Bulgaria: How to Sink a Bank, Rob It and Get Away with It

By  Milena Hristova                             July 11, 2014


Things are suddenly moving quickly in Bulgaria.


The run on two of Bulgaria's largest banks made headlines around the world last week. The ubiquitous question was what caused the run? The ubiquitous verdict was that the central bank's response was tardy and inadequate.


A week later the only question that matters is:


Was Corporate Commercial Bank dramatic collapse a pure daylight robbery?


Bulgaria will strip Corporate Commercial Bank (CCB) of its license and alert prosecutors to possible malpractice at the lender, the central bank said in a keenly awaited statement on Friday.


The central bank said there was key information missing on loans worth 3.5 billion levs ($2.44 billion) and said that a significant part of the bank's loan portfolio was linked to parties related to its main shareholder.


It said top shareholder shareholder Tsvetan Vassilev took out 205 million levs from the bank in cash via a third party just before the state took control.


Shocking news, isn't it?


But was it unexpected?


As a journalist I can assure you that was not unexpected.


Even before the public spat between Tsvetan Vassilev, CCB's largest shareholder, and Delyan Peevski, a controversial businessman, before the run on the bank and the suspension of its operations on June 20th, journalistic investigations had made more than clear that:


  • Corporate Commercial Bank served as a tool for siphoning state funds, a bank, where large corruption schemes were implemented. The state had practically organized a brazen robbery through this private bank, while Tsvetan Vassilev and Delyan Peevski had brutally interfered – via CCB – into the state affairs, the politics of the state and the media.


  • Corporate Commercial Bank held 70% of the state-owned enterprises monies and this is just wrong. Firstly, this runs counter to economic logic and the principle of risk diversification. Secondly, let’s not forget that the state did not take the trouble to organize a competition so that all eligible banks can be allowed to bid before the governmental darling is selected.


  • There were grave concerns about how the private financial institution manages the money of the top state-owned enterprises, whether it wastes them through corruption schemes, how it buys media and forces journalists to fawn on the government.


  • The state money was also used for the privatization of state-owned companies (e.g. tobacco monopoly Bulgartabac).


  • It was a public secret that if the money of state-owned enterprises is withdrawn from the bank, it will be on the brink of collapse. The bank may not go bankrupt, but it will certainly become very poor.


  • The bank’s credit portfolio was very risky – CCB had financed a number of activities, which were not very profitable, without making a risk analysis and trying to minimize the risk.


The bank had spread its tentacles into commerce, tourism, media, real estate, industry, projects financed by EU funds. And all this thanks to the money deposited by the state-owned enterprises under unclear circumstances.


The expansion of the structures is believed to have flourished after the death of Bulgarian tycoon, founder and President of the Multigroup Corporation, Iliya Pavlov, who was shot dead in 2003. Once the doyen of Bulgarian organized crime, Multigrup’s prominence dramatically declined following the assassination of its leader.


CCB started to emerge as the favorite bank of Bulgaria’s government at the end of the term of the former king Simeon Saxe-Coburg (who was in office from 2001-2005), kept its status as the cabinet’s darling during the term of the Socialist-led three-way coalition government and reached its peak during the governing of GERB party.


If at the time of the three-way Socialist coalition (2005-2009) 40% of the state-owned enterprises money was deposited at CCB, the next Prime Minister Boyko Borisov pushed the percentage up to 70%.


This lacks any financial logic, is tantamount to the bank’s behind-the-scene nationalization and heralds the robbery that the central bank announced today.


Even more outrageous to me has been the silence of the central bank governor Ivan Iskrov throughout all these years. Why did the regulatory bodies refrain from interfering?


CCB main contractors are believed to be a number of Bulgarian oligarchs, with whom it maintained – apparently – close and warm ties. I guess we have no idea how many companies these oligarchs have privatized thanks to the money in CCB, what the oligarchs have mortgaged to get the credits and what will happen with these credits now that the bank has collapsed and is to be stripped of license.


This is what the prosecution is obliged to make clear.


And also – who are the masterminds of the shady commercial deals, who are the people hiding behind Tsvetan Vassilev?