Bulgaria's Ombudsman on Thursday urged the central bank to be more flexible in managing its restrictions on KTB bank to alleviate the plight of the bank’s clients.

In a letter to the Bulgarian National Bank (BNB) Konstantin Penchev said that the central bank could be “much more flexible rather than passively wait for six months” to move in defence of those who had put their money into Corporate Commercial Bank (KTB), believing that the BNB was strictly monitoring the stability of the nation’s banking system.

While the Law on Credit Institutions allows BNB to suspend in full all operations at a commercial bank facing the risk of insolvency for up to six months, it does not make mandatory this time period. According to Penchev, the same act allows BNB a faster-track approach with regard to a bank that has stopped payments for more than seven workdays, which could help KTB's clients regain access to their blocked accounts before the six-month period expires.

The BNB put KTB under special supervision on June 20 after a bank run that saw depositors withdraw more than one-fifth of total deposits in a week. KTB's payments and transactions were suspended.

Many accounts of Bulgarian and foreign nationals frozen at KTB contain their life’s savings, money from pension and salary payments, funds needed for medical treatment, student allowances or payments for property purchases.

According to Penchev, “there is a serious likelihood” that all those KTB clients affected by BNB’s "inaction" could win potential damage lawsuits “with damages to be repaid by all taxpayers”.

Under Bulgarian legislation, only deposits of up to EUR 100,000 are fully protected by the state in case of bank insolvency.

The BNB said last week that KTB will not open on September 21 as initially expected. The initial three-month period of special supervision by BNB will be extended beyond September 21 with the acting Deputy Governor in charge of the Banking Supervision Department Neli Kordovska due to submit to the BNB Board a proposal on the required extension of that period.

At the end of July the BNB effectively extended its control over KTB, saying it would seek an independent audit of the bank’s books, to be conducted in the time period until October 20.

Over the weekend  the European Commission warned the BNB to speed up the repayment of guaranteed deposits at KTB.

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