{"id":43851,"date":"2018-12-03T10:32:16","date_gmt":"2018-12-03T08:32:16","guid":{"rendered":"https:\/\/bivol.bg\/?p=43851"},"modified":"2018-12-04T14:41:31","modified_gmt":"2018-12-04T12:41:31","slug":"2010-central-bank-report-reveals-serious-violations-in-unicredit-bulbank","status":"publish","type":"post","link":"https:\/\/bivol.bg\/en\/2010-central-bank-report-reveals-serious-violations-in-unicredit-bulbank.html","title":{"rendered":"2010 Central Bank Report Reveals Serious Violations in Unicredit Bulbank"},"content":{"rendered":"

About a year and a half ago, one of the largest banks in Europe – UniCredit<\/strong> – unprecedentedly increased its capital to offset huge deficits due to piled up to bad credit. The cost for the Bank’s shareholders was close to EUR 13 billion. UniCredit owns the largest Bulgarian bank at the moment – UniCredit Bulbank<\/strong>. Obviously, the same problems and flaws had accumulated for years in the regional structures of the Bank as well. The parent bank made several decisions to sell Bulbank’s non-repayable loan portfolios. The loans had been granted to different corporate clients, but they had been either unsecured or the collateral had been unsuitable to ensure their return. In the end, the loans have ended up being uncollectible and have had to be written off, i.e. the money has been appropriated by various Bulgarian companies that never repaid it.<\/p>\n

At the beginning of 2017, UniCredit sold to the Norwegian debt collection company DCA bad loans from its Bulgarian structure in the amount of EUR 93 million (here<\/a>), in November of that year – another EUR 84 million, and in late September 2018 – another EUR 249 million (here<\/a>) or a total of about EUR 430 million in the last two years. According to insider sources from banking circles, these serious for the Bulgarian market losses, have played a decisive role in the removal of Levon Hampartzoumian<\/a><\/strong>, the long-term Chairman of the Board of Directors and CEO of UniCredit Bulbank.<\/p>\n

A classified report of the \u201cSupervision\u201d inspectorate<\/strong> of the Bulgarian central bank (the Bulgarian National Bank, BNB), which leaked through Bivol\u2019s platform for anonymous sharing BalkanLeaks<\/strong> (see here<\/a>), reveals that UniCredit Bulbank’s corporate governance irregularities had not been a precedent, but a symptom for quite some time. The strategy of the Bank’s management is identified as problematic and a lack of adequate risk assessment has been established. Credit classification rules are circumvented by “manual data manipulation<\/strong>” for which it is not even known where it has come from. The inspectors conclude that “the level of credit and concentration risk is high<\/strong>“, although the Bank generally has a “good level and quality of capital”.<\/p>\n

The inspection had taken place at the end of February – the beginning of March 2010 under Order \u2116 RD22-0361 \/ February 17, 2010, <\/strong>of the BNB Deputy Governor in charge of the \u201cBanking Supervision\u201d Department. An analysis and evaluation of the Bank’s systems for credit risk management as well as the adequacy of its capital have been carried out. The implementation of recommendations from a previous inspection (from September 30, 2009) has also been assessed and out of six recommendations three have not been fulfilled, one had been partially implemented and two have been considered fulfilled.<\/p>\n

One of the unfulfilled recommendations refers to “manual manipulation,” making it clear that the Risk Exposure and Restructuring Committee exists only pro forma and is not involved in asset quality and credit restructuring.<\/p>\n

Who decides which credits are good and which bad is not quite clear, but it from the recommendations, it can be concluded that these important powers have been seized by the Credit Board and the Credit Committee of the Bank. The recommendations are summarized in three points:<\/p>\n

    \n
  1. Remove violations from the regulatory framework.<\/em><\/li>\n
  2. End the practice of the Credit Board and the Credit Committee of the Bank making decisions on the reclassification of risk exposures as only the Exposure and Restructuring Committee has this power.<\/em><\/li>\n
  3. The \u201cInternal Control\u201d unit of the Bank to perform a current, independent review of the Bank’s loan portfolio for compliance with the classification group and the days of overdue risk exposures, thus assessing the risk management systems and the reliability of the supervisory reports.<\/em><\/li>\n<\/ol>\n

