The Bulgarian Central Bank (Bulgarian National Bank – BNB) is launching an emergency probe in First Investment Bank (FIB). This was announced Thursday through an official statement from the supervising banking authority, received on the editorial email of Bivol. The reasons for the probe that BNB has decided to launch is serious evidence and data that cause justifiable doubts of a drain in FIB by connected parties through offshore companies with non-transparent ownership.

Bulgarian companies owned by offshores have received huge loans from FIB. Facts that speak of inadmissible connection with the lending bank are cause for serious concern. According to preliminary evidence, there are doubts that the outstanding loans are in the amount of over half billion levs.

Bivol made its own research and calculated that currently known documents show that companies with offshore ownership and with doubts about being connected parties have expositions to FIB in the amount of 259,151,650 euros, or 506 million levs.

This amount represents 70% of the bank’s capital, which by September 30, 2014 was 719,679,000 levs.

Has the total amount of these loans reached 70% of the bank’s capital? If it is actually proven that suspicions of connectivity are legitimate and real, then this would be a drastic breach of the Lending Institutions Act. According to its express clauses, such exposition may not exceed 20% of the total capital of the bank. It would be fatal if such precedent turns out to be real, especially when related to a bank which must be strictly supervised for receiving aid by the State in the form of an injection of 1.2 billion levs from the budget.

It is symptomatic that the interest rates of these loans are significantly lower than common ones. They are agreed with 4% interest, compared to the normal average of over 7%, according to BNB data. The fact that the loans were renegotiated in July, i.e. after the granting of State aid to ensure the liquidity of FIB, should not be overlooked. Then this aid brought an end to the long lines of depositors at FIB branches, but could not prevent the gradual reduction of the total depository capital, which melted by about 400 million levs just in the last quarter.

The most recent annual accounting reports for 2013 show that the said companies have reported big losses, but at the same time they have lent in turn to their offshore owners. This resembles a classic draining scheme, similar to the one that has already been proven in the failed private lender – Corporate Commercial Bank (CCB or KTB).

1. Huge loans are granted to fictitious new companies, connected with the owners of FIB;
2. The companies operate at a loss;
3. The credited companies in turn grant loans to offshore owners;
4. Loans in FIB are not serviced, but are renegotiated for a long period in the future to hide from banking supervision that they are bad ones.

BNB has good reasons for its statement that a probe has been opened over our signals. DANS and the Prosecution must now do the same. Please follow future publications of Bivol to find out more about the specific information we submitted to BNB.

Between June and September, deposits in FIB have decreased by 373 levs, according to data of BNB

Update

After the publication of Bivol, Mr. Alexander Urumov, press officer of BNB, called our editorial office. In the conversation, he stated that BNB’s letter of response to us was not interpreted correctly and we have “misunderstood” his words that our evidence will be probed. For the moment we will refrain from quoting the entire conversation with the State servant, but it would definitely be interesting. Based on Mr. Urumov’s statements in his capacity of official representative of BNB, some media even announced that there will be no probe whatsoever over our signal. You can read the pinion of Bivol in the related article: Bulgarian Central Bank Panicked and Is Trying to Get Away with Being Held Responsible“.

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