On Wednesday, Bivol received on its editorial email a reply to questions sent to BNB regarding large exposures of FIB to offshore companies with unclear ownership and evidence of connected parties and draining of the Bank.

The text of our letter to BNB from November 26 reads:

“In the course of our journalistic investigation in public documents – entries for particular pledges in the Trade Registry – we found exposures of FIB in the amount of 259,151,650 euro (506 million levs) to companies with offshore property, suspected of connections with the bank.”

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

Loans in the amount of 57 million euro, which is more than 10% of the capital of FIB, have been granted to companies in which a direct connection can be found – they have a listed address that is the same as the one of FIB headquarters on 2 Enos Street in Sofia.

We politely request answers to the following questions:

– Are the described loans serviced regularly?

– Who are the end owners of the offshore companies that own the borrower companies and does BNB know this?

TOLEDO ASSOCIATES LIMITED (Virgin Islands) Spica CONSULTING LIMITED (Virgin Islands) BESSIAN MANAGEMENT LIMITED (Virgin Islands) ROZANKA GROUP LIMITED (Virgin Islands) HARMONY HOLDINGS LIMITED (Virgin Islands)

– Is there a request from FIB to BNB for special permission to increase FIB’s exposures to connected parties and if there is, to what connected parties?

– What is BNB’s comment on the fact that on June 14, 2014 (after receiving State aid) loans in the amount of 169 million euro (330 million levs) to the three companies suspected of connectivity to FIB have been renegotiated with a term July 20, 2022, right before their maturity?

We described loans and evidence of connectivity in an attachment, and they were subsequently published on the site.

The next day, November 27, we received on our editorial email a reply from Alexander Urumov, Head of BNB’s Public Relations Office, which read as follows:

“Thank you for submitting your questions, we will probe this.”

As can be seen from the response of BNB, no answers to the specific questions were provided as the central bank referred to company secrets. The letter ends with a threat of sanctions, similar to the one formulated by the Financial Supervision Commission.

Had the European Commission Examined All Activities of FIB?

The letter also claims that in addition to BNB, the European Commission has examined all the activities of FIB, including the 20 largest credit exposures in order to authorize State aid for the Bank.

Bivol send questions to the office of European Commissioner Margrethe Vestager asking whether the EC has checked FIB and received the following response from spokesperson Ricardo Cardoso:

“The Commission in November 2014 approved a restructuring plan for First Investment Bank (FIB) under EU state aid rules. http://europa.eu/rapid/press-release_IP-14-2124_en.htm

In particular, the Commission found that FIB’s restructuring plan will ensure that the bank continues to be viable in the long-term without unduly distorting competition in the Single Market.

The Commission has carried out the necessary analysis to conclude that all measures approved under its decision are in line with the 2013 Banking Communication and adequately protect the interests of the Bulgarian state.”

Bivol asked an additional question – whether the EC’s analysis was based on data and facts gathered by the Commission itself or on data and facts provided by the Bulgarian authorities. The answer was the following:

“The Commission carries out its assessment in line with the general rules of procedure as well as sector-specific rules, available at:http://ec.europa.eu/competition/state_aid/legislation/legislation.html

Regarding FIB in particular, a non-confidential version of the Decision, including the Commission’s assessment, will be available on its website at the following address in the near future, as soon as confidentiality issues have been cleared: http://ec.europa.eu/competition/elojade/isef/index.cfm (under case number SA.39854).”

At the time of the publication, the decision has not yet been published. Bivol asked for details of the plan of the Ministry of Finance and received the following comment from which it appears that FIB itself will decide what to hide:

Please be advised that currently there is no change in the status of the information from the European Commission’s Decision. There are three parties in this case and the disclosure of any element of the commitments before the disclosure of the public version of the decision could break the confidentiality of elements representing a trade secret. The bank is the addressee of the decision that is why it should define what a trade secret is and what is not.

The Plan FIB Is Drawn Up in Bulgaria

Bivol did not find in the cited documents rules and procedures for verification by the Commission itself of the “entire business” of the bank receiving State aid, “including the 20 largest credit exposures“, as claimed by the BNB. The rules stipulated that the Commission must be presented with a restructuring plan, prepared and submitted by the Ministry of Finance, while its timetable is audited and approved by BNB. The role of the Commission is to assess the plan provided by the Bulgarian institutions.

The issue whether the Commission has carried out an independent verification of data and facts about the credit exposures of FIB, or has only examined and assessed data provided by BNB and the Ministry of Finance is extremely important. Bivol asked this question again to BNB and will continue to ask until a definite answer is received:

Was there an independent review of FIB by the European Commission or did it only assess the data submitted by Bulgaria?

However, what will happen if these data are incomplete or worse – manipulated or false? A representative of the European Commission recently reminded at a conference in Sofia that FIB will be subject to monitoring for up to 5 years after the receipt of State aid and could be probed and sanctioned. The monitoring is done by a firm chosen by the EC and its purpose is to determine whether the “final aid is illegal”. If it turns out that this is the case, an investigation against FIB will be launched.

As demonstrated by the case with the collapse of the other private lender Corporate Commercial Bank (KTB or CCB), Bulgarian institutions cannot be considered a reliable source of information and supervision. Everyone remembers the press release from June 17, 2014, which reads verbatim:

“BNB has detailed current data about the entire banking system. Based on this information, BNB categorically confirms that the banking system, including CCB, has high liquidity and capital adequacy and is functioning normally.”

It turned out later that the capital of CCB was drained through fictitious companies and, as it is known now, the savings of thousands of Bulgarians and the money of many companies, institutions and municipalities in the currently closed bank melted away. The audit revealed draining under classical schemes with proxies and connected companies which went on for years “under the nose” of the central bank, and which was possibly helped by its inaction. Moreover, there is clear evidence that

Institutions and persons in charge of supervision have been informed and were aware of the existing schemes to drain CCB through lending to connected or fictitious companies.

These same schemes can be found in FIB and are detailed in the investigation of Bivol, of which BNB and the European Commission have been informed. BNB reassures today that everything is fine with loans to offshore companies. What about tomorrow?

 

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This post is also available in: Bulgarian