, the current deputy governor in charge of the banking department, which acts as the fiscal agent for Bulgaria's relations with the IMF, remains deputy governor, but in charge of the key banking supervision division. The previous chief supervisor of lenders and their loan books, Tsvetan Gunev, was suspended in June 2014 amid a probe for failing to perform banking supervision duties, just before, and probably causing the runs on the country's third and fourth biggest lenders - Corporate Commercial Bank (Corpbank) and First Investment Bank (FIBank).

Kostov has been deputy governor at BNB since 2005. His previous experience includes executive positions at two commercial banks and finance minister in 1995-1997, when the collapse of 13 banks triggered an economic catastrophe and hyperinflation that led to the implementation of the currency board regime.

Kostov's position as head of the banking department is set to be filled by Nina Stoyanova, now BNB’s general counsel.

Kalin Hristov, deputy governor in charge of the issue department, which holds all of the BNB's monetary liabilities, is set to retain his post. Hristov has been working at the central bank since 1997 and is occuppying his current position since 2009.

Before his election, which was supported by 130 lawmakers in the 240-seat assembly, Radev told MPs that he will present officially his deputy governor nominations early on June 15. The nominations have to pass parliamentary approval. This may become tricky, as the Reformist Block, the minor ruling coalition partner, firmly opposed the idea of Kostov taking charge of banking supervision, when he was nominated for this same post by the outgoing governor Ivan Iskrov back in February. The opposition socialist BSP and mainly ethnic Turk MRF have also declared that they will not support candidates who have been in BNB’s incumbent governing council.

On July 9, Radev said that his immediate priorities would be connected with bankrupt Corpbank and the problems in the banking supervision. He insisted then that the selection of a banking supervision head will be technocratic, with the criteria being personal integrity and expertise.

Meanwhile, Radev's previous employer, the IMF, warned in March that "timely confirmation of individuals with a clear mandate to support a strong, independent, and accountable BNB is critical”.

On July 8, a specially created parliamentary commission published a report on Corpbank, in which it claimed that the lender had functioned as a financial pyramid. The report criticised severely BNB for not exercising the necessary supervision.

In June 2014, Corpbank suffered a bank run that deprived it of liquidity. Later, an independent audit showed a BGN3.75bn (€1.92bn) capital hole at the bank, so its licence was revoked in November and it declared insolvent in April. Also last June, FIBank was hit by a deposit run, but was rescued by the state.

Earlier this month the Constitutional Court opened a case against the parliament’s rules for nominating a new BNB governor. The move was requested by 74 lawmakers, who claimed that the rules, adopted recently by the budget and finance commission, violate the equality of MPs. The court is still to decide on the matter.

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