The European Commission opened an infringement procedure against Bulgaria on Thursday (25 September) following the decision of two failed banks to deny clients access to deposits of up to €100,000, which are guaranteed under EU law.
According to a press release, the Commission is sending a letter of formal notice to Bulgaria, the first formal stage in infringement proceedings. Bulgaria has until 15 October to respond.
The problem concerns the Corporate Commercial Bank (CCB, also known as Corpbank), the fourth largest in the country, whose failure, last June, triggered the collapse of the Bulgarian government. Its smaller sister bank, Victoria EAD, is in a similar situation.
The Bulgarian deposit guarantee scheme is not paying out on claims by the two banks’ clients. Both have been closed since the second half of June, and depositors have not had access to their funds since. Angry customers claim that more than 6 billion leva (€3 billion) of their cash is locked up.
According to EU law, the deposit guarantee scheme must be in a position to pay duly verified claims of depositors within 20 working days after determination by the competent authority.
However, under Bulgarian law, the deposit guarantee scheme is authorised to pay the claims of depositors against a credit institution only if the central bank has revoked the banking licence of the institution concerned. The Directive contains no such requirement, as the unavailability of deposits is sufficient to activate the deposit guarantee scheme.
The Bulgarian authorities have reportedly told the Commission that if they honour deposits of up to €100.000, this would prohibit any further efforts to salvage the bank. The Bulgarian central bank has taken control of the failed banks.
Tzvetan Vassilev, the owner of CCB, has fled the country, and is at present under house arrest in Serbia. Vassilev claims he could salvage the bank with funds from Oman if he is given the chance. Few take him seriously.
According to various reports, Vassilev has used his bank as an instrument to control the political elite, the media and some of the most important economic players in the country. CCB has attracted a lot of funds from savers, by offering interest rates twice as high as its competitors’.
Ivan Iskrov, the governor of the Bulgarian National Bank, has been accused by many for failing to oversee CCB, and her sister bank Victoria, in spite of clear signs that aggressive interest rates were not sustainable.
Iskrov denies any wrongdoing, and says that the only way to re-open CCB is if its shareholders would “come with sacks of money” and fill the gap in the banks’s coffers. He mentioned the figure of 6.5 billion leva (€3.25 billion) as an appropriate amount to salvage the bank.
CCB and Victoria are under special supervision until the end of November. It is expected that by 20 October, the National Bank quaestors will submit a full report about the situation of the two banks.
Many commentators say CCB is a symbol of the mafia-type system in the country, and that the truth about it should be made plain to see.
Bulgaria will hold early elections on 5 October. Various analysts say that the political class will make sure that revelations about CCB are withheld until after the poll.