Sofia City Hall Seeks to Sell Municipal Bank StakeFinance | October 9, 2013, Wednesday // 14:27| views
The Municipal Council is a majority stakeholder with 73%, while the minority one is notorious businessman and energy mogul, Hristo Kovachki, whose stake now stands at 27%. File photo
Sofia municipality has voted for the sale of its majority stake in the Municipal Bank, a decision which must be conclusively confirmed on Thursday.
The Municipal Council is a majority stakeholder with 73%, while the minority one is notorious businessman and energy mogul, Hristo Kovachki, whose stake now stands at 27%.
An auditing report of Ernst & Young for the period from January 2010 and November 2011 showed that the Sofia Municipal Bank used to work completely in the interest of minority shareholder Kovachki, and the businessman siphoned money from it in order to fund his own political party, LIDER, which was created in 2009 but failed to gain much traction.
Over 20 firms connected with Kovachki got a total of BGN 26 M in credits; the total credit portfolio of the bank is BGN 370 M, and of those 12.5% were loans that were more than 90 days overdue.
The Bulgarian National Bank discovered this problem in 2007 and placed the Sofia Municipal Bank under supervision but the mismanagement continued over the next 5 years, according to the Head of the Bank's Supervisory Board, Stefan Nenov.
Another problem with Kovachki's involvement with the management of the Sofia bank is that the bank bought real estate properties from his companies at much higher prices.
According to the auditors, some of the bank executives were direct accomplices in the abuses. What is more, Kovachki's firms performed all outside services for the bank, which is why the Municipal Bank had some of the highest operational costs in Bulgaria.
Kovachki was in control of the Sofia Municipal Bank until November 2011 even though he had a minority share of 25%. This was ended when the Bulgarian National Bank intervened, and provided for changing the statutes of the Sofia Bank, allowing the Sofia Municipality to take over and appoint new management.
The City Hall lost their authority over the Bank, established in 1996, during the term of Mayor Stefan Sofiyanski.
In 2004, part of the shareholders were changed through the privatization of municipal companies; resale of their stake at the bank to other companies, and a change of the Bank code i.e. the 2/3 majority.
It became clear shortly after that that Kovachki's businesses have a blocking quota of 27%, which helped him take over control on the Bank, making the majority owner – Sofia City Hall a hostage of its own deposits.
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