Moody's Investors Service said it has downgraded the long-term local- and foreign-currency deposit ratings of Bulgaria’s troubled Corporate Commercial Bank (Corpbank).

”The downgrade was prompted by the increased risk of losses to depositors given the uncertainty with regards to when they will regain access to their deposits and the authorities' plan to fully protect uninsured depositors; and the results of an independent audit commissioned by Bulgarian National Bank (BNB) which indicated that Corpbank may incur significant losses, resulting in a larger capital shortfall than previously anticipated,” the global ratings agency said in a statement on Tuesday.

Corpbank’s deposit ratings were lowered to Caa1 from B3. Moody’s also said it had left these ratings on review for further downgrade.

On June 20, the Bulgarian National Bank (BNB) placed Corpbank, also known as KTB by its Bulgarian acronym, under special supervision following a bank run that saw depositors withdraw more than one-fifth of total deposits in a week.

While the authorities had previously announced the bank will reopen for business on July 21, the BNB announced on July 15 that Corpbank may remain closed throughout the three-month supervision period, thus prolonging the period of the bank's deposit freeze.
Moody’s also noted that ”the continued uncertainty relating to the Bulgarian government's plan to fully protect uninsured depositors” was another reason for the downgrade.

The plan needs to be approved by approved by Parliament but “the political consensus required to enact the required legislation has yet to be reached”, Moody’s said. Under Bulgarian law, only deposits equivalent to up to 100,000 EUR in local banks are fully guaranteed by the state.

The rating agency also noted that the preliminary results of the audit commissioned by the BNB “indicate that Corpbank is likely to incur significant losses and, as a result, experience a larger capital shortfall than previously anticipated”.

“Moody's expects that as a result of these findings, there will be a larger capital shortfall than previously anticipated, stemming from significantly higher problem loan levels that the current reported NPL ratio of 1.1%,” it said.

It is unclear, however, how the authorities will be able to protect Corpbank’s uninsured depositors with the government of Prime Minister Plamen Oresharski having now resigned and Parliament awaiting to be dissolved to open the way for early elections.