EUROPEAN COMMISSION OPENS INFRINGEMENT PROCEEDINGS AGAINST BULGARIA OVER CORPBANK

On 25th of September, the European Commission announced that it was opening infringement proceedings against the Republic of Bulgaria for its failure to correctly transpose Articles 1(3) and 10(1) of Directive 94/19/EC (the Deposit Guarantee Scheme Directive) as well as its failure to comply with the principle of free movement of capital under Article 63 TFEU.

The Commission insists that depositors be given immediate access to the guaranteed amount of 100,000 euro.

The Directive identifies the steps in the procedure to allow the deposit guarantee fund to pay the claims of the depositors: the competent national authority to be satisfied that a deposit which is due and payable has not been paid by a credit institution; within five working days after this conclusion, the competent authority to determine whether the credit institution concerned appears to be unable to repay deposits which are due and payable and the deposit guarantee scheme must be in a position to pay duly verified claims of depositors within 20 working days after the determination by the competent authority.

Corporate Commercial Bank AD and Victoria EAD have been closed for clients since 20th and respectively 22nd of June.

Bulgaria has until 15th of October to respond to the EC’s letter of formal notice. If this does not happen, Bulgaria may be taken to European Court of Justice and be imposed to pay a fine. In principle, the Commission avoids initiating court procedures and first tries to bring the infringements to an end.

At the beginning of August, the Director General for “Internal Market and Services” DG at the European Commission, Jonathan Faull, sent a letter to the Deputy Governor of the Bulgarian National Bank (BNB), Kalin Hristov, and to the outgoing at that time Finance Minister, Petar Chobanov, addressing these issues which are now the motive for the opening of the infringement proceedings.

The letter mentioned an option of a possible partial repayment of deposits if “due to insufficiency of finances in the bank or in the deposit guarantee scheme” the customers cannot have full access to their deposits.

A week later, the interim Minister of Finance, Roumen Porozhanov, and the BNB Governor replied to the remarks and pointed that the Bulgarian legislation would be applied regarding the case and responded that repayment of guaranteed deposits was possible only when the bank’s license was revoked.

The reply also expresses the readiness to more adequately transpose the European rules and Directives in the Bulgarian laws, but explains that this at the time was not possible because the National Assembly was not functioning and any adoption of amendments to the national legislation would be impossible.

“In case the Bank Deposit Guarantee Fund repays the guaranteed amount of the deposits placed with a bank under special supervision while its financial situation is being reviewed, and with no decision reached for its insolvency yet, the bank may lose the larger part of its depositors, which would make its recovery pointless or impossible”, the letter said.

Corporate Commercial Bank AD was placed under special supervision on 20th of June and at a later stage the supervision period was extended unitl 20th of November. The special supervision for Commercial Bank Victoria EAD will be until 22th of November. The appointed conservators are expected to present a full report on the financial position of the two institutions. BNB said that a final decision should be made on the fate of the two banks between 1st and 20th of November. Meanwhile, the Omani Sovereign Wealth Fund, sent a letter to Bulgaria’s Central Bank to express its willingness to rescue CorpBank, but with the support of the state.

Several hours after the announcement of the European Commission, the Bulgarian Ministry of Finance published information to the media on its homepage in relation to the above issues. The full text of the information is available here.