    Special attention is paid to so-called bridge loans<\/strong> amounting to BGN 283 million. Although they are not a very large part of the corporate loan portfolio of BGN 5.4 billion, they are of considerable size and a cause for concern<\/strong>. These are credits for construction projects that have apparently been hit by the 2008-2009 crisis and companies have failed to implement these projects. The problem had not been solved, compared to the previous 2009 inspection which recommended to the Bank “to undertake measures and to assess the losses, as well as to prepare a detailed, realistic action plan with different scenarios<\/em>.” Inspectors have established loans in the amount of BGN 111,486,000 granted to specific firms listed in tables as “bearing a higher risk, thus they should be reclassified to a higher risk group<\/em>.”<\/p>\n

    After reviewing a portion of the Bank’s risk exposures, the inspectors have formed the opinion that the following borrowers from 2010 require increased attention and should be subject to assessment for potential losses. One of the biggest clients considered to be a risk is the controlled by Vasil \u201cThe Skull\u201d Bozhkov<\/strong> large construction companies \u2013 \u201cHolding Patishta\u201d (Roads) and\u201d Most Story\u201d with a total of BGN 49.32 million. As it is now known, several years later, the companies went bankrupt and their business was bought out by Tseko Minev, one of the two majority shareholders in First Investment Bank (FIB or Fibank). Even then, there were reasonable doubts that the bankruptcies were intentional, so it is unlikely that the unsecured loans of Bozhkov\u2019s companies to UniCredit Bulbank have been repaid.<\/p>\n

    Much better than FIB and Corporate Commercial Bank (CCB)<\/strong><\/p>\n

    The conclusions in the UniCredit Bulbank report are, however, much more optimistic than in a similar 2011 report on FIB that Bivol published two years ago (see here<\/a>, here<\/a>, here<\/a> and here<\/a>). Inspectors from \u201cBanking Supervisors\u201d then found that FIB did not have enough capital<\/strong>, but had enormous bad loans<\/strong> that it was trying to conceal with different accounting tricks<\/strong> and fool the BNB.<\/p>\n

    On the contrary, UniCredit has a \u201cgood level and quality of capital\u201d, according to the inspectors, although they indicate \u201ca potential opportunity for the capital to be adversely affected in subsequent reporting periods, given the inadequately assessed credit risk\u201d. In addition, the Bank can rely on capital support when needed from the parent bank.<\/p>\n

    One of the things not established in UniCredit Bulbank is the concentration of loans to connected parties and persons gravitating around the Bank’s owners<\/strong>. The UniCredit report lacks the term “connected persons” at all. However, there is an exposure to entities and people linked to FIB – loans to \u201cNadin Group\u201d, which are listed in the “Under Monitoring” category. This same group is associated with the purchase of the remains of the obsolete \u201cKremikovtsi\u201d metallurgical giant. In a number of its investigations, Bivol revealed the links between \u201cNadine Group\u201d and FIB. These companies were listed as large debtors to the National Revenue Agency (NRA), and after 2012 they were hit by the Main Directorate for Combatting Organized Crime (GDBOP) and the Specialized Prosecutor’s Office with accusations of particularly large-scale tax fraud. The links with FIB, however, led to one to the other FIB majority shareholder – Ivaylo Mutafchiev and a network of Cypriot offshore companies around Evdokiya Makalamuzi and the notorious Georgios Georgiou, again revealed by Bivol, as \u201cproxy\u201d owners of the business of the FIB bankers (see here<\/a>).<\/p>\n

    In addition, the UniCredit report has not established exposures to offshore companies that abound in FIB.<\/p>\n

    UniCredit also appears to be in a much better condition in 2010 than CCB, which collapsed in 2014. This can be inferred from a comparison with a similar to the UniCredit report on CCB, published by the KTBFiles<\/a>.<\/p>\n

    BNB: The report is secret, UniCredit keeps silent<\/strong><\/p>\n

    Bivol sent a copy of its own report to the BNB with the following questions:<\/p>\n