SOFIA, March 12 (Reuters) - Bulgaria is planning urgent legal changes to protect creditors of Corporate Commercial Bank (Corpbank) and prevent the collapsed lender’s assets from being depleted through behind-the-scenes deals, officials said on Thursday.
Corpbank was hit by a run on deposits last June, which sparked Bulgaria’s worst financial crisis since the 1990s and shone a spotlight on the quality of its banking supervision.
The central bank stripped the country’s fourth-largest lender of its operating licence in November after an independent audit pointed to widespread failings in the way Corpbank was run, but an appeal against the decision has put on hold an insolvency case against the bank.
The delay enabled deals such as those done by large unsecured depositors who sold their deposits at a discount to loanholders who had secured their loans with collateral. The deals allowed creditors to recover at least some of their money and borrowers to protect their collateral.
The central bank, which became Corpbank’s supervisor after the bank run, has no power to stop such deals. The ruling GERB party, with the support of its allies and the opposition, wants to appoint a temporary receiver with legal powers to end the transactions until the insolvency case starts.
“To avoid plundering of the bank, we have agreed to propose legal changes which should be approved next Wednesday,” Prime Minister Boiko Borisov told reporters after a meeting that included all parliament’s political parties.
The head of the parliamentary budgetary commission Menda Stoyanova said the changes will fix a loophole in the current bank insolvency law.
“This period of ‘timelessness’, between the revocation of the licence and declaring of bankruptcy, allows the assets of the bank to decrease,” she told national radio.
The Corpbank crisis has strained Bulgaria’s finances at a time when the Balkan country was already struggling with weak economic growth and falling foreign investment.
The government became one of Corpbank’s biggest creditors after it paid out 1.6 billion levs ($870 million) to guaranteed depositors, pushing the fiscal deficit to 3.7 percent of GDP last year and forcing the government to raise new debt.
The independent audit published in November said that nearly two thirds of Corpbank’s assets had to be written off, leaving the bank with assets of around 2.6 billion levs. That figure dropped to 1.8 billion levs in the bank’s year-end report, mainly because of behind-the-scenes deals. ($1 = 1.8388 leva) (Editing by Matthias Williams and David Goodman)