bne IntelliNews -

Bulgarian prosecutors have charged five more people, including two auditors from accountants KPMG, over the collapse of Corporate Commercial Bank (Corpbank) last November.

Since the beginning of April, the Sofia city prosecutor’s office has charged two external auditors of the bank from the Bulgarian office of KPMG, the head of Corpbank’s internal audit department, a senior official from the central bank's credit institutions supervision directorate, as well as a former central bank (BNB) deputy governor in charge of banking supervision.

In late June, Corpbank, then the country’s fourth largest lender, suffered a bank run that deprived it of liquidity. Corpbank was put under central bank administration and the BNB selected Deloitte, Ernst & Young Bulgaria, and AFA to carry out an audit. In October, the audit showed that poor classification and provisioning methods used by Corpbank had concealed the unsound quality of the majority of its assets. The three auditors have classified 63% of Corpbank's BGN6.66bn assets as impaired, based on the methodology of the International Accounting Standards (IAS 39), more than enough to push it into insolvency. On November 6, BNB revoked the operating licence of Corpbank after private investors and the government refused to take steps to plug the BGN3.75bn (€1.9bn) hole in the bank's capital.

The audit results were not a major surprise, because as early as July 11, BNB had announced the result of a 10-day review of Corpbank’s assets and liabilities, conducted by independent auditors. Back in July, BNB said that significant parts of the credit files for loans totalling BGN3.5bn were missing, representing 65% of Corpbank’s total lending portfolio of BGN5.4bn. Because of the insufficient information, the auditors advised that they were unable to assess the financial condition of these debtors and their ability to service the loans, as well as the availability and the quality of collateral. Hence, a final conclusion about the condition of this BGN3.5bn loan portfolio could not be made, the auditors said. BNB also claimed that there were indications that a significant part of these doubtful loans had been extended to related parties to Corpbank's majority owner Tsvetan Vassilev.

The payment of guaranteed deposits at Corpbank began on December 4 and some BGN3.5bn has been paid since then.

Against this background, the prosecutors have accused two KPMG auditors of not reporting to the central bank shortcomings in Corpbank’s activity that they found during their regular auditing of the bank. “These violations, found in the period 2009 – 2014, were not reflected in the audit reports for supervisory purposes, in accordance with the legislation”, said Bulgaria’s prosecutor’s office. In this way, the two KPMG auditors prevented the full use of BNB’s prudential supervision system, according to the prosecutors.

The head of Corpbank’s internal audit department is charged with neglecting her professional duties.

The senior official from BNB’s credit institutions supervision directorate is accused of not exercising the necessary supervision over the period May 2012 – June 2014.

The former BNB deputy governor is also charged with not performing his duties over the period November 2010 – June 2013. The prosecutors claim that in November 2010 the official was duly informed of many violations in the activity of Corpbank, but did not impose the supervisory measures envisaged by the law. He is the second deputy BNB governor to be charged over the Corpbank case.