Audit Finds BGN 4.2 B Impairment Costs on KTB Balance Sheet, Bulgaria C. Bank Says

Business | October 22, 2014, Wednesday // 18:11
Bulgaria: Audit Finds BGN 4.2 B Impairment Costs on KTB Balance Sheet, Bulgaria C. Bank Says Angry depositors in KTB protest in front of the bank's HQ in Sofia, demanding access to their money blocked since June, 14 October 2014. Photo BGNES

Nearly two-thirds of the value of the assets of Corporate Commercial Bank (KTB) have to be wiped off due to KTB’s failure to stick to ‘prudent banking practices’, its auditors have concluded.

The auditors appointed by Bulgarian National Bank (BNB) have also concluded that just 13% of KTB’s loan portfolio had been covered by proper collateral, the BNB said in a statement on Wednesday.

The audit report on the state of Bulgaria’s fourth-largest lender, which was put under conservatorship by the BNB on June 20 following a deposits run, was prepared by AFA OOD, Deloitte Bulgaria OOD and Ernst & Young Audit OOD. The BNB discussed it on Tuesday.

According to the auditors, KTB had impairment costs of BGN 4.222 B on assets of BGN 6.662 B as of end-September, the BNB said.

“Wicked business practices unusual for the banking system” had been observed in the bank’s operations, the BNB said. They were carried out through complex schemes aimed at concealing the essence of deals and transactions, the central bank added.

An example of this is the specific way of lending for the purpose of acquisition of assets through "special purpose vehicles" and holding structures that has failed to meet the requirements of "standard and reliable banking practices".

According to the BNB statement, there was no control over the quality of assets placed as loan collateral as well as over the subsequent monitoring of the quality of those assets. “A considerable part of those assets placed as loan collateral have deficiencies or are non-existent which makes them unrecoverable,” the BNB said.

The audit report also points to “lack of control over the borrowers’ activities and the targeted use of the loans”, the BNB said, adding that “many renegotiations of loans were permitted without the necessary justification”.

According to the auditors, “the documentation in the loan files was not kept in a condition allowing the bank to manage the credits it had extended for the purpose of obtaining the economic benefits associated with them.”

The BNB also said it had asked the conservators to submit by 31 October 2014 the respective supervisory necessary for taking the respective decisions provided for in the Law on Credit Institutions.

Emilia Milanova, a former BNB Deputy Governor in charge of banking supervision, commented on BNR radio earlier on Wednesday that based on preliminary excerpts from the audit, it is expected KTB's banking licence to be revoked because the "loan impairment will be big enough."

The BNB also said that it will submit to Parliament a summary of the events and all decisions relating to KTB for the period of conservatorship on October 27, when the 43rd National Assembly elected on October 5 is scheduled to convene for its first session.

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Tags: KTB, Corporate Commercial Bank, Bulgarian National Bank, BNB, audit report
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