site.btaAuditors' Report Sets Corpbank's Capital Hole at Lv 4,222 Mln

Auditors' Report Sets Corpbank's Capital Hole at Lv 4,222 Mln

Sofia, October 22 (BTA) - Corpbank's assets totalled 6,896
million leva by June 30, 2014 and to 6,662 million leva by
September 30, 2014, according to information published on the
Internet site of the Bulgarian National Bank (BNB) on Wednesday.

Between August 5 and October 20, 2014, three auditor firms:
Ernst & Young Audit OOD, Deloitte Bulgaria OOD and AFA OOD,
analyzed and valued Corpbank's principal balance-sheet items
(credit portfolio, investment portfolio: bonds and shares,
securities, other assets, immovable properties: land and
buildings) and bank guarantees issued by the bank. The auditors
concluded that the need of impairment of the bank's assets
stands at 4,222 million leva. The valuation is based on the
assets and bank guarantees recorded in the bank's registers by
June 30, 2014 and all material events affecting the analysis
that occurred until September 30, 2014.

The analysis and valuation were carried out presuming that the
bank will continue to exist as a going concern. The methods and
techniques employed to arrive at and calculate the necessary
impairment of the credit portfolio are based on the
International Financial Reporting Standards and on the good
practices applied by the European Central Bank.

Corpbank (officially Corporate Commercial Bank) suspended all
operations on June 20 after a run by depositors left it
illiquid, and on the same day the BNB placed it under special
supervision for a maximum of six months to allow a thorough
audit and possible restructuring.

The auditors concluded that the bank's management did not adhere
 to prudent and conservative banking practices. Loan applicants
were not subjected to an in-depth investigation, and business
plans and estimates regarding the projects for which financing
was sought were not fully analyzed. The creation and current
monitoring of collaterals contracted were not properly
controlled. A substantial part of the collaterals were either
created defectively or are non-existent, which makes foreclosure
 on them impossible. Just 13 per cent of the bank's credit
portfolio is covered by valid collaterals.

Borrowers' activity and the spending of the proceeds from the
loans extended for the intended purpose were not subjected to
current monitoring and control. A number of loans were
renegotiated without proper justification, the report concludes.

Documents in the credit files were not maintained in a state
enabling the bank to manage its receivables so as to obtain due
economic benefits from it. The bank engaged in vicious business
practices through complicated operations intended to disguise
the true nature of transactions, e.g. a peculiar manner of
loan-financing intermediated by "special purpose companies,
holdings and other such, in order to finance and acquire assets,
 which does not conform to standard and reliable banking
practices.

Before Corpbank was placed under special supervision, its
management presented unreliable and misleading financial and
supervisory reports to the BNB Banking Supervision Department,
according to the auditors' report.

For all these reasons, the BNB is referring the auditors'
reports to the Sofia City Prosecution Office.

BNB Governor Ivan Iskrov has given Corpbank's conservators until
 October 31, 2014 to present to the central bank the relevant
supervisory reports that are necessary for taking the decisions
provided for in the Credit Institutions Act. "Other options,
including restructuring and/or rehabilitation of Corpbank, are
possible if the National Assembly, acting within its legislative
 powers, finds it pertinent and promptly amends and supplements
the legislation in force, including with regard to the provision
 of financial resources," the central bank points out.

To help the MPs make an informed decision on the Corpbank case,
on October 27, 2014 the BNB Governing Council will submit to the
 National Assembly summary information on the events and all BNB
 decisions adopted in respect of the Corpbank group since June
20, 2014.