Angarski: Closing Down KTB Would Lead to Systemic Risk
The Expert Consultative Council on KTB has drafted a bailout plan for the bank that requires no use of public funds, a prominent Bulgarian economist and financier has said.
Krasimir Angarski said in an interview for Sofia-based Trud daily that Corporate Commercial Bank (KTB) can be rescued “…mainly by its shareholders and depositors not protected by the Law on Bank Deposits Guarantee.”
Additional sources of funding a bailout plan could come from “…what is left of the bank’s own capital as well as its reserves and provisions”, according to the plan drafted by the Expert Consultative Council on KTB, which has brought together Angarski and other financial experts alongside representatives of employers and trade unions.
The price investors and depositors at KTB would pay for the bank’s rescue would be considerably lower than the loss they would suffer if the bank was declared insolvent, said Angarski.
He also opined that merging KTB into another financial institution is an option that could be pursued only after the bank’s potential restructuring.
Asked whether depositors at KTB would be willing to join the bailout effort, he replied that they “…would prefer to have access to 50-60 percent of their funds initially rather than lose them all.”
“The remainder will be invested in tradeable financial instruments which their owners will be able to sell for a certain price. Everyone will prefer this option to having the bank closed down and its assets sold out. In that case, it is unclear who will receive what,” Angarski warned.
Making clear that Bulgaria’s central bank (BNB) hasn’t contacted the Expert Consultative Council on KTB about their plan, he said that the BNB could also form a broad consultative council comprising financial experts to propose other restructuring options for KTB. The central bank could then choose a plan and try to enact it.
According to Angarski, if Bulgaria closed down its fourth-largest bank, this will lead to systemic risk and deplete the entire Deposit Insurance Fund.
“This is why the bank must and can be saved,” he said.
Angarski, who took part in developing and introducing Bulgaria’s currency board system in 1997, said the BNB has tools at its disposal to help KTB as it is the lender of last resort for Bulgarian commercial banks under the system.
“In cases of systemic risk, it has the right to step in and is obliged to do it,”
Referring to a proposal to allow depositors at KTB partial access to their funds discussed by caretaker Finance Minister Rumen Porozhanov and senior BNB officials, Angarski said that “such ideas only go halfway and only can worsen the bank’s shape”
“This is not a general solution.[…] it would be incorrect to sell separate assets or repay selected customers amidst lack of a comprehensive rehabilitation programme for the bank," Angarski warned.
"The longer it is being kept closed with no work on a project for its rehabilitation, the stronger its paralysis gets.”
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