Bulgaria's KTB Can Be Rescued, Experts Say

Finance | August 28, 2014, Thursday // 16:45|  views

The Expert Consultative Council on KTB, a Bulgarian business representatives' group, has proposed a list of measures to rescue the troubled lender without burden to taxpayers.

The Council was set by representatives of employers, unions and financiers in early August to propose a balanced solution for the future of Corporate Commercial Bank (KTB) and its wholly-owned subsidiary Victoria Bank.

Stating that direct losses for KTB’s clients and indirect losses for Bulgaria’s economy from tipping the banking group into insolvency will exceed by far the Council’s most pessimistic estimates of the cost of financial stabilization of the banks, the Council said it sees no irrefutable evidence for their imminent insolvency and believes they can be rescued and continue their operations.

“We firmly reject attempts to resolve KTB’s problems at the expense of taxpayer…The cost of a bailout could be covered using the bank’s own capital, accumulated reserves, provisions against losses set aside at KTB as well as funds belonging to bondholders and depositors not protected by the Law on Bank Deposits Guarantee,” the Council said in a memo carried by Bulgarian daily Trud on Thursday.

According to the Council, the Bulgarian National Bank (BNB), which has been running KTB directly since placing it under special supervision on June 20, has a multitude of options at its disposal to rescue Bulgaria’s fourth-biggest lender.

These options include asking KTB’s shareholders to increase its capital and boost liquidity without waiting for months for a precise estimate of the shortfall to be made.

“[…] if the required capital increase turns out to be insufficient, new higher requirements can be set later,” the Council said.

Another option is to propose to the state-run Deposit Insurance Fund or reliable financial institutions other than the KTB’s current shareholders to subscribe part of KTB’s capital increase.

Yet another option, the Council said, is to merge KTB into another bank that will be assigned the task of restructuring and rehabilitating KTB.

Extending a syndicated loan to cash-strapped KTB, including a government loan complant with EU state aid rules is also an option, said the Council.

Lashing out at BNB which has been repeatedly criticized by experts and the public for dragging its feet on KTB’s rescue, the Council stated: “Complaints that there isn’t enough money in the state budget and the Deposit Insurance Fund to fund KTB’s rehabilitation are not a reason for the regulator to stay idle.”

“The BNB owes a clear answer to the public which of these options it has used or intends to use. And if it has no intention to use its enormous power, the regualator should declare clearly and publicly the reasons for its refusal to do so.”

Published originally in Trud Daily in Sofia

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Tags: Bulgaria, KTB, Victoria Bank, Expert Consultative Council on KTB, Deposit Insurance Fund, rescue plan, Law on Bank Deposits Guarantee


